Seanad Éireann debate -
Thursday, 24 Jul 1975

Vol. 82 No. 9

Finance (No. 2) Bill, 1975 (Certified Money Bill): Second Stage.

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

Parliamentary Secretary to the Minister for Education and the Minister for Industry and Commerce (Mr. Bruton) (for the Minister for Finance)

The Finance (No. 2) Bill, 1975, is designed to give statutory effect to the taxation proposals in regard to the income tax surcharge and value-added tax reliefs which were the subject of Financial Resolutions passed by Dáil Éireann on 26th June, 1975, and which I referred to in my speech in this House on the Second Stage of the Appropriation Bill, 1975, earlier this month.

Section 1, which relates to the income tax surcharge, provides that for 1975-76 the rates of income taxation of 35 per cent and upwards shall each be increased by 10 per cent in the case of tax payable by individuals. Consequential amendments to the Income Tax Act, 1967, are also provided for in the section.

Section 2, together with the Schedule to the Bill, provides for complete relief from VAT, by means of the application of the zero rate, as from 1st July last, for personal clothing and clothing materials, footwear and footwear materials, electricity and fuels generally other than oil used in road vehicles.

The other sections of the Bill are of a routine nature. Section 3 is the usual care and management provision and Section 4 provides for the short title, construction and commencement of the Act.

I commend the Bill to the House for a Second Reading.

Mr. Lenihan

This Bill reflects another stage in the downward track of the present Government's handling of the economy. I was interested to read the Taoiseach's speech in the Dáil yesterday on this matter when he referred back to the January budget. I thought the nomenclature was rather significant. There was a time when we referred to budgets as annual matters. One referred to the 1965 budget or the 1975 budget or the 1974 budget. We had the Taoiseach yesterday in the Dáil talking about the January budget. We have here the July budget and apparently we are also going to have an October budget if the social welfare and other commitments made in regard to the July budget and, in particular, the January budget, are going to be met. Then presumably we will have to have the December or January budget to deal with the problems of the early months of 1976, and we will probably have an April or May budget.

When is the rake's progress going to stop? There has been no clear intimation yet from the Taoiseach or the Minister for Finance or any Government spokesman as to when we are going to have the next budget. Has any thought been given to it or will there be an explanation conveyed to the people that will make apparent what exactly our financial situation is as of now in regard to the fundamental areas of the budget deficit and our capacity to meet budget deficits, the balance of payments, situation in regard to exports, particularly industrial exports, and the downward trend that is now evident with regard to industrial exports?

The situation in regard to unemployment is self-evident, unfortunately. Will the pay-related benefits that will be falling due after nine months in September or October be financed continually, to a large extent, out of employer contributions? Can employers pay for an extension of the pay-related benefit scheme? Is the employment premium scheme in any way going to help that basic situation?

I take the view that giving grants in the way of premiums, as they are called in the Bill, to help certain employers to give employment is a negative approach to this matter. A far more positive approach would be by way of cutting employers' costs and overheads, giving tax incentives, rather than giving grants under the employment premium scheme that are likely to be abused if put into operation at all. You have there a whole panoply of trouble as far as the future development, in a practical way, of the economy is concerned.

It seems to me quite unreal to be advocating, on the one hand, grants to employers for taking on employees and, on the other hand, taxing employers in the sense of asking them to continue paying pay-related benefit indefinitely and to continue paying income tax indefinitely at an undue rate in regard to the employment they give. You cannot have your cake and eat it. I would like to see the Government taking a positive policy direction in regard to industry and employment, and the way to proceed in this direction is surely by way of incentive towards enterprise, be it enterprise at investment level or enterprise at employee level.

It is only through an injection by way of positive reliefs to encourage employment at employer and employee level that the economy can be lifted off the ground. The economy will not be lifted off the ground by handing out grants to employers to take on men who have been made redundant. That, in my view, because of the drag on the Exchequer, is negative while at the same time you have a burden of taxation on the very same employer through various forms of social welfare contributions, in particular, pay-related benefit, and through income tax bearing, as it does, on industrial employers.

In this Bill there is a niggardly attempt to cope with a situation that has got out of hand. I am not going to go back on the various ways in which the Government were advised by us over the past 18 months on how the situation could have been put in hands. That is water under the bridge. I am not going to engage in any sterile debates of that kind. What I am saying is that now the job can be tackled and it will not be tackled by gimmickry. There is no point in bringing in a measure of this kind that is only designed, to quote what the Taoiseach said in the Dáil yesterday, to cope with the consumer price index. It is horrifying that the Leader of the country should regard himself as being subservient to the consumer price index. I quote from column 1, page 8 of The Irish Times this morning, July 24th:

Because of continuing insistence on using the CPI, inclusive of tax on luxury items, as a wage index, the public service wage bill has been shoved up by £9 million.

I will omit the following sentence. I can assure the House it is not relevant. He says:

In the absence of agreement to detax the CPI for income assessment purposes, the Government was obliged, albeit reluctantly, to increase income-tax rates to provide the revenue for essential expenditures. Demanding total compensation for taxation created a viscious circle, which we could not allow continue if we were to bring our alarming rate of inflation under control.

The Leader of this country, responsible for the overall economic management of the community, declares there that he is the creature of the consumer price index. But surely that is irrelevant. Surely we are not engaged there in a game of cosmetics with the trade union movement or with anybody else who may quote the consumer price index. Surely that is not what leadership is about or management of the economy is about. We must not become complete slaves of the consumer price index, which everybody agrees has flaws in it. That is why we have income tax here—the particular surcharge of 10 per cent on income tax, upwards from a certain rate of pay—because the Government was obliged, albeit reluctantly, to take cognisance of the consumer price index figure.

I am trying to be realistic, but that sort of language is totally unrealistic. The language of Government and the language of leadership should not imply that you, albeit reluctantly, have to change policies, adapt policies, adopt policies, introduce legislation because of the consumer price index number. If the consumer price index number was so vital in the Government's mind, petrol would not have been increased last December, and in the January budget; spirits, beer and cigarettes would not have been increased. If the consumer price index number was still in the Government's mind, the pay agreement of April of this year would not have been looked at in the benign and removed fashion in which it was looked at, and the Government would not have been forced into the situation of finally waking up to the realities in June of this year.

These are plain unpalatable facts. There is no point in talking now about consumer price index number motivating the leadership of the country in the handling of our economy. That is a cosmetic side show designed to ensure that this particular Bill that we have before us will in some way motivate the Labour Party in Government to motivate the trade union leadership to motivate their members to accept a withdrawal from the pay agreement wrongly entered into in April of this year, now seeking to be reneged upon, all in the interests of the consumer price index number, vastly enhanced by deliberate Government policy in the December budget and the January budget.

Again in the first column, page 8, of The Irish Times the Taoiseach refers to the January budget continually. He does not refer to the December budget that also put up the consumer price index number, and now we have the June/July budget. This is a classical case of the dog or the cat going around in circles chasing his own tail. At this stage the country is not interested in cosmetics. The country is not interested in reducing an inflation rate from 25 per cent to 21 per cent and not interested in a vast charade of exchange of views in order to achieve that.

The National Economic and Social Council was there at an early stage to give the right advice, and did give the right advice to the Minister. The right advice was quite simply the very practical, old-fashioned advice of facing up to realities. Where were the realities in the Government's mind as of April of this year, when the pay agreement was concluded? The national pay agreement system is an admirable one. I am very proud to have been a member of the Government associated with its initiation, in conjunction with the trade union movement, and I would hope that, despite the blow that it has recently been dealt it will be a continuing factor in our economic life. From social and economic points of view I do not have to elaborate on the importance of having a stable incomes increase system, a voluntary arrangement between the social partners in our community. It is so obviously a beneficial way to handle things. This is what we thought in 1970 when we were party to its initiation, and its merits do not have to be argued. But what is disturbing, apart from the erosion of our currency and the erosion of our standard of living, is the erosion of the principle of freely-entered into bargains as to pay awards across the board in our community. Between April and June, two short months, we have a large part of a bargain freely entered into withdrawn.

I can understand the economic compulsions involved in the Government having to take that decision and the reason for this Finance Bill, but I do not understand the thinking of democratically elected people who are charged with the basic responsibility of managing the economy and who, as the major employer in the State—apart from their own function as the guardian of the interests and welfare of the community—enter into and are a party to a pay agreement in April that is seen in June to be fruitless, nugatory and because of inflation not worth while. I would regard the pay agreement as being sacrosanct, and that was the thinking on which the trade union movement, the Government and the employers entered into this whole area in 1970, that it would be regarded as a two-year agreement looking ahead into the future with annual checks for various modifications within the overall scheme. The original thinking in 1970 of course was that you could plan at least for a year ahead. The thinking now is that you plan for a month ahead, and it is the erosion and the damage that is being done to the whole system of voluntary pay agreements by the Government's recent stand that I abhor.

Surely the Government and the trade union movement will in the future enter into pay agreements with some degree of circumspection and attention to the basic economic facts of life. I would hope that the employers similarly would enter into pay agreements with that attitude in mind. It would be preferable by far that we have one big stand-up row on a pay agreement and have a real disagreement on the issue rather than enter a pay agreement situation in a blasé manner one month and two months later seek to renege on the pay agreement entered into.

What is now being sought to be done under this Bill is to patch up the sort of situation I have just spoken about. It is very much a kind of closing the stable door after the horse has bolted situation. The Government are trying furiously now to rectify the situation by trying to cover up the fact that the stable door was not open in time, and trying to convey the fact that there is a horse inside when there is not.

We have got an official compiling of the consumer price index figure which really dictates the game and decides what pace is to be set, because alcohol, cigarettes and tobacco are part of the consumer price index. I happen to be one of the people who think that drink, cigarettes and tobacco could bear more taxation, but one cannot touch those items because the consumer price index is sacrosanct. Trade unions and employers and everybody else must, in negotiating pay increases have regard to the consumer price index. One can induce an artificial reduction in inflation by reducing the consumer price index. The Government taxed beer, cigarettes and petrol in January and December, but they are not taxing them this time because that would increase the consumer price index. Therefore one can artificially reduce inflation from 25 per cent to 21 per cent and say, "Hey presto! Inflation is going down by four per cent". Will not the little boys from the various trade unions in the country—the trade union leaders—trot in and say, "Hey presto! The Government have reduced the cost of living and reduced inflation by 4 per cent because they have not interfered with the cost of living". This increase in the consumer price index number is not the cost of living increase because the equation between the consumer price index and the cost of living is not really the situation, and everybody knows that is so. But the Taoiseach is slave to the CPI, to use the new in-phrase in the Taoiseach's speech. For short I will use it any more and we can remember it. It is the new in-phrase in regard to inflation and who dictates the play of the game in the Irish economy and in Irish society. The CPI is now the boss.

Because the CPI is the boss and really dictates the show, and because one can artifically reduce the CPI from 25 per cent to 21, then the trade union leaders of course if they agree to it, despite warnings from their members, are being given an "out" by a reduction of the CPI, and the main way in which the CPI is being reduced artificially and cosmetically from 25 per cent to 21 per cent is by not including any tax in the June-July budget on beer, cigarettes and petrol in the hope of securing a withdrawal from an agreement entered into in April. It is months we are talking about now, not years, and in that context the Government hope to secure the withdrawal during August and, by reason of that, then, to bring in the appropriate budgetary taxes on the CPI items in October and, of course, December or January depending on the monthly mood.

We have here in this Bill before us a cosmetic performance. I dealt with the first cosmetic performance because I am quoting deliberately and positively from the Taoiseach who says with his hand on his breast how sorry he is that, in the absence of agreement to detax the CPI for income assessment purposes the Government is obliged reluctantly to increase income tax rates to provide the revenue for essential expenditures. In the unfortunate situation of being governed by the CPI, the Taoiseach decides not to detax the CPI and instead to introduce section 1 and increase income tax by 10 per cent over a certain level. That is the explanation of section 1.

I do not think I have unduly wronged the Taoiseach. I think I have correctly quoted him. He at least is an honest man. At the Fine Gael Ard-Fheis earlier this year he was the first man to fire a warning shot. Fortunately he can control the troops, because he said that our inflation was largely caused by domestic sources. He fired the first warning shot across the bows of a rampaging irresponsible Government of which he is Leader. It is a rather secretive kind of leadership of which we have seen visual signs on occasion. Why the warning shot should have been fired across the bows in the public gaze, at the Ard-Fheis, and for the benefit of the media and not fired at Government meetings defies my understanding. His performance does not measure up to what he is saying but at least one can quote from his consistency in that he is saying the right thing.

Section 2, in an inflationary situation, is unreal. I have checked this out. It is the removal of VAT from clothing, footwear, electricity, and fuel. That type of subsidy, at very serious cost to the Exchequer, is of no help in my view in an inflationary situation. The purveyors at all levels, from the manufacturer at production level right through the distributor and finally the retail level, will look after that themselves in their own way in an inflationary position. This has happened before when some years ago the Coalition Government, to the detriment of the Exchequer, did the same thing in regard to food. They harmed the Exchequer and put an albatross around their own necks in that respect. They did not reduce the cost of living on the food items concerned. The same situation will arise here.

Here again, there is a situation designed for cosmetics. The cosmetics in regard to section 1 relate to the non-taxation of beer, wines, spirits, tobacco and petrol. The cosmetics in regard to section 2 arise from making an attempt to persuade the trade union movement that the cost of living will be improved by a certain percentage by reason of the removal of VAT from these items. It is all part of a massive confidence trick designed to persuade the trade union movement to renege on the agreement which they entered into freely on behalf of their members, with the Government and with the employers, last April.

Sufficient for the day is the evil thereof: if it gets the trade union movement out of a hole in which they find themselves in the month of July, if it gets the Government out of the hole in which they find themselves in the month of July, may be August will not be a wicked month—perhaps something will happen in August: perhaps we can come back here in September and October and put a better face on matters.

It will not be like that. All the economic experts—I do not like purveying suggestions that may indicate that things will not go well—and the recent report from the European Commission, to hand in the past two days, bear out a very factual statement on our economic position. It will be 18 months before we get the ship right. We can get the ship right if we follow proper budgetary policy, if we have a reasonable deficit on our budgetary account, not a £241 million deficit looming up—probably £300 million by the end of the year.

If we have a reasonable situation in regard to our balance of payments, things will work out right. I agree there must be a deficit running there as well but provided there is a reasonable degree of inflation—there must be some inflation in the present world situation but not 25 per cent; bring it back to 10 per cent: most of our partners in the EEC are bringing it down to about 6 per cent —we will be in a situation to put the economy back on the right road.

The most interesting factor emerging from the Commission report is the serious view being taken of the proportion of foreign borrowing on which this Government were increasingly dependent at the time. This is another warning signal. The Government cannot continue at the rate of progress of a £250 million or £300 million budget deficit accounting indefinitely. They cannot continue with the 25 per cent or 26 per cent inflation rate, cut down to 21 per cent for cosmetic purposes. That will not wash. It will not do to be so dependent on foreign borrowing.

The Minister for Finance is going helter-skelter around the world seeking foreign credit. I do not remember any other Finance Minister having to travel from Iran to take in the EEC countries and Britain and Switzerland as well. No other Minister for Finance was forced into a situation like this. Those to whom he is talking are by no means fools, in case anybody here thinks they are. They will look at the economy before they decide on any credit to prop up the faltering budgetary situation.

We have had no indication yet from the Minister for Finance as to how the current and mounting budget deficit, officially estimated at £241 million—I would think it will emerge by next month at £300 million—is to be met. Where will the foreign borrowing be obtained from? Will it be EEC credit or Arabian Gulf States' credit or Iranian credit? It will not be got from the overloaded Irish public. The Irish banking system cannot yield that amount of money.

How will it be sold to those people? How can we prove that we are to be trusted in the present situation? This is the sort of area into which the Government have walked themselves. There are various basic measuring rods that I have mentioned that any banker will adopt. The Gulf States and Iran all have advisers in the money market in London from which we have been told to sever ourselves. Basically, it is the money market in London and the institutional advisers in the money market in London that will tell these States in the Middle East where their money should go and how it will be recycled. There is no point in talking about totally irrelevant peripheral issues of nice, esoteric, academic, parlour-pink discussion items such as breaking the link with sterling in this situation. Breaking the link with sterling is no way to talk to the Arabs who have all their money in sterling and in the market in London. They are the people from whom we are seeking the money, who we wish would recycle money to us.

It is the sterling market advisers in the institutions of London who will advise the Arab states how, where and when and in what manner to recycle Arab money into whatever European countries these advisers think fit the money should be utilised. That is a basic economic fact of life. There is no point in talking about tinkering with that machine—that is the way the machine works. It happens ironically in the present daft situation into which the Government have got themselves, where they have to get international credits and international loans to finance deficit situations which they have created, that it is an advantage for us, and it is a poor sort of advantage in this day and age—I should like to break the link with sterling in a time of stability and progress—to have links with sterling and to have links with the London money market because of international connections, for the simple reason that the Arabs have invested their finances in the London money market.

That is where the money is and that is where the money has to be recycled. It will not be got by any trips to the Persian Gulf or elsewhere. It will be got by proving our credibility with the hard financial advisers in London whom the Arab states have employed to assess, on very strict banking criteria, where and how and in what manner they should invest both in the private and public sense. In the public sense we will be looked at on criteria that are not cosmetic. Cosmetic criteria are all right for the lads. They are all right to get the trade union leaders in and persuade them that because artificially the CPI has been reduced from 25 to 21, because the CPI says the rate of inflation is now 21 instead of 25, "you boys will forego your rightfully secured pay awards."

That is all right for internal consumption. That is not the sort of thing that will influence the financial advisers to the Arab states on whom this Government are dependent to secure the required finance to remedy their budget deficit. They will look at the state of our economy in a very hard-nosed manner, and cosmetics will not work. They will look on us strictly on the criteria. I have mentioned—the rate of inflation, the budget deficit position, the balance of payments position, the other criteria relating to the drop in retail sales, relating to the drop in industrial exports.

All of these factors will be taken into account by the hard-nosed advisers to the Arab world who now control the sterling finances basically because the Arab moneys have been converted to sterling. Those people are going to decide whether this Government are to survive.

From the point of view of the country, I hope as a reprieve that the required finances will be secured. I am talking in the country's interest now, I do not care who is in charge of Government. I hope the finances are secured. But the Government have put this country into the very serious position of going with a very weak bargaining hand to secure the finance. They are in a situation where one is going to the bank manager on an ad misericordium basis with open hands saying “Please give me a last chance”.

It is that type of situation into which this Government have pushed this country. I hope, from the point of view of the country, that the last chance argument will work. I hope that the persuasiveness of the Minister for Finance and the Minister for Foreign Affairs who can help in this area as well, works. I hope that the recognition of the basic strength of our economy is acknowledged by the people who will be delivering finance to deal with the situation in which the present Government find themselves.

I am talking now totally apart from politics and I am going to finish on this basis. I hope very seriously and sincerely that what is recognised by people who have finance to invest in this country, whether in the private area or the public area—to the Government or in the way of private investment—is that there is a basic strength in our economy, rooted as it is in agriculture and in the industries stemming from it. This gives us a tremendous position of strength in the world in which we live today where food resources are diminishing and where there will be an escalating demand for food. That fundamental area of strength resides within our economy and makes us, in my view, a viable long-term proposition for any investment, be it private or public, be it directly through private enterprise or directly through the Government. There is no question about that.

I hope that foreign investors, whether through IDA activity or through direct Government activity in the way of investing in Government bonds or credits, will recognise fully, despite the mismanagement, the rake's progress, of the past two years, the petty attempts at cosmetics and patching up, that this thing is so basically superficial that it would be regarded as such by foreign investors and that they will see the present Government as essentially birds of passage who have made a small scribble or a small bit of graffiti on what is basically a sound structure; that the sound structure of our economy will survive despite any scratches or despite any petty graffiti that may be written on it and may give a cosmetically damaging appearance to it in terms of international credit.

I hope those people will recognise that the fundamental structure of our economy is sound and that it cannot afford to be damaged or mismanaged indefinitely and that our credit basically abroad will be maintained. I hope, from the point of view of the country that the Government have been given a fool's pardon in that regard. Again it is a last chance.

I hope those people look at it in that way, that this is the last chance that will be given to a Government seeking help to remedy their own blunders and failures and that on the basis of giving them a last chance and on the basis of the fundamental underlying soundness of the structure, the economy and the country will get out of the appalling mess in which we find ourselves. I will finish on that note because I take no joy out of talking in a debate of this kind. I will certainly take no joy out of talking in a similar debate in October, and a similar debate in December, a similar debate in February-March. I feel it is time for the Government to go. A lot of people are saying this. As I say, I enjoy being in Opposition but I am afraid that in order to restore credibility to the State and to the nation it is time for this Government quietly to pack up the tent and steal away in the night.

Mr. Halligan

It is only those who are either wrecklessly partisan or pitifully stupid who would deny the seriousness of the current world situation. One can take one's choice as to which attribute we should use to label the various contributions which undoubtedly will be heard during the course of this debate from the opposite side. I am not one of those who when on a Government side yields the right to exercise one's critical faculties and publicly state one's disagreement with the Government. On the past two Finance Bills subsequent to the 1974 and 1975 budgets I said, and it is a matter for the record, that I regarded the official forecasts of the Department of Finance and indeed by implication also of the Central Bank as being too sanguine about the future prospects of the Irish economy. Dismal and all as they might have appeared they were in fact bearing on the optimistic side. The world has entered, not a temporary economic recess, but one which is going to be profound and prolonged. It is significant, for example, that no later than this week The Economist—I will quote from page 71 of the issue of July 19th—had this to say:

In the big industrial countries— Senator Lenihan perhaps can be excused because he does not belong to a large industrial country—

——everybody is talking about LUV. Will the slump be L-shaped (a sharp fall followed by bumping along the floor), or U-shaped, (slow down and slow up), or V-shaped (a rapid recovery as the world rebounds into a boom)?

The Economist makes the point that Britain is clearly heading for an “L” shaped recession. In other words, it is now on the vertical stroke of the “L” and is plummeting sharply downwards and that it will scrape along the bottom for some time after that.

But, more ominously, this magazine of repute says that the view is now growing that the world economy is at best heading for a "U" shaped recession, even if America itself is to head into a sharp down and sharp up recession. If the United States economy pulls off a rapid recovery it can only stimulate the rest of the world through importing from them. But to add 1 per cent to other industrial countries' demand would require a 20 billion dollar increase in the American trade deficit and that, quite simply, is not going to happen. In any event, the policies being pursued by the Ford Administration have been proven to be wrong, are currently being analysed as being wrong and will most certainly continue to be wrong into the next two years.

This is no time for knockabout, roistering, music hall performances from the Opposition. It is a time when the Opposition could, as it too infrequently does, pay attention to its own leader and imitate his sense of responsibility and political sobriety. It was he who responded last Friday to the Taoiseach's statement, when the Taoiseach returned from the economic summit in Brussels, in statesmanlike terms with which nobody could disagree. But Senator Lenihan, as he has too often proved in the past and as other members of his party have more lately proved in other areas, pays too little attention to this statesmanlike attitude to the economy of his leader. I am making the point that not only is the world economy in a profoundly serious situation but, more ominously for us, the economy of our nearest neighbour is in deep travail indeed.

Mr. Yeats

We told you that three years ago.

Mr. Halligan

At the moment unemployment in the United Kingdom is heading towards one million. The unemployment figures will be issued today and it is possible that they may top the one million mark. It is now tacitly admitted that the unemployment figure is going to go to about one and a half million by the middle of this winter and there are forecasts that—I am quoting again from The Economist—it is very likely to go to two million by the winter of 1976-77.

On the other hand, even if inflation is cut in the United Kingdom to a rate which the Chancellor of the Exchequer anticipates in 12 months time—an annual rate of 10 per cent—the annual rate of inflation over the next 12 months will be 17½ per cent, which is still not a significant improvement on the abnormally high rate of inflation from which they and we are suffering at the moment. It is important for us to recognise that the United Kingdom economy is exceptional in that added to growing unemployment they have a phenomenally high rate of inflation. While other economies have succeeded in bringing down their rate of inflation to below 10 per cent—and this is partially true even of the Italian rate which is now going down—the United Kingdom is adding to its very high rate of unemployment a phenomenally high rate of inflation.

I do not believe that the recent "packet" of the United Kingdom Government is going to have the success that many commentators in this country anticipate. If they get down to a rate of somewhere in the region of 15 to 20 per cent per annum in 12 months time, they will have done far better than I would have anticipated. But in a situation in which the Italians are verging down on 10 per cent— other EEC countries having successfully gone below it—we and the United Kingdom are certainly going to be in a serious economic plight with inflation in the high teens. It behoves us to ask ourselves why it is that we also are up there with the United Kingdom in the undesirable position of heading the inflation league table.

I believe—and I have said so publicly and I repeat it now—that the sterling link is in itself the central cause of our inflation. It was significant that at a recent seminar on the subject of monetary alignments nobody there criticised or questioned this inflation linkage, but all of the economists there affirmed that in economic theory there is no argument against the proposition that a small economy linked by a fixed exchange rate to a larger economy will in the long run have to accept the larger economy's rate of inflation. One of the most distinguished contributors, Professor Williamson of the United Kingdom, opened his contribution, which preceded my own, by saving that it was one of the most widely known and widely accepted theorem in international monetary finance. The question then becomes not one of denying the fact that the inflation mechanism exists, but a question of whether it is wise to break it. If one is intent upon breaking it, the question is whether or not it should be broken now or at some future time. But there is no longer any theoretical argument against the proposition that the present sterling link gives us a UK rate of inflation. Even though I accept that one cannot get away from the long run rate of inflation in the United Kingdom while one maintains the existing fixed exchange rate, I welcome the measures in this Bill as being a very necessary prelude to conditioning the public in general for a break with sterling which must inevitably come. The possibility of breaking the expectations spiral is valuable, not only from the point of view of orthodox economic theory, but it is also invaluable at the moment from the point of cost effectiveness and is invaluable also in the attempt to renegotiate the national wage agreement, to which I will refer later.

The form in which the attempts to lower the rate of inflation has come is welcome also for two other reasons. First, it represents a shift from the better-off sections of the community towards the poorer sections in that food subsidies will most immediately benefit those in the lower income ranges. This is true also of the cuts in the VAT rates on footwear and clothing because it is a truism that people in the lower income groups spend a far higher proportion of their income on food and on clothing and footwear. Secondly, these subsidies are welcome also for the stimulus they will give, particularly to the depressed industries of clothing and footwear.

I am very confident that the trade union movement will exercise that same sense of responsibility which I have praised in the past when evaluating the Government's attempt to break the inflationary spiral and I am quite confident that at the forthcoming special ICTU conference they will give a lead to the country in economic responsibility.

The message has now got across that nobody's job is safe in the current economic recession. In this morning's newspapers there is reported an attempt by the management of the ESB to preserve the board's employment in the face of very serious economic difficulty by asking for wage and salary cuts. The message must surely be getting home that no matter how apparently safe a job is in the current world recession it is not in fact safe at all. This applies even to those engaged in the public services. They, too, must realise that this is a fact of life. It is no longer the case that simply those who are engaged in manufacturing industry are the ones whose jobs will be the first to go on the line in times of economic depression or recession. With a deficit running at the rate of £240 million and accepting Senator Lenihan's prophecy that it can go even higher, it is obviously impossible for the Exchequer to continue to bear exceptional increases in pay and salary. There is no escaping that situation.

As I have said previously in debates of this type, it is not in fact the manual workers, it is not the general unions, who are the irresponsible shock troops of the trade union movement in seeking pay and salary increases. Those who are the most militant and, indeed, most socially irresponsible in terms of pay and salary nowadays are by and large the white collar unions and professional associations who use their skill, education, and greater public relations ability to twist the arm of society in getting more than is their fair measure. At a time of recession, when the economy is at a standstill, there can be no increase in living standards by one section except at the expense of others, of depressing theirs even further. I am quite confident that the generality of the trade unions will next week face up to the economic facts of life, as they have in the past, and that they will respond in measure to the Government's proposals.

I want categorically to refute the language which Senator Lenihan has used, knowingly, in respect of the Government's proposals on the national wage agreement and in respect of the response of the Executive Council of the ICTU to these proposals.

Senator Lenihan used the word "reneging" on the national wage agreement not once but many times. He also used the word "withdrawal". If he were to study the terms of the Executive Council's resolution which will be put before the special delegate conference next week, he will see there is no question of reneging. There is no question of a withdrawal. It is a question of an alteration in an agreement.

Mr. Yeats

Oh, no.

Mr. Halligan

Neither is there any attempt at compulsion or coercion, unlike the policy adopted by the Fianna Fáil Government of which Senator Lenihan said he was so proud to be a member in 1970 when they introduced the Prices and Incomes Bill. They said: "If you do not agree, we are going to pass this piece of legislation."

Mr. Yeats

"If you do not agree, we will withdraw the subsidies"—that is what they said.

Mr. Halligan

The Fianna Fáil Government put a gun to their head and said: "If you do not agree to do as I say, then I am going to pull the trigger." Then when the man does what you want him to do, you turn around and say, "Ah, well, of course, he has done so voluntarily." That was the Government to which Senator Lenihan was proud to belong, of which he was so distinguished a political adornment. Fortunately for the country at the moment he is not a member of a Government and, indeed, I believe it will be a long time before he is again.

I believe that the trade union movement will recognise that there is no point whatsoever in having money increases in wages and salaries which are met by prices rolling along at more or less the same rate. I do not believe that they are going to fall for the trap of the money illusion, that is to say that they would be better off holding to the remainder of the national wage agreement by having increases of between 4 to 5 per cent per quarter when inflation is at the same rate, as against the proposition of having lower money increases but with inflation brought down proportionately. In my discussions both with leaders of the trade unions, who incidentally Senator Lenihan categorised —I am sure they will be delighted to read it—variously as "little boys", "the lads" and "you boys"—I have never found them to be prisoners of the money illusion such as is the case with trade union movements in some other countries. On the contrary, I have found the Irish trade union movement to be eminently sensible, reasonable and responsible in terms of economic policy.

I want to say to those who are particularly gripped by a very common fallacy that everything which happens in the United Kingdom should be repeated here at a suitable interval, that there is a totally different socio-economic situation here. The United Kingdom Government would give its right arm for a situation in which there was a national wage agreement which could be renegotiated voluntarily, instead of having the situation in which unions in the United Kingdom are demanding what is far beyond the capability and possibility of the United Kingdom economy to sustain and a situation where trade union leaders can go on television and say, "Well, we did not create the crisis. It is immaterial to us who suffers, so long as we do not suffer. Let the rest of society suffer." On the contrary, the Irish trade union movement is closer to the trade union movement on the Continent and in Scandinavia in so far as they have no ideological objection or hang-up to centrally arranged wage negotiations. The trade union movement would be much readier to accept indexation as a means towards getting out of the current impasse than would the employers.

I do not believe that the policy of the trade union movement has precipitated the necessary renegotiation of the current national wage agreement. I believe that to have been shown in the response of both the employers and the trade union movement to the Government's package as set down in this Bill.

There is one lesson to be learned from the need to adjust the terms of the wage agreement, which should be taken very much to heart by the Government—that is that in future they cannot be and must not be a passive partner at national wage negotiations. They are the largest employer in the country; they have a bill which must be met out of taxation of one form or another and they do not have limitless resources of taxation revenue either for employees of the central Government or of the local authorities. I say this by way of remonstration: If the Government want to be involved in planning incomes and prices, then they must be a more active participant in future in national wage negotiations. For that reason there must be a more active adherence to the concept of economic planning than there has been in the past. I am glad that in his speech in Dáil Éireann in introducing these measures the Minister for Finance recognised that this was so and that the possibilities now exist for a rededication to the principles of economic planning.

I would like to support quite clearly and unequivocally the Taoiseach's statement of yesterday that it would be necessary for us in the future to take out of the CPI, when it comes to the question of indexation, increases for cigarettes, beer, spirits, wine and petrol. He was absolutely correct to state that the current situation has reduced taxation policy almost to the level of an absurdity. If increases in these items are put into a CPI which is then used as a basis for indexing wages and salaries it, of course, has the effect of removing indirect taxation away from the Exchequer either as a means of increasing revenue or more importantly and particularly from the point of view of the trade unions, as an instrument of social policy in order to distribute income throughout society in terms of increases in social welfare, or health or education. I would hope that the next Employer/Labour Conference will very seriously consider the Government's proposal that indirect tax increases will not be built into any future basis of computing increases in wages or in salaries.

If the present situation were to continue, then the redistributive mechanism can only be effected through increases in direct taxation, such as is the case in these measures before us in this Bill. Every 1 per cent increase in the CPI brought about through increases in indirect taxation is at present automatically compensated for by a 1 per cent increase in wages and salaries. In other words, the Exchequer is taking money out of one pocket and three months later is putting it back into the other pocket. In fact, this is not only a stupid exercise, it is also a costly one in terms of the bureaucracy and administration involved. This Bill before us proves the silliness of the situation in which we have currently placed ourselves in that we have effectively removed from the realm of economic policy indirect taxation as a means either of raising revenue or of redistributing income.

I also very much welcome the employment premium scheme which was contained in the Financial Statement and which will be coming before us, I understand, in a separate Bill. I would like to take this opportunity of making one observation. I do believe that the measure should also have applied to companies which were threatened with redundancies. I said so in party discussion at the time, and it is interesting to note that—I am now quoting an example from the UK against myself—the current anti-recession measures of the United Kingdom Government actually contain such a provision. They have introduced a scheme whereby companies that are threatened with redundancy, and where over 100 redundancies would be involved, will receive from the Exchequer a subsidy somewhat along the lines contained in the new employment premimum scheme, and I hope that the Government will give serious consideration to the extension of this scheme to those firms which are threatened with redundancies.

It is also necessary to go a step further. This is an opportune time, an apposite time, to consider seriously the establishment of a national enterprise board along the lines of that successfully used in Italy and which is currently in use also in countries outside the EEC such as Sweden. At a time when there is a world recession, at a time when there is retrenchment in the investment programmes particularly of multi-national corporations, we cannot continue to rely indefinitely on the IDA as a source of new employment. The IDA will tend to be more successful in times of economic boom and will tend to be less successful than it might otherwise be in times of economic depression. In other words, their own success or failure rate will be externally determined. Certainly the extent to which they can create jobs at any one time will depend upon the efficiency of their own management but the limits which will be imposed upon them are those which are determined by the state of world business.

Therefore, if we are facing up to the necessity of having to create approximately 30,000 new jobs net per year, we must employ the State as a major generator of employment itself, and this can only be done through the establishment of a national enterprise board along the lines employed by the Italian Government and by other Governments outside the EEC such as the Swedish Government.

In the end we are forced back, on both sides of the House—some of those on the other side of the House are prepared to admit this—to facing the situation where we must accept that this economy, in common with economies not alone in the western world but as we now know in the eastern world as well, has headed into the most serious crisis since the 1930s.

The major reason for the current economic crisis, that is, the four-fold increase in the price of oil, will continue to affect the performance of the world economy for at least another three years. I do not believe that the world economy will show a significant improvement for at least three years into the future. The inescapable conclusion which must be drawn is that we must endure cuts in our living standards, whether we like it or not. No Government can continue to pour out subsidies to maintain living standards because there is a limit to the finances available which could go towards meeting the cost of those subsidies. There is a limit to the extent to which we can rely on exports as a means towards increasing employment.

In this grave situation we require three components of policy. In the first place, we require the continuance of responsibility and reasonableness by the social partners in respect of a voluntary prices and incomes policy. I am confident that we can do so in this country even if it cannot be achieved in the United Kingdom. Because I believe we can achieve it while the UK cannot, I believe it is necessary, secondly, to get as far away from the United Kingdom economy as we can. It still takes far too high a proportion of our exports. We still rely on it to too great an extent for imports, and we are a prisoner of their economic mismanagement through the fixed exchange rate link. We should break that link. We should get as far away from them as we can.

Thirdly, we should develop a totally new industrial strategy which would encourage industry based more on the home economy than industries which rely solely on the export market. We should go for a policy of import substitution. It is significant that the most recent study on the Irish economy which was commissioned by the European Commission offered this as a possible way forward.

But whatever may be the policies pursued by the Government, or whatever may be the actions taken by the various components in the economy, it is absolutely essential that there should be no ambiguity in the public mind as to the seriousness of the world economic situation, the possibilities of its duration or the probabilities of the effects which it will have on us.

There is no point in remonstrations; there is no point in pointing accusing fingers. We have been impelled down-wards in terms of economic growth by factors which are not only outside of our control but outside the control of even the largest industrial nations. In this situation, therefore, there is a grave responsibility on leaders, not only here but in industry and particularly in the trade union movement, to educate public opinion into the response which is necessary.

In the measures contained in this Bill, and also in the statement which the Taoiseach gave subsequent to the Brussels summit and in the statement yesterday in the Dáil on this Bill, I believe the Government have taken the correct steps, perhaps a bit belatedly but they have taken them. I believe the Executive Council of the Irish Congress of Trade Unions took the correct step in their response to the Government's measures. I am confident that the special delegate conference of next week will follow suit. I hope that the Employer/Labour Conference when it meets as a result of the special delegate conference will also support the Government's proposals.

But if this is not done there is no doubt that the future will hold for us an inflation that will continue at a rate of about 20 per cent, unemployment that will consistently refuse to come down below 100,000, social chaos and possibly social anarchy which will follow in its wake. The situation is that serious in my view.

For this reason I give unequivocal support, as does my party and, as I am sure does the labour movement in general, to these measures because we know that without these measures the alternative would be too horrible to contemplate.

Mr. Dolan

I cannot say that I welcome this Bill. This is about the third time that we have been presented this year with a Bill seeking to impose extra taxation on the citizens. Any responsible Opposition would agree that taxation is necessary.

I adverted to the fact that this is the third budget that has been presented to us in 1975 and without trying to assume the qualities of a prophet it is reasonably predictable that this is not the last of the budgets we will have in 1975. When one allows for the intervals that separate one budget from another we should be due one in October and probably another in December. That type of budgeting is detrimental to the confidence which people need to have in a country where businessmen, workers and everybody else feel reasonably secure and are able to plan their financial commitments ahead. In a situation such as this there is far too much uncertainty. No country can be stable in a situation such as that.

This budget, too, is necessary, like the other budgets, because the Government have been unable to look ahead and monitor the country and those engaged in helping the economy in such a way that we would not now find ourselves in the mess which faces the country. It is no pleasure for me, for anybody on this side of the House or indeed anybody in the country, to reflect on the position as it is. One does not need to be a great economist, a banker or any of these financial experts, to realise that things are in a hopeless mess. In today's Irish Times there is a heading: “Carroll says Government's inability to control economy has held back business enterprise.” Mr. Carroll is a man who was a pioneer in a factory here for years manufacturing cigarettes. I know his products were very popular and he created a great deal of employment in Dundalk and around it. He says that:

Enterprise in these islands is being constrained, inhibited and stifled by the shortsightedness and ineptitude of Governments which are failing either to recognise the essential needs of the economy or to supply an environment in which it can flourish.

I am not an expert on the remedies in this case but I have a certain amount of respect for a man such as Mr. Carroll who has been in industry in this country all my lifetime. If he finds it necessary to make a statement such as that there is a tremendous amount of weight in it and a lot of heed should be paid to it. Certain documents are circulated to us. I have one here from the Federation of Irish Industry, a very responsible body. I do not read them too often but I happened to glance at this. In the introduction, dated 5th July, 1975, it says:

Developments during the past week have underlined the complete inadequacy of measures taken to date to counter the falling competitiveness of Irish manufactured products. The following eight factors indicate the need for urgent and effective action.

I will not read down through those. I will just take the introduction. In their pamphlet dated June, 1975, which is not very far away, the opening sentence says:

Looking back over the past half year, trends from the available economic indicators suggest that the economy has slowed down significantly in contrast to the gradual recovery expected at the beginning of the year.

At pargraph 3 it says:

The level of production and employment as estimated from the CII/ESRI Monthly Survey is indicated to be slightly more than 1 per cent below last year's level. It is considered that this is an underestimate given that unemployment is now 56 per cent higher than last year and shows no immediate signs of decreasing.

There are some graphs given which are all in a downward direction. Nobody could take any pleasure out of that. I do not want to take any unnecessary political kudos out of it, but it is the responsibility and the duty of an Opposition to criticise and to point out to the people the state in which the country is at present.

Senator Halligan admitted that the position is serious. Any responsible citizen must admit that the position is serious. We have 103,000 unemployed. That is a tremendously serious situation. We will soon reach the point where the unemployment figures will be higher than the employment figures. The social welfare benefits will not be able to sustain the unemployed apart altogether from catering for the incapacitated, the ill or handicapped.

At present unemployed persons receive unemployment assistance and pay related benefits. The Government had to extend that period. It will be due for extension again soon. There will eventually have to be a stop put to this. The Government have been closing their eyes to the situation which exists. They are trying to whistle past the graveyard and pretend that everything is all right. They are hoping from day to day that oil will flow ashore from Bantry and that gas will be discovered off the coast of Waterford. They are holding these out as carrots to the people to keep them quiet and saying: "Mair a chapaill agus gheobhair féar.""It will not be too long until the sun shines again."

On the three occasions when the country had to suffer Coalition Government the pattern was similar. In 1949, when the first Coalition Government graced this country, we find that they ran into difficulties within a short period of taking office. Within three years they were out of office. They blamed many factors at that time and, in particular, the Korean War. They never attached the blame to themselves. They never looked around to see what the real causes were. In 1955, 1956 and 1957 they were in office. This time the same pattern emerged. They blamed the Suez Canal. They were unable to pay the housing grants, road grants and various things that were needed. Despite the fact that they had a majority of eight or ten in the Dáil they went to the country and were defeated. Fianna Fáil came into office in 1958 and remained until 1973. They had to face the task of rebuilding the country and instilling confidence in industrialists who wished to establish factories in the country. They stopped the tide of emigration, put AnCO working, trained workers, and had the country in top shape in 1973 when it was handed over to the present Government. Never in the history of this State did any Government hand over to their successors a State in such tip top form. There were no debts, everybody was working and emigration was stopped.

Then this Government of all the talents, with a full blare of publicity and all the efforts of the media to boost up these great men of action, came into office. Ireland faced 1973, 1974 and 1975 with tremendous confidence. The foundations were good, and the outlook should have been great. We had just joined the EEC. The honeymoon lasted for a year and a half and then the pigeons came home to roost. These great men who were decent, honourable men in their own individual right as laymen but a disaster as politicians. As leaders of Departments and a Government they were the greatest tragedy to hit the country. We now find ourselves in July, 1975, in this hopeless mess. We have 103,000 unemployed. That figure is rising daily. To break the camel's back, every three months the Minister for Finance introduces a new budget.

People have no incentive to look forward to the future while a Government with a record like that remain in office. Only on two occasions did the Government meet as a team since they came into office. I have been told that the Labour Party hold their meetings in their section of this House and Fine Gael in another and that the communications are anything but satisfactory so far as both wings of the Government are concerned. This despicable situation must be very hard for the outsider to understand.

Five or six members of the Labour Party who are members of this Government go into Government meetings, sit around the table, take part in employer-labour meetings and during that time make agreements with the workers of this country. When all that is sealed, signed and delivered, the Labour members trot off to their own trade unions and tell them what happens at the meetings. They tell them: "You must press for this. Fine Gael will have to give in on this. There are five or six of us. We have them on the run. You do not yield to any statements that are made by the Taoiseach or by any of the Fine Gael Ministers because this is only trying to ensure that you will not get your lawful rights so far as your wages are concerned."

Senator Halligan told us that the Government must tackle the white collar workers and those in Government services. He gently breaks the news to them that they are next in the queue for the guillotine. They are the next to wear the hairshirt. They are the next sector who will have to bear this intolerable burden that has been placed on every taxpayer and every individual in the country. While all this is going on we have many of the trade union leaders, paid officials themselves, going around in luxury. Many, as we know, have their offices in Liberty Hall that was built by the pittances of the ordinary worker down the country who would not even be allowed to park his car in front of it, if he had one, or would not be allowed into the building. In these palatial offices these conferences take place behind the backs of the Government. There you have five Labour Members of the Government. They are dispensing justice to the workers in one case and then going to a Government meeting and saying the opposite to what they have told the workers.

How can any Taoiseach sit down at a Government meeting knowing in his heart and soul that he is not held in high esteem, not alone by some members of his own party but, in particular, by the Labour Party? They, behind his back, blame him for every ill that has fallen on the workers of this country.

I can assure the Seanad, as a trade unionist, like many others, we are very sad to see the workers of this country being placed in this unenviable position, that they do not know from one quarter of the year to another what amount of taxes they will have to pay. They do not know what extra burdens will be placed on them and their families. They do not know from day to day because their rates and rent are going up. Everything they buy is going up. All these gimmicks of removing VAT from food and clothing are just to try and tide them over in the hope that some undiscovered or unattainable oil well off the coast of Bantry or off the coast of Cork or some of these great gas finds we hear about on the coast of Waterford will prove successful. All these are being held out to the workers telling them to wait a little longer and salvation is around the corner.

These are not nice things to have to say but we must advert to them. Those who entered into an agreement with the workers of this country and the employers of this country entered into a solemn agreement. Fianna Fáil were glad to see that the stage had been reached by them when they could negotiate with the workers and employers to ensure that the workers would have a fair idea what their wages would be in the years ahead. In that way the workers were happy and their families were happy.

They knew exactly what they were getting. Employers were happy because if they had orders to fulfil on the Continent, in Germany or in America or anywhere like that, they could say to their customers: "I will be able to deliver the goods on such a day." In that way employers could enhance their reputation abroad. The workers would be happy at home and the economy of the country would improve because of the benefits which would accrue to us from the extra exports that would flow across the seas.

We had a situation such as that until the Coalition Government came along and welshed on this agreement. It was misleading and unfair to bring these people to that conference. If this happened two or three years ago anyone could say: "After all we have to make some allowance for something that happened." This is right beside us in 1975. I pity the Members of the Government who are trade unionists, now trying to crawl back to the workers and hoping and getting others to suggest that the workers would let them off the hook. It is not a fair way to treat the workers. If we have not satisfied workers in any industry the industry cannot expand.

It is a very unfair way to treat the industrialists and the employers. After all, they are very important people in this country. They are the people who put their capital into these factories and various other enterprises, to make money I admit. Why should they not try to make money? That is what keeps the whole thing going. Should they not get every possible encouragement when we are willing to hand out thousands of pounds to outside industrialists to encourage them in here? Why should we not try and support the industrialist who is already established here, who is providing employment here? Why should we place him in the invidious position that he cannot trust the Government when he makes an agreement with them? It is a despicable performance, and I would not like to be a party to any Government who make negotiations or agreements such as these with people and who then let down such important people to the nation, the manufacturers, the industrialists and the workers.

This, of course, is the open Government about which we all have heard since they came into office. They were very open indeed. They consulted everybody. They consulted the workers and the employers. When they had consulted and gained their confidence they went behind doors and did the dirty on them. It is a despicable performance and one that everybody in the country, in particular the Government, will live to regret. When you antagonise the workers, the industrialists and the employers you are treading on a hornet's nest. You are doing a bad day's work as far as the economy of the country is concerned. It was bad enough to have 100,000 unemployed but for those who are lucky enough to be employed, to find out that this is what is happening to them is a despicable performance. This so-called open Government we have had for the last two years were very open on some issues. They were the Government who were willing to consult with everybody. They consulted with the employers and with the workers and that is the result. They were very open too on some occasions and on other occasions they were not too open. They were open in December last when they introduced this new 15 per cent tax on petrol.

There was not much consultation with anybody in the country in that, the car-owners, garage proprietors, or those who had installed central heating in their premises.

The Dáil was called together and 15 per cent was put on petrol. This open Government did not even allow them to discuss the matter. The whole discussion was guillotined and passed over-night. The good tidings were conveyed to the media down the country that this open Government had been very, very open with the people on this occasion and had put on 15 per cent.

They had the scapegoat again. The Arabs were blamed. It is great to be able to blame somebody, especially outside the country, when we cannot meet or know these people who are in the distance. They can pin the blame on the Arabs who have been kept poor for so long. They were exploited for so long and had recently come into their own. They realised they had valuable material under their soil, were able to sell it abroad and were, for the first time in thousands of years, able to stand on their feet and enjoy some frugal comfort.

These people are now blamed for the ills that fell on the Coalition Government in January, 1975. It is amazing how they could not look around their own party meeting and see the little sheiks sitting at the Government table and all the little oil kings they had among themselves. Not one of them would dream of placing the blame on one of their own for all the mismanagement that was taking place by the Government. It was always very convenient to be able to use Koreans, to be able to use the Suez Canal, to be able to use these little Arabs and their brothers the little sheiks and to put the blame on those people far away. In that way they could try to divert the attention of the ordinary people from the real culprits. A similar situation has been developing in relation to the Criminal Justice Bill and the Broadcasting Bill.

An Leas-Chathaoirleach

Senator Dolan, you are straying a little bit far from the Finance Bill.

Business suspended at 12.30 p.m. and resumed at 2 p.m.

Mr. Dolan

Before we adjourned I had almost completed my few brief remarks on this financial measure. I had made some slight reference to the idea put forward by Senator Halligan, to break the link with sterling, that it would be very much to the advantage of this country and would probably be a cure for most of our economic ills.

I would like to say at the outset that I am not fully au fait with the financial abilities of Senator Halligan, in particular his plan and his knowledge so far as this whole monetary system is concerned. The Senator may have a very valid point. If he is a financial wizard of the 20th century, if he has some secret method or formula whereby this can be done to the advantage of the Irish citizen and the Irish economy, I would respectfully suggest that he come out into the open with it. The Government should chase the hare or whatever it is immediately. The country is in a deplorable plight. It would be wrong to miss an opportunity such as this.

It is often difficult for one in my position to assure himself that Senator Halligan is really in earnest about this. When one sees the Minister for Finance trotting across the capitals of Europe with his little bag looking for various loans, trying to come home with much needed funds to relieve the situation, it is ironic that he has to go to the Arabs. The Arabs are the people who have the money. I am informed many of the Arabs or the sheiks have amassed fortunes which are invested in English banks. Naturally if we break our link with sterling it will not be very encouraging so far as the Arabs are concerned. They would not feel very enthusiastic about lending us money. When one has to go with one's hat in one's hand to secure a loan from anybody, one likes to put on a reasonably good show. One does not like to rock the boat in such a delicate situation.

It is strange that some members of the Government are very eloquent on this particular topic, while other members of the Cabinet are very anxious to collaborate and cooperate with the British Government so far as Criminal Law (Jurisdiction) Bills are concerned, free broadcasting of BBC and so on. I am no expert on this, but very often in the past the experts have been wrong, and one cannot be blamed for disagreeing with them. I do not think this will be the be all and end all of this whole matter. It would be much better for any Minister for Finance and his supporters to try and instil confidence in the people, in the Government, in the people abroad, and particularly in the people whom they are seeking to provide the loans. If the people abroad do not see confidence by the Irish people in the Government, if there is not a mutual bond created between the borrower and the lender, the success will not be there. The same applies even in selling goods.

In many spheres of our economic endeavour, as a private individual, I have learned from experience that people, when they are selling goods, let it be cattle or anything else, like to have confidence in the buyer. If the buyer is genuine, comes back each year to repeat the performance, they certainly will have trust in him. In fairness, let me say that during the Galway by-election I experienced this. When the name of the father of our present Parliamentary Secretary was used, I was told that they had the utmost confidence in him as a buyer because he returned each year, giving them a reasonable price. If the Minister for Agriculture could take a lesson from that he would see to it that the money provided in budgets to help the producers would be used in such a way as to give the producer confidence in the buyer. The producer of the finished articles should give good value, not doing as many people did in the cattle industry last year, fleecing the people, and now crying over the scarcity of store cattle.

I believe that for the country to progress, to cure our economic ills, we must have leadership to instil confidence. You cannot do that unless the Government are acting in unison, unless they can instil in the citizens here a national pride, make workers, manufacturers and producers aware that they are Irish citizens. We are all in this together, and as a nation we are trying to project the best possible image abroad. We should have confidence in the ability of our workers to produce goods here on a par with if not better than those produced in many other countries. Our people—let them be white-or blue-collar workers, manufacturers, men or women, young or old— should take pride in using the articles produced by our own workers, in our own industries here. It is high time that the Government would lift the people up off their knees and instil that confidence into them. We should be proud of wearing Irish shoes, Irish clothing, drinking Irish spirits, using everything that is made here. If we have no confidence in the ability of our industrialists and manufacturers to produce the finished goods we cannot expect people to buy our finished goods on foreign markets. That is the way this should be approached. You cannot instil confidence if you welch on the national aims and make ourselves second-class citizens to anybody else in the EEC or in the world. We are a sovereign State here. We should be fit to control our own television. We should be proud of our own language and culture and the articles we produce here. That does not mean that we should be expected to accept inferior articles.

There is no doubt that if you apply international standards, in many, many areas we are far ahead of most countries. We produce tremendously clean food. We have the best whiskey in the world and yet we find our own people leaning over backwards to support foreign industrialists and then weeping about the balance of payments and other economic ills.

The fundamental question we would all ask is, what are we, as a body, going to do about it? These are things that should be above the cut and thrust of party politics, and all of us should be proud and glad to help our fellow men living in this country, help in the advancement of our country by helping industrialists and people here to manufacture excellent goods and by patronising these goods at every available opportunity. Men and women should be ashamed to step out in foreign-made shoes seeing that we have the best shoes, probably in Europe, manufactured in our own country. Remember I like to see our womenfolk well dressed. I suppose we all have an eye for beauty, and why should we not? However, I am convinced that there is a variety of design and styles in this country that would be on a par with anything produced in Paris, Germany or anywhere else. Our shopkeepers, importers and so on should be aware of that fact. Our trade unionists, in particular, who are often crying about the unemployed, often in their own lives buy goods that are made outside.

I welcome this measure in so far as it removes VAT from specified items here, but I do not think it will be of everlasting benefit, because very often when prices can be adjusted to suit the seller, the customer may, whether he knows it or not be paying VAT in another way. When VAT was introduced I do not know what method was applied to ensure that it was not charged to the customer on goods that had already been purchased free of VAT. However, that is only a small point.

In every sphere of national Government at present, in every single Department, there are fears at present. In the Department of Agriculture there is the question of the prices of cattle, the fleecing of the farmers, and then yesterday we had the news that we were importing potatoes from abroad. Then when the Government could not blame the Arabs or the sheiks and when they could not blame the Suez Canal or the Korean war, in 1975 they have a new ploy: they are now blaming God Himself. The weather now seems to be responsible for the fact that we have to import potatoes, and to that will be apportioned the blame for all the disappointment that has resulted from the way the disadvantaged areas schemes are going to be administered, from the various ills that have befallen us because of the incompetency that exists even in that Department.

For months back I have noted that my own local paper, The Anglo Celt, has been highlighting the situation that has been developing in this country over the last 12 months or two years. My local paper is read by 80,000 people. It is very reputable and has a very eminent and distinguished editor, a man who keeps well abreast of what is happening. I will not bore the House by quoting exactly, although every single editorial in this would be worth quoting, but I will give you a few headings of The Anglo Celt on various dates going back to 8th June. In a very learned article there the editor said, “Inflation and unemployment must be tackled now” and made very useful suggestions. I am sure the Government and the Minister's advisers read this notable paper and could benefit immensely by studying every single editorial I have mentioned. At any rate it was a clearcut indication as to what the trend was. That was on 8th June, and here again on 13th June the heading is: “For economic survival the buck stops here.” The article went on to give useful hints and considered opinions as to what was best so as to ensure we would not end up in financial ruin.

Referring to the budget of the 27th June as a cross-your-fingers budget, the editor points out the various faults that he finds in the cures that were being applied to the economic ills besetting us. One could take the Department of Education where there was no money whatever to pay any of these grants to the post-primary schools, where there was a cut in money for vocational education and for universities. We can see the need for this measure when we examine the Department of Education.

If we take the Department of Local Government, we will immediately see that there is hardly a road man working in my county or in the next county. Last year's grants were barely maintained despite the fact that there was a 26 per cent rise in inflation. This is without going into any learned figures or statistics. This is what the ordinary man, the man who is not an economist. can see by walking up and down outside his own farm on his own country roads in his own county. These are very clear signs as to the ills that are besetting the Department of Local Government at present. It is a Department in which it has been admitted by many economists that if we could do well in it——

An Cathaoirleach

The Senator should not go too far into the expenditure by any individual Department. That is a matter for the Appropriation Bill.

Mr. Dolan

I accept your ruling and can assure you I have no intention of straying from the Bill under discussion. I was merely adverting to the apparent lack of funds in the Department of Local Government and the number of people who are unemployed. It would be a very interesting exercise if I had been able to get the figures of each local employment exchange in every county in Ireland and compare those figures with what was there last year and the year before. Let me say that it is a poor outlook for the youth of this country, 52,000 of them, who are now coming out of the colleges fortified with a good post-primary education and finding now that there are no jobs for them. They will grow up and become responsible citizens with a vote in less than two years. Their memories of 1975 will be that in that year we had in office a Government that could not even provide them with a couple of weeks of employment to give them some little pocket money for themselves. Not alone that, but they will remember that when they went to their own homes their father was unemployed and there was a certain gloom hanging over the whole household because of the uncertainty and because of the vision of poverty that was staring them in the face.

There was no hope that that individual boy or girl would get a job here. There was not much hope of the emigrant ship. That family, like thousands and thousands of other families here, are extremely worried, because they had great hopes that when their children, on whose education they had spent a lot of money had finished their scholastic career, their second- or third-level education, they would find some reasonable and well-paid employment in their own country.

Great strides have been made with some of the money that was provided in the past for training facilities through AnCO and so on. We have all these facilities, but we have not got the jobs. We have various bodies like the IDA working night and day trying to provide employment for extra people here, but at the other end 103,000 of our people are unemployed, with that figure rising in the month of July, 1975, when in ordinary circumstances that should be the peak period of employment. In my own area, which is a farming area and where great employment was always available in milk processing, milk powder factories and creameries, there has been a drastic reduction in the amount of milk available this year because of the high price that was charged for fertilisers. There has been no increase whatever in employment. This problem is hanging over them of this mountain of milk powder that is being produced or that is said to exist in the EEC countries. Industries that were there for years and years are feeling the pinch and are very worried that they, too, will go to the wall like the hundreds of other industries that have been hit by this Coalition blight that has blown across this country since the unfortunate day, the 28th February, 1973, when they took office as a Government here.

In this disastrous situation in which we find ourselves there are many people who could do something to assist. I have criticised a lot and rightly so. It is my duty here as a member of the Opposition to criticise as much as I possibly can. We have been in Government on many occasions and worked diligently and confidently. We instilled confidence. We reduced unemployment and emigration and set the country going. We are willing and ready to do that again and we will have to do it probably much sooner than we think, because I do not believe this disastrous situation can last much longer. However, it all depends on how successful our "Dr. Kissinger" or our present Minister for Finance and other members of his Government will be. They will be whispering into the ears of the little Arab leprechauns who have the money hidden somewhere about the sands of Arabia, Saudi Arabia, or in some of these other oil-producing countries. Let us hope that they will listen to the whispering and that eventually the Minister will arrive home with something in the kitty. If he does that will be a kind of lifejacket which will forestall the agony until, perhaps the merry month of December, when people, with the festivities of Christmas, might forget about it for another while.

Everybody knows it is a serious situation. The members of trade unions and particularly the trade union leaders—and I am a trade unionist myself—have a very responsible role to play in this, because some of those leaders are members of this House. I do not want to cast any reflection on members of this House, on either side, as individuals. They are all honourable men as far as I am concerned, they have a responsibility to their union members. They have often in the past, at the behest of the union members, pushed very hard to try to extract from an employer or from a Government the very last penny. I suppose they were justified in doing that, because in the past workers were not paid a living wage here.

We are now at a very difficult time and I would ask the trade unionists and the Labour representatives in the Government to come clean with the people, with the workers, and say definitely and emphatically exactly where they stand in this fight. On the one hand, they are sitting down with the Fine Gael members around the Cabinet table and agreeing to their schemes. On the other hand they are negotiating agreements for the workers. They are going back to their own unions in Liberty Hall and presenting a completely different picture. They are slagging the Fine Gael members of the Government and blaming them for this hairshirt budget that is to be imposed upon them. Seeing the ruin and destruction they have brought on the country these Labour Ministers, should say to the Fine Gael Ministers who are there: "We did not believe in this agreement. We misled the workers. We made an agreement which we did not believe in. We were not fair in doing it to you. From this out we are not going to play a double role." We would make progress and the Government would make some progress and it would be of some benefit to the people if that was said.

I shall not delay the House any longer. I know there is a time limit set here. I was just adverting to a few facts, unpalatable as they are, so far as this Bill is concerned. The people certainly would be delighted if they felt that even now we were at the end of the road so far as budgets for 1975 are concerned. But I am afraid that lurking around the corner when the vacation is over or perhaps during it, there will be another unexpected announcement, as happened last January, and we may find foodstuffs, petrol and various other essential commodities sky rocketing in price and new taxation imposed, and probably done by telephone. Every economist will more or less admit that there is another budget on the way before Christmas. This is too much. You can eventually push people so far, even your own supporters, that they ultimately will revolt. Some say that even the lamb will bite you when it is being slaughtered.

There is a lesson in this for the Government. I do not believe it is possible for them to do anything at this late stage. I do not think the Ministers with all the talents have lived up to what the media and what they themselves projected as images of the great cure for all our national evils and ills. They are now after two-and-a-half years ending up by leaving us with 103,000 unemployed, with a £240 million deficit in our budget, with monthly and quarterly budgets appearing as regular as a newspaper. This is the outlook with which the people of this nation are faced.

I say in all sincerity that the members of the Coalition Government should do like the old king of old, that they should look around and see the writing on the wall. It is there clear and legible for anybody to read that the day of reckoning has come at last and that these people will have to in the very near future submit themselves to the judgment of the electorate. If they wait for two years longer let me tell them as a little secret that they will not alone have the majority of the people of this country against them but they will have added on to that the 52,000 teenagers who will be coming on the live register and who so far as I can see from now until this election is declared will not have the hope of a snowball in hell of getting a job under this Coalition Government.

An Cathaoirleach

Before calling on the next speaker, I would remind Senators that an order has been made to call the Parliamentary Secretary at 4.30 to conclude. Accordingly, Senators should make every effort to ensure that their speeches are relevant and as brief as possible.

Mr. Boland

I do not propose to quote from any such apparently authoritative sources as journals such as the Skibbereen Eagle or the Anglo Celt, or even from any of the national newspapers, because I think perhaps some of our difficulty is that self-appointed wizards who pronounce on our economic situation very often by their suggestions can lead to a panic reaction on the part of people who seem to implicitly believe everything as long as it appears in black and white.

But even to my simple mind, Senator Dolan's apparent lack of grasp of economic world-wide trends and the international malaise of inflation that has affected the economy of various countries throughout the western world appears to me to be a little frightening. I do not believe that the last speaker can be so ignorant of the difficulties into which all of our neighbouring states and many countries much further afield have found themselves in varying degrees over the past few years. I can only think that some of the statements he made were designed not to inspire the very confidence which he earlier in his speech in a worth-while way appeared to be appealing for. I went to the trouble of making a note of something Senator Dolan said earlier on. He said we must have leadership to inspire confidence. I would have thought that it was the duty of all public representatives at a time when we find ourselves beset by inflationary pressures to inspire that very confidence. The moment Senator Dolan made that statement he proceeded to endeavour to inspire despondency and despair in the heart of every school leaver—52,000 I think he said —this year and in the minds of their parents. He inspired fear in every Irish wage earner and he went to the trouble of naming the neighbouring country and spent half an hour ranging through the wage earner in the industrial and agricultural sectors in an unfortunate attempt to convince those people that their continued employment and prosperity might be in jeopardy. This is the very lack of leadership that all of us here and in other places should be endeavouring to condemn at every opportunity, because leadership, as Senator Dolan said, is necessary now. Leadership at a time when any State is beset by economic difficulties does not just mean leadership from the Government of the day. It means that those who are in charge of public office, whether they be in Government or in Opposition, have a duty set upon them to inspire the very confidence that Senator Dolan appeals for and then set about breaking.

I could not help thinking as he spoke that it is quite apparent to everybody now that the classic deflationary measures that are so simple and have been used in the past to control inflation successfully are now socially unacceptable. They have on a number of times proved their effectiveness. But I do not believe in 1975 either in this State or in any other democracy that those classic measures are acceptable and I do not believe that were they attempted they would be acceptable to the Opposition of today.

The Government should to an extent be congratulated on the ambitious budgetary measures they embarked on last January rather than in falling back on the type of thing which might have been normally expected. Because of that courageous budget of January and the various attempts that have been made since, and this present attempt to control inflation, a duty falls on the Opposition here and all the leaders, whether they be in public life as elected figures or leaders in industry, whether they are representatives of the ICTU or the Federated Union of Employers, or whether they are from the construction industry federation, whether they are employers or employees, whether they are members of Fianna Fáil, Fine Gael or Labour, to endeavour to bring about the spirit of national goodwill and cooperation, a spirit whereby people realise just what is expected and what is needed if the ills of inflation are to be cured.

It is right to say the only way inflation will be successfully curtailed in the next 12 months is if all of us accept that there is going to be a real drop in our real living standards. There have been varying estimates of how great a drop that should be. They range from anywhere between 5 per cent and 10 per cent. I think that it is important, firstly that people should realise just how much a drop in real living standards that amounts to and secondly, just how necessary it is if the economy is to survive in the international conditions of inflation that exist. It is something that we all must accept and it is better that we understood it now rather than to have it visited on us later in a non-comprehending sort of way.

I agree with earlier speakers this morning who pointed out that continuing intolerance demands on the economy, from whichever sector they come, are inflation-encouraging and will have the effect only of nullifying, or even worse, the Government measures. It is right that all of us, no matter which sector we represent, should realise that situation now. We should realise that whomsoever we represent, if we want to see them coming out of the inflationary morass, will be taking a real decline and loss in their living standards for the coming year.

It is important to realise that far from the gloomy picture presented by Senator Dolan there is an encouraging confidence displayed by the international finance houses and in the international money market in the ability of this country to pull through the economic difficulties it finds itself in, a much greater confidence than has been displayed by Senator Dolan or any of his colleagues in the negative type of contributions we have heard from them today. When we hear talk about the 103,000 unemployed it is well to consider that in the context of our nearest neighbour, Britain has been considering a situation where they anticipate in the next 12 months they may have anything up to 1½ million unemployed.

The measures introduced in this budget will have the effect of providing a financial incentive to employers to take on additional staff. That appears to be an imaginative and worth-while effort on the Government's part to stimulate investment, to reduce the unemployment numbers and to put more people back to work. There has not been much mention here today of these measures. If our various steps to counter inflation are to have their full effect, they will play a very major part in putting people back to work and increasing production.

While today Senators were talking about the 103,000 who were unemployed, the director of the Industrial Training Authority was highlighting the fact that there are up to 3,000 skilled apprentices short in industry. If an upturn in the economy occurs there would be that number of skilled apprentices lacking in industry. It is useful to understand that far from the bankrupt economic picture painted by Senator Dolan, we are in a situation where industry still has a number of jobs to be filled and a number of skilled people lacking. The training authority have been expanding their programme of retaining young people in the last 12 months.

Our economy, in common with the economy of every western state, has been in difficulties in varying degrees over the last two to three years. Some have begun to pull out of it but some are in a far worse situation than we are. We have to look only as far as Britain to see that their rate of inflation is running several points higher than ours. We can see the extreme straits into which that country has got itself because of the excessive demands that were made on it from various sectors. It is fair to say that although we are less dependent on the British market now than we were, the situation still exists that when Britain sneezes we catch cold. We may not catch the same amount of bronchial cold that we might have done in the past, but nonetheless the malaise of the British economy is reflected to a large extent in the Irish economy. There is no way that inflation can run at a high rate in Britain and that the Irish economy can run inflation free.

We depend on Britain for our raw materials as a source of supply. We are tied with them in the sterling area. The inflationary pressures on Britain are reflected in the Irish economy. The best that any Irish Government can do is to attempt to dampen the effects of the British inflation and world-wide inflation as it affects the Irish economy. We must accept that a great amount of our raw materials come from Britain and the EEC and from other countries. If all of those places are suffering in the same way from the world-wide inflationary disease, then that same disease also affects us. Our sources of supply and our raw material have been affected by that inflation before they ever arrived on our shores. Any inflationary pressures self-generated or home-generated within the economy merely have the effect of adding to the inflation which has been brought in with our raw materials. The duty of an Irish Government is to keep home-generated inflation to the lowest level possible.

It might be beneficial to consider the adequacy of the consumer price index as a real method on which to base standards during inflationary times. If inflation is not running at a high level, then the CPI adequately reflects and represents trends and gives them a fair level on which we can base wage demands. If the price index has built into it items which are inflationary of their nature, items which contain a high level of taxation, any changes in taxation in an effort to deal with inflation have immediately the effect of changing the CPI. For that reason, the price index appears to me less than an adequate method on which to base wage demands. For that reason, perhaps in the future, in an effort to deal with the inflationary problem, there should be a reappraisal of the items that go to make up the CPI. There should be an acceptance on the part of all those who have used it as a standard that it does not really give an adequate reflection of events if it will have items included of the sort included at the moment.

We would be shutting our eyes to the economic facts of life if we thought that we, of our own accord, could eliminate inflation in the Irish economy as long as it existed to a large extent in other economies and especially in countries with whom a large part of our trade is involved. A cure for international inflation will help to bring about a cure in the Irish economy. The contribution which the Irish Government can make is along the lines of the budgetary measures which this Bill is giving effect to. The imaginative step of paying a premium to employers to encourage them to take on additional employees is the sort of real contribution being made by an Irish Government towards combating inflation within the Irish economy and within the home-generated inflationary sector. The need for a world upturn in trade and in successful attempts to tackle inflation is one that has been adequately dealt with numerous times in the past here and elsewhere. Until that takes effect, inflation will take place throughout the western world and this country will suffer from it.

The best that an Irish Government can do is to attempt to protect the people and the economy and the wage-earner from the worst effects of it, and to endeavour to have social welfare benefits at a level commensurate with inflation and at a level which will to some extent help those who find themselves temporarily inconvenienced because of the effects of inflation on the home economy.

The Government have taken steps in those two fields to do that. They have endeavoured to stimulate employment through the employment premium. They have changed taxation rates. They have spelled it out clearly to the various sectors in the economy that they will have to accept a real drop in living standards in the next 12 months. They have brought social welfare benefits to a level where those who are unemployed can expect far more than they have done had they been unemployed three or four years ago. They have continued to have the IDA endeavour to promote the creation of new industries and the creation of new jobs as replacements for those which have been lost as a result of redundancies and as a result of industries being forced to close because of international monetary pressures. On those various wide fronts, the Executive here have made a real and worthwhile attempt to combat inflation as it exists and as it presents itself to them within our economy.

There now remains a duty upon international policy makers to damp down the world inflation level. There remains what I think must be our greatest hope of all and our most earnest desire, that is, that the people in Britain will lend their hand and will set about the task of putting their inflationary house in order. Until their foundation has become more solid again we will have to suffer the stormy effects of the time they are going through. Until, internationally and particularly in Britain, measures are taken to bring some reality into our raw materials coming in here for our manufacturing industry, the measures that have been taken by our Government are the correct ones for our economy. Let us hope the British will put their economy back on the rails.

I only hope, and I mean this very sincerely, that during the summer those in Opposition will not indulge in the all too easy operation of reminding the unemployed that they are unemployed, the all too simple and lazy politician's rhetoric of pointing out the difficulty for school-leavers of finding jobs, and of generally bringing an air of uncertainty to the factory floors. The duty devolves upon all of us, whether we sit on this side or that side of the House, to encourage people to co-operate with the Government and with the Oireachtas, with all of us in public life, in endeavouring to combat inflation and facing up to the fact that to do that requires our getting down to work and our acceptance that our real living standards will not improve in the next 12 months, that for many of us they may drop by anything from 5 to 10 per cent. If we can do that we can combat inflation within our economy. That duty devolves on every public representative and every community leader.

Anyone who takes the easy way out, of criticising for the sake of criticising, is doing a bad day's work for the economy and a bad day's work for successive Governments. It might be easy for anyone to do that now but he might regret it very much in 12 months' time. I urge my colleagues to have the sense of responsibility for so long lacking in Britain where they have now so apparently realised the great mistake they made. Those who were hysterically vocal in the recent past in an unreasonable and unrealistic way are now scrambling back towards the platform of sanity and exhorting their fellow workers to listen to them now and to forget what they said in the past. Let us hope that an equivalent does not take place here and that everyone involved, every community leader, will set out convincing the people of what is needed to keep this economy on the right rails.

Mr. Yeats

This budget is in many respects a somewhat insignificant and certainly belated effort to deal with problems that all of us know have existed for several years past. One can mark, almost celebrate, its appearance as a belated sign that the Government have at last come to accept the reality of the danger of inflation. For two and a half years the Government constantly and consistently discounted the importance, the dangers and the effects of inflation.

Indeed for a considerable time the Minister for Finance—I remember having an argument with him in this House in 1973—even denied that our rate of inflation was anything to be worried about. I can remember him doing that in 1973 at a time when, as Senator Harte told us a week or so ago, there was a 73 per cent rise in the cost of raw materials. I remember the Minister for Finance at that time in discussions we had in this House maintaining with much misuse of statistics that the rate of inflation was falling in Ireland.

We have in this budget, which in every other respect is totally inadequate to deal with the problems that face us, the recognition by the Government at last that the greatest single danger that faces us is the danger from inflation. I wish I could feel that the Government have reached this belated recognition on the basis of economic indicators which have been available to them for a very long time past. I am afraid that on the contrary the only real reason for this ultimate recognition by the Government of inflation and its dangers is their sudden realisation that with the sole exception of the United Kingdom, our near neighbours, all other countries have been successful to a considerable extent in dealing with inflation, that inflation in fact is falling quite rapidly everywhere else except in Ireland.

It was this sudden discovery more than any other single factor that persuaded the Government that they had really better settle in to do something about our own rate. Until then the Government were perfectly happy to ignore it, to discount it, to wait in happy expectation, that the time would come when other countries would take the necessary steps and face, in the case of their Governments, the necessary political unpopularity to deal with inflation among other economic problems of the day and that these efforts would ultimately come over and effect our problems and automatically reduce our own inflation rate.

This, of course, did not happen and the Government suddenly realised that in the face of relatively successful efforts in other countries that we were merely, because of our increasing rate of inflation, which was two or three times that of most European countries, pricing ourselves out of the markets. It was this recognition and the recognition that exports this year were falling off severely as a result of our lack of competitiveness, that compelled the Government to take some steps, even if inadequate, in the budget we are discussing today.

One of the problems with the Government is that they attempted for a long period to pretend that prices were not rising, and ultimately when they admitted that they were they shunted inflation aside as a relatively minor factor in our economic life. Not only did they do this but by their own deliberate actions they contributed directly to the build-up of inflation. They did this in a variety of ways. One obvious way was the imposition of indirect taxes, particularly in the previous budget in January, 1975— I shall come back to that later—but they did so in other ways particularly by excessive spending resulting in ever-larger and ultimately enormous deficits in the current budget. They seem to have been oblivious of the fact that if hundreds of millions of pounds are spread around it has the same effect as printing bank notes in increasing the level of prices throughout the community.

In the budget of January last—this disastrous budget—the Minister for Finance and the Government, in a desperate effort to seek and to maintain political popularity, added recklessly to inflationary forces. Let us consider what they did. They increased expenditure very considerably and it was not compensated for in any adequate way by increases in revenue. So they provided for a huge current deficit of £125 million. But more important than this, by their indirect taxation, including the enormous increase in VAT on petrol which they imposed in advance of the budget, they added 4 per cent to the consumer price index, 3 per cent directly and another 1 per cent at least allowing for the effect of wage increases later on on the index. They did this knowing that the negotiations between employers and trade unions were about to begin on the national wage agreement. They knew that this 4 per cent increase in the cost of living would add directly to the amount of the agreement and therefore to the inflationary forces in the country as a result of increases in wages. They called for restraint in scores of speeches and in many documents, white papers and so on but they did nothing to exert any influence on the negotiations. In their own budget the Minister for Finance and the Government deliberately by their own actions made restraint in wage demands far less likely and indeed impossible.

The end of last month saw the complete collapse of the January budget. We had the sudden announcement by the Minister for Finance that £86 million beyond what was budgeted for in the annual budget of January had been sanctioned for expenditure. No adequate explanation was given as to how this extraordinary discrepancy arose. The Minister, with some innocence, told the Dáil in his budget speech of last month that from now on he was going to keep an eye on expenditure and ensure that there would be no further additions to the budget provisions. Why did he not do this in January? It is inconceivable at a time when the annual budget was already so heavily in deficit that these vast increases in expenditure could be allowed by the Minister without any adequate explanation.

As a result of this the Minister tells us that the deficit in the annual budget as provided for in this Finance Bill is up from £125.4 million estimated in January to £241.6 million. This is an extremely optimistic estimate. I would be glad if the Parliamentary Secretary could tell me whether one must add to this figure some millions for public service pay. The Minister for Finance told the Dáil and the Seanad in recent weeks that since January he had sanctioned an additional £21 million for public service pay, but only a month or so ago on the Appropriation Bill in reply to a question I put to him, he told us here in the Seanad that in this financial year he would have to spend £29 million extra for public service pay. I take it that this means that on top of the already enormous budget deficit there is at least £9 million more for public service pay. I would be glad if the Parliamentary Secretary could deal with this point when he is replying.

There appear to be additional sums which were not listed by the Minister which will be payable in October on foot of increased provisions for health and social welfare arising out of living costs which were promised in the January budget. I take it that this is a promise that will be fulfilled from 1st October, that for the remaining three months of this year these increases will have to be given to compensate for increases in the cost of living. The Government hope that the increases that will be shown in the consumer price index in August will be small as a result of the subsidies contained in this Bill but however small they may be the fact remains that on May 15 last the index showed a rise of 6 per cent. So that we can expect by October an increase of between 6 and 8 per cent will have to be paid for health and social welfare. These also we must add to the £242 million deficit.

There is a point that is very difficult to understand, and it makes one feel that in spite of the sudden coming to reality with regard to inflation the Minister still lives in an unreal world with regard to his current budget. He says that he expects a fall in current revenue this year of £11 million. This is almost ludicrously understated. If one takes the first six months of 1975, the Minister budgeted for 28.5 per cent rise in current revenue but in fact the figures for the first six months of 1975 which are available now up to the end of June, show that he had only an 18.5 per cent rise. The shortfall in money terms over a period of six months is £32½ million. Over a whole year that would be £65 million, not £11 million. It may mean that the Minister hopes—and he is always hopeful about the future; he is the eternal optimist—that there will be an improvement in revenue in the second half of the year. Objective reality suggests that there may be a disimprovement rather than an improvement. Independent experts do not expect that there will be a pick up in the second half of this year in economic activity of a nature which will increase revenue. But even if the Minister were right, any improvement would be relatively small, and if he is not short of a sum of £65 million at the end of the year it certainly will be in the region of £50 million, I suspect in fact it will be considerably more. All the indications are that the deficit will not be £240 million by the end of the year but somewhere in the region of £300 million or even more. This raises the most appalling prospects for the future stability of the national budgetary position. Also, of course, it adds enormously and unnecessarily to inflationary forces.

Consider where we might be now if the Minister had taken a different line in the January budget. If he had taken in time instead of belatedly the advice which was first given by the Fianna Fáil party around September of last year and if he had, as we suggested that long ago, reduced the rise in the cost of living as he has now done by 4 per cent, the February 1975 index figure would have been 4 per cent less than it was, the national pay agreement accordingly could have been pitched at a lower level. There would not be this problem of trying to negotiate an award which has already been settled by the votes of the workers. The national pay agreement could have been that much lower. If the Minister had refrained, as he should have, from deliberately adding 4 per cent to the cost of living in January, the direct effects—this is not just supposition; it is plain statement of fact—of a budget of that nature would have been that the cost of living would now be 8 per cent less than in fact it is. That 8 per cent would have had enormous effects on the immediate economic future of this country.

The Minister, instead of doing this, deliberately added 4 per cent to the cost of living in January, then he refrained from taking our advice at that stage and taking 4 per cent off the cost of essentials, as he has now done, too late.

One wonders what is the explanation for the consistent overspending of the Government in which they have been indulging since they came to office. I say overspending not in the sense that one in any way regrets the increased amounts being spent on social services and matters of that kind but overspending in the sense that the Government have been consistently increasing, as any Government would like to do, the expenditure on these matters without raising the necessary revenue to meet the cost. The Minister for Finance said in his budget speech recently in the Dáil that, as he put it, as a result of double digit inflation public expenditure has risen enormously. Obviously, of course, excessive inflation raises public expenditure.

The greater part of this enormous increase in public expenditure is due to the direct decisions that the Minister for Finance and the Government have taken. It is simply an illusion a catastrophic illusion in the circumstances, that the Minister for Finance should be saying in effect that he has no control over the level of the expenditure. The time when public expenditure is rising because of inflation is the time when a competent Minister for Finance ensures that there is as close a limit as possible held to such increases. As expenditure has risen along with inflation, alongside that you have the constant decisions by the Minister and the Government to add enormously in all fields to such expenditure, ending up with the incredible situation where in less than six months the Minister has by his own decisions added £86 millions to the expenditure laid out in his budget of last January. Nothing like this has ever been seen here and I doubt if anything like this has been seen in any other country. It would seem to be the result of a complete breakdown in the budgetary management of this Government. That is the only conclusion one can come to.

How will this huge deficit of some £300 million in the current budget be financed? Obviously, this deficit together with the very large sums required for capital expenditure will have to be financed to a considerable extent by foreign borrowing. In January we had an estimate given by the Minister that it will be necessary this year for the State to borrow £225 million abroad with a further £50 million by various State bodies. This is an enormous figure and the Minister pointed out in January that it was an enormous figure, one which put a great strain on the country, which involved the danger that we might run out of people willing to lend to us. Yet, now this huge figure is increased by a further £50 million. We are now told that it is likely we will have to borrow this year some £276 million abroad with a further £50 million estimated for State bodies. One suspects that may be more because last year State bodies borrowed £80 million and if they borrow only £50 million this year that will be a considerable fall. All this is obviously highly inflationary. There is very little difference between that kind of activity and just settling in to print money. The inflationary consequences are about the same in each case.

It also raises the very dangerous problem that at some stage we may simply, as the Taoiseach and the Minister for Finance have suggested may happen, run out of people willing to lend to us, in which case there would be a catastrophic fall in living standards.

Some figures came out a week or so ago showing the record of various European countries with regard to deficits on their current and capital budgets. One of the problems, of course, with this Government has been that from the very start, in May, 1973, with their first budget they have attempted to spend and to borrow themselves out of trouble. Each time that the Minister for Finance has come before us with a budget he has been saying that the amount that we are spending, the amount that we are borrowing, will improve the economy by so much per cent, will put so many people to work and so on. Of course, it has not worked. Each time the Minister comes before us with a new plaint of this kind there are more out of work, there is more inflation, more borrowing, a lower national income. That has been the policy of the Government from the beginning. It has led to the kind of result which is shown by these figures. In the present financial year in Denmark, for example, the budget which was in surplus for many years will show a large deficit which could amount to 4 per cent of gross internal product. The net balance in Germany is likely to be more than 3.5 per cent of the internal product. France, we are told, will emerge finally in 1975 with a slight deficit—I suppose it is too small to measure. Italy, which was in a state of semi-bankruptcy last year, has managed to pull itself up by taking the sort of severe measures that the present Government have not even begun to consider. In Italy, the net balance, we are told, could be 6.2 per cent of the gross internal product. For the Netherlands the corresponding figure is about 3 per cent of gross internal product. There is no figure given for Belgium but apparently it is not going to be very large.

In the United Kingdom, which is now the sick man of Europe, the deficit is considerably bigger than in these other countries. In this year the deficit may represent more than 7.5 per cent of gross internal product, which is a pretty serious figure to have to face. When we come to Ireland we find that the deficit to be financed for this year will reach approximately 16 per cent of gross internal product, more than twice the figure for Great Britain which is universally recognised as the sick man of Europe.

This is the kind of situation that the exaggerated, almost childish optimism of the Government have led us into. The Minister for Finance increasingly reminds me of that super-optimist who having fallen from the top floor of a skyscraper is heard saying as he passes the 30th floor, "Well, nothing has happened to me yet." This is the kind of optimistic attitude that one has come to expect from the Government. If they spend enough, borrow enough, some day, some how, things will go right.

Since the January budget there has been an increased current deficit in the budget of £117 million and it is likely to be considerably more than that, but the increase that the Minister assesses at the moment is £117 million. Consider the position if, in fact, the Minister had taken adequate steps to see that the provisions of the January budget were carried out, that £86 million worth of additional expenditure was not sanctioned, that in the face of considerable fall off in revenue, cutbacks were made in other respects, in other words, if he had held to his estimate of £125 million deficit in this year consider what the situation would be. If instead of borrowing this additional £117 million to meet the current deficit he had used this figure—it would not increase our borrowing. It is going to be borrowed abroad, so he will have it—if this £117 million had been used for providing work directly, it would provide work on a very large scale and would mean in effect that our whole unemployment situation would be revolutionised. He has not spent this money for this purpose. It is to be dissipated and wasted. It is to be borrowed abroad very expensively. It is going to be a burden on us for years to come to pay it back. For what?—to pay for the increased budgetary deficit that the Minister has allowed to take place since last January.

One must welcome this belated if insufficient conversion. At last, the Government have taken some action in this recent budget. The 4 per cent subsidies are too late. They come nearly a year after we in Fianna Fáil urged them on the Government. Incidentally, that is the answer to Senator Boland who says it is not enough to oppose, that even members of the Opposition should try to lead. We did try to lead. We tried to advise the Government as to what they should do. They did not take our advice until it was too late, but it gives some sense of satisfaction that they have done it even if too late. They have done this after the fixing of the national wage agreement. It now becomes a gamble as to whether it will be possible between employers and trade unions to come to some satisfactory arrangement which will provide for the changes which the Government deem to be necessary in the national pay award.

My personal opinion for what it is worth, with regard to this is that it was a mistake to make the changes in VAT. This is my personal opinion. It would have been better to get the equivalent fall in the price level by direct subsidies. We are going to run ourselves into trouble with VAT. It is clear that in years to come, we do not know yet when, there will be harmonisation of VAT rates throughout the EEC. The more we depart from the EEC norm by zero rating items such as clothing and shoes the more difficult it will be for us to conform to whatever ultimate arrangement is brought about in the EEC. My suggestion would have been that the same fall in retail prices should have been achieved not by changes in VAT but by direct subsidies. That is a relatively minor point because I am entirely in favour of the subsidies or other changes which have resulted or will result in a fall in retail prices. It is just a matter of the mechanics of doing it which I think was mistaken.

These changes, welcome and desirable as they are, will have no lasting effect on prices. It will mean that there is a considerable fall in the rise which would otherwise have taken place on 15th August but it will have no real effect on the figure for 15th November, nor indeed in February and the months after. It is a purely temporary, once for all, effort and unless and until the Government take other steps, particularly steps designed to reduce this excessive dependence on borrowing, there is no real guarantee that there will be any slowing down in the rate of inflation. It is no great consolation to us if on one single occasion there is a lower rise than otherwise would be if we go back then to the old business of 6 per cent each quarter. We will have to do far more than that.

I am not going to say much about the premium scheme because we will be getting the Bill next week. There will be a good deal to be said on that Bill. It is obviously a step that one could welcome. I am dubious about how effective it will be. I am dubious about the way in which the scheme apparently will be operated. Obviously it can do no harm and in so far as it does good it is certainly to be welcomed. Time will tell as to how effective it is and one can certainly welcome its appearance in the budget.

The only other real step that the Government took in the budget was the extra £27 million for capital expenditure. This is obviously to be welcomed but much of it will have little or no direct effect on increasing employment. For example there is a sum of £8 million or so for increased expenditure on telephones. We all know that our telephone system is diabolical and anything that will improve it is to be welcomed but I cannot feel that the provision of £8 million or so of additional equipment to telephone exchanges and the like will have any perceptible effect on unemployment. I do not know whether an extra dozen or two may be employed on telephones as a result of this money, but that would appear to be the limit. If the Government were able to devote as little as £27 million for capital expenditure they should have used it for direct expenditure on such things as increases in output of schools, hospitals and so on which would have a direct effect on the level of employment.

The only real increase rate is in expenditure and also in increased provision for loans on housing, and this is to be welcomed though one wonders whether it, in fact, goes far enough. One of the problems with the various provisions in aid of housing has been that alongside this the Government, with I think extraordinary insensitivity, unnecessarily increased by about 10 per cent the cost of borrowing money to buy houses. It seems to me there is no great advantage in making money available for loans to the private sector if at the same time you increase the cost of borrowing to such an extent that it may well not be possible for many people to buy a house by borrowing money. If the Government want to get houses built in the private sector it is extremely unwise of them at the same time as they provide money for loans and so on through the banks and in other ways they should increase the cost of borrowing in this way.

The Government, one would almost feel, in the budget have deliberately singled out the middle classes in an effort, for whatever purpose one cannot imagine, to reduce their living standards. The only people who are asked to pay anything in the budget in the way of increased taxes and so on are the middle classes by way of the surtax, the 10 per cent extra on income tax of 35 per cent and beyond. This covers the greater part of what I suppose might be described as the middle classes, the people who live in semi-detached houses, civil servants, teachers and so on. These are the very people who buy houses in the private sector. Not alone do they have a 10 per cent surcharge on their income tax bills but also have a 10 per cent surcharge on their housing costs. It is difficult to understand the rationale for this. I do not think it will achieve the kind of aim that the Government have in mind.

One of the big problems, of course, that the Government now face—I suppose they should have foreseen that something of the kind would happen—is the new British policy with regard to wages. In Britain, as the Government know—of course, we all know—the rate of inflation is approximately what it is here, perhaps slightly more, around 26 per cent whereas ours is 25 per cent. We have only survived at our present rate of inflation because of the fact that we were more or less parallel with that in Britain. Since 50 per cent or more of our trade is with Britain it means that at least, as regards that part of our external trade and our economy in general, bad and all as we are, we are on all fours with them, but if you have a situation where the rate of inflation in England and costs generally fall considerably faster than they do here, or should I say, rise considerably slower than they will rise here, then we are in real economic trouble.

The British have decided to limit wage increases to an average of some 10 per cent, which is in effect what the £6 limit means. It would appear, so far as one can see, that this will be accepted by all sections of the economy, both employers and trade unions, that on the whole it will be accepted. Therefore there will be this very, very sharp decrease in wage costs in England in the next 12 or 18 months. This will have very drastic effects on us. The effect on England will be, quite clearly, highly deflationary.

In a situation where their cost of living is rising by some 26 per cent a year to limit all wage earners to 10 per cent will lead to a very, very drastic fall in purchasing power. It will inevitably lead to a considerable fall in the rate of inflation. How far it will fall one does not know, whether it will be 9 per cent, 10 per cent, or perhaps 12 or 13 per cent. At any rate it will be a very much less rapid rise in prices than we, I suspect, will have here.

Quite obviously if our wages continue to be indexed, which is essentially I think the best that we can hope for at present and the British wages, with the corresponding rate of inflation limited to 10 per cent, the result will be that our exports will become increasingly and rapidly uncompetitive. Not only that but British exports to us, imports here from Britain, will become cheaper and more competitive in the Irish market, so we will be hit both ways. We will find it more difficult to sell abroad and in our shops we will find it more difficult even to sell at home against British imports.

Under these circumstances it seems to me that the present budget, which was always inadequate, becomes more inadequate. It is, in fact, already completely out of date. The Government will have to take far more drastic measures than they have even contemplated so far. This applies to people, no matter what their political views are, whether they are employers, trade unions or whatever they are. Anyone must concede that if the rate of inflation in England is, shall we say, 12 or 13 per cent and continues here around 20 to 25 per cent we will suffer very severely economically. Our unemployment next autumn, winter and spring is likely to rise very considerably more even than one expected.

Under these circumstances we are discussing a budget which is already out of date. It will do between now and September. One hopes that it will have some effect in bringing about some kind of minimal alteration to match the changes in prices in the national pay award, but it will just about do until September. The Government will have to come back in the autumn with something which matches more closely the needs of the moment, and particularly the needs of the moment in the light of the British situation. The Government must recognise that their policies, until now, have been totally mistaken. They are saying the right things. One of the peculiarities about the Minister for Finance is that he often says the right things, then goes ahead the next week and does the exact opposite. We now have the Taoiseach also saying the right things, pointing out the appalling danger in which we stand with regard to inflation, pointing out the very, very serious danger that we will run out of money and that we will simply not be able to borrow the gigantic sums abroad that we need. The Government I think have come to realise the problems but they have not yet come to act on them. We can only hope that by the time we come back in the autumn they will have done something more practical and more useful than in this budget.

Mr. Russell

Listening to the contributions from the opposite side of the House one would get the impression of doom and gloom facing the country. Everybody accepts the fact that we are in a severe economic crisis. It is correct to say that the duration of the economic crisis has been miscalculated by all the experts, lay and political, over the past two years. It is not so very long ago when we were talking about an upsurge in the economy this spring. That feeling was fairly generally shared throughout the country. Very few heard of any experts forecasting that we would still be in the midst of a severe depression in the second half of 1975. I agree wholeheartedly with Senator Yeats and other speakers who have said, quite rightly, that inflation is at the root not only of our problems but of the problems of virtually every western economy at the present time. Unfortunately there is no unanimity with regard to the measures which would be taken to abate the rate of inflation. It is all very well to talk about inflation over the past two years and for Senator Yeats and his colleagues to talk about the warnings they gave to the Government six or eight months ago, But inflation did not begin in 1973. As far back as 1970, when Senator Yeats' own Government was in power the National Economic and Social Council warned the then Government about the urgent necessity of abating the rate of inflation. I do not recall, in retrospect, any positive steps taken at that time to abate the then rate of inflation.

The Minister for Finance, speaking here a few weeks ago, put his finger very clearly on the difference between the situation in 1975 and the situation in 1974. In 1974 something like 60 per cent of our inflationary experience was due to influences outside the country. This year something like 80 per cent is due to actions taken by ourselves. This is an astonishing change in a short period of 12 or 15 months. Here again I agree with Senator Yeats. It is obviously right that the Government of the day must take stringent and positive measures, first of all to abate the rate of inflation and to do it quickly and immediately. Secondly, to ensure, wherever possible, that employment is increased, and, thirdly, to inculcate into the population generally a feeling of hope for the future. Over the past two or three hours in this House very little hope for the future has been evidenced from the Opposition benches. Indeed I would be very sorry to think that the general mood in the country is reflected by some of the contributions made today from the opposite side of the House.

A number of reasons have been given for the present high rate of inflation, some of which I would not disagree with. A popular one, of course, is the high rate of Government spending. People out of Government berate the Government for their high rate of spending and call on them to reduce spending, but the people who do this do not spell out the consequences of a substantial reduction in Government spending. They do not say that the only way the Government can reduce expenditure is to reduce employment, to substantially increase unemployment. I am sure that those who advocate this step would not wish to see these consequences following. You cannot reduce Government expenditure unless you face up to the consequences which are substantially reduced employment and greater unemployment. The two go hand in hand. One follows the other quite logically the same as any firm or a company. If that company reduce expenditure they lay off men. It is the natural corollary.

Mr. Yeats

If they do not they go bust, then all the men are out of work.

Mr. Russell

I am just stating facts. I think they are incontrovertible facts, that if you spend less there are fewer people employed. That is a fact of life, whether it is a country, a firm or even a small family business.

The increased rate of income has been another criticism levelled against the Government. There is no doubt about it, taking the country as a whole, we have all been taking more out of the economy than we have been putting in. We have been paying ourselves too well notwithstanding the fact that some sectors of the economy, the less privileged and the weaker sections, are now probably worse off than they were before this inflationary spiral hit the country.

Foreign borrowings have been suggested as a further cause of inflation. I believe foreign borrowings are inflationary. What is the alternative? Not to borrow. Again we must face up to the situation. If we do not provide money through higher taxation the only other way we can provide capital for capital programme and other necessary expenditure is through borrowing. There is room for argument about the amount of the borrowing and the size of the borrowing. Here a useful debate could take place, but to broadly say there should be no foreign borrowings, that the foreign borrowings should be substantially reduced, without spelling out the consequences again, to say the least of it, it is unhelpful.

Finally, and correctly, external forces, although they have abated, have been suggested. As I said a few months ago relative to our inflationary situation we are still tied for something like 50 per cent of our trade to the British economy. As Senator Boland said, quite rightly, a short while ago, when they sneeze in Great Britain we get a cold here. That is still very true. The ideal to be pursued and in fact being pursued over the years is to reduce our dependence on the British market, to expand our trade on the Continent and elsewhere. That is true. As statistics show over the past decade a very substantial proportion of our external trade is now done with the Continent of Europe and with the United States. It would be everybody's hope that that proportion would be substantially increased in the coming years.

The present measures in my view offer the only hope of producing corrective results quickly. They may seem drastic. Senator Yeats has talked about increased taxation. Nobody likes to see increased taxation but it should be recalled that the extra taxation, £8 or £10 million or whatever will come in due to the extra taxation on incomes above the 35 per cent income tax rate, will only partially pay the bill for the subsidies which have been or will be introduced over the next couple of weeks. In fact we are asking those better off, not necessarily the well off—some of the people in the 35 per cent income tax bracket in today's circumstances could not be regarded as being well off—than some of the people who will benefit by the subsidisation of food and by the removal of VAT from clothing, footwear and other essentials.

Something had to be done drastically if the ground was to be prepared for a renegotiation of some of the terms of the national wage agreement. It is easy, with hindsight again, to criticise the terms of the national wage agreement but it should be recalled that the national wage agreement, while it was signed only a few months ago, was negotiated for many months prior to that. Indeed last year it was questionable if we would have a national wage agreement at all. There was general relief and general approval, while possibly not unanimous approval, of the terms of the national wage agreement. The fact that we had got a national wage agreement was something of significant importance and something on which to steady the economy and to prepare for a further advance in the economy.

It might be argued that the terms were too generous. At that time one should recall that the forecasts were for an inflation rate of 21 per cent or thereabouts. Since then it has become obvious that not alone is the 21 per cent now illusory without the measures just introduced by the Government but our rate will run at 25 or 26 per cent. They are the ugly facts of the case. Inflation feeds inflation. Unless these drastic steps are taken without delay it is very difficult to estimate what the rate of inflation might be later in the year or early next year.

This time, above all else, the support of all sections, political, social and economic, of the community is needed in a national partnership to get the country out of its present difficulties. Opposition Senators said, quite rightly, that they have a duty to oppose and criticise. I respect their right in that regard. They also have a duty to offer constructive proposals. In the final analysis they have a duty to support the Government and present a unified front to the country as a whole.

It is obvious that the Government measures can only succeed if a response is forthcoming from the trade unions. I was very heartened today to hear Senator Halligan confidently predict that trade unions, being a responsible body with the good of their members foremost in their minds, would give a positive and acceptable response. It is true to say that if this co-operation is not forthcoming from all sections of the community, particularly from the stronger and better organised groups, the Government's package will undoubtedly fail. The inevitable result will be even greater unemployment and greater social distress.

Everybody approves of lower prices. Every Senator will agree that from that point of view the reaction to the recent budget has been, without exception, one of welcome, particularly by housewives who had begun to think that the spiral of rising prices would never end. The psychological effect of that alone will have an important and welcoming impact on the outlook of the country, the feeling that something at last is being done. Everybody hates higher taxation. Unfortunately we cannot have it both ways. Whatever the mood of the country six or 12 months ago, when all of us believed that if we had an extra £1 or £5 in our pocket we were better off, the realisation has now come home to everybody that we cannot have it both ways. The time has come to make sacrifices. Those of us best able to bear it will have to accept the largest share of the burden. If we do not do this inevitably we will have a third budget and possibly sooner than we think. That budget would be extremely harsh and extremely unpopular but possibly the only effective measure in the circumstances as a result of not accepting, right across the board, the present measures.

We have a duty in present circumstances to protect the weak and underprivileged and to ask those in secure employment and those with good incomes from business, professions or other vocations to accept a temporary moderation in their incomes. Meanwhile we must push ahead, even in this time of recession, with efforts to encourage industrial and agricultural expansion. We must also push ahead with the training and retraining of our young people in jobs that will assuredly be there when the present depression has lifted. Setbacks for individuals as well as for nations will come, whether we like it or not. Our duty is to learn from our present difficulties but never to despair. The Government's present measures may be open to criticism and some Senators might like to suggest more severe measures. Some may say they are belated, but all will agree that the time is due, when, as a nation, we have to pull up our socks in every sense of the word. We have to ensure that our economy is put back on a sound footing and that the opportunities for further advancement are there when the time comes.

Mr. Deasy

I welcome the sentiments of the Bill in that we wish to reduce the cost of living or the rate of inflation by 4 per cent. I wish to stress a point, which may not actually involve finance, that is the attitude of the people at large in the country. I feel we are inclined to be too critical of people who are doing their best to produce and to work to their best capabilities. The farming community feel that they are not getting the best deal possible. It has become popular to criticise and to be rather cynical about the efforts being made by the agricultural sector. They are not given due appreciation for their efforts. Quite candidly, our present financial problem is largely due to international recession and general world-wide depression. A lot of our problems in this country are due to the attitude of the public. This attitude of not working and still getting as much as you can by doing as little as possible is very prevalent. The country depends largely on the attitude of the people as to whether they will wake up and decide to shake off this lethargy which has affected them.

There is a feeling that our financial problems have been brought about by this attitude of doing nothing or doing very little and trying to get as much of the national cake as possible. From being a representative of a rural area I know the farming community, in particular, are very aggrieved that they are coming out worst in this situation. They would like some redress. They feel that they are being taxed and that they are having to work harder for less return. Not alone are they getting less return but they are getting no sympathy whatsoever from the public at large or from politicians. It is important that we make an attempt, whether we are actively engaged in agriculture or not, to let it be known that we appreciate their problems and that we want to see an upturn in their fortunes. This country stands or falls on the success of our agricultural industry. At the moment it is going through a particularly bad phase and our economic situation goes hand in hand with that. It too is suffering to a large extent.

If farmers could feel in their heart and soul that everybody was pulling his weight they, too, would not mind enduring a little discomfort, but they do not. It is a very true feeling that there is a misappropriation of work and a misappropriation of benefit. I come from County Waterford, an area where you have got the ideal mixture of Irish life. You have got the farmer, large and small, you have businessmen, tradesmen, labourers, industrialists, a cross-section of the Irish public. It is unsatisfactory, to say the least of it, that people such as these in agriculture who are really working hard are made feel that they are not getting a fair share of the national cake. It is difficult to say what the reasons for the grievances are, but when we see people in our area working tremendously hard and not getting a reasonable living, we must ask questions.

When we see people in other parts of the country who are getting handouts for doing little or nothing, we have to question what is right and what is wrong. We feel that maybe our financial problems stem from the fact that people in certain areas are being subsidised, and thereby causing a national financial problem to an extent which is not justified.

I will cite a typical example of certain areas of western Ireland being subsidised to a major extent. People in these areas have incomes which are better in many cases than those of people who are not getting an iota from the Exchequer in subsidy. People can milk up to 40 cows or they can have large tracts of land which have been reclaimed and they are earning a good living while hardworking people in the eastern part of the country get no relief whatsoever. I know they get complete relief on the first £20 of their rateable valuation and a portion of the next £13, but there are such things as unemployment benefit and dole which are given to farmers and others who are earning a sizeable income. There are people who are getting no benefits and who are working very hard and feel they are being victimised. This is bound to affect the national fibre.

It is time we were seen to distribute our favours, our benefits and our justice equally throughout the country. We could evolve a far better national spirit if that were seen to be done. Unfortunately at the moment certain elements of our society feel they are being victimised and that they are carrying the burden for others who are doing far less and getting far more.

Parliamentary Secretary to the Minister for Education and the Minister for Industry and Commerce (Mr. Bruton)

There was little or no basic criticism of the Bill itself in the lengthy debate we have had. We had a discussion which perhaps might have been more relevant to the Appropriations Bill. The Opposition was led in this debate by Senator Lenihan. He came out against what he regarded as undue attention being paid by the Government to the consumer price index. But he also in his speech said that he and his party were very much in favour of national wage agreements and the discipline imposed by such national wage agreements.

The fact of the matter is, of course, that the consumer price index is an integral part of the national wage agreement and that the wages paid under the wage agreement are related closely to the movements of the consumer price index. Therefore, you cannot be for the national wage agreement and against measures which take account of the technical reality of the situation, which is that the consumer price index is very important in any endeavour to secure a regulation of the increase of wages being paid under the national wage agreement.

In common with Senator Yeats, Senator Lenihan criticised the level of borrowing of the Government. Perhaps those who were lending money on the money markets of the world are a better judge of the creditworthiness of this country and of the Government than are the Opposition. Certainly they are a more objective judge. Their judgment has been that the present Government and the country at large are creditworthy and this is witnessed by the fact that the Government have been successful in raising substantial sums of money. This as the Opposition are never tired of reminding us, is money that must be paid back. If the people who are lending the money to us did not have confidence that we would be able to pay it back they would not be lending it to us. The fact is they are lending it to us because they are confident in the basic strength of the economy and in the ability of the Government to get the most from that strength.

Senator Yeats criticised the level of public expenditure and alleged in what one must agree was a very good speech, that this level of expenditure was contributing to inflation. That is open to argument. There is much academic discussion as to what are the major determinants in the rate of inflation. In an open economy such as ours increases in the level of public expenditure have all that great effect on the rate of price increases. The only way in which public service increases can effect the level of inflation is by increasing aggregate demand, which if it exceeds aggregate production can lead to increases in the cost of living.

In many cases the public expenditure he so berates is contributing directly to increases in production and, therefore, if you like, is being placed on the other side of the scale. Because of the propensity in an open economy such as ours for money which is spent within the State to go very quickly out of the country for the purchase of imports, much of the increase in public expenditure here does not increase aggregate demand at all but can contribute to aggregate demand in those countries from whom we are importing. As a means of curbing inflation, the cuts in public expenditure which he is recommending would be very indirect and very slow in their effect. That is not to say that it is wise for any Government not to seek to curb public expenditure because clearly public expenditure must be paid for by increases in taxes, but in itself it is something which is valuable and should be looked after. The argument that increases in public expenditure are contributing directly to inflation, as distinct from other considerations of political economy, is not, perhaps, as stable as Senator Yeats may think it is.

Senator Yeats said in one breath that the Government were spending too much, and in the next breath that we should have introduced food subsidies back in January and that we should not have imposed additional excise duty on various products which we imposed back in January. Had we made provision for food subsidies in January that would have added greatly to the level of Government expenditure, because subsidies are Government expenditure. Equally, had we not raised the excise duty in January we would have had to raise the money in some other way.

Much of the increased expenditure which is taking place has gone into various improvements. There has been a dramatic increase in the money available for training and retraining workers with permanent benefit to the human resources of our economy. It has gone into increased money for housing, and nobody can deny that making more money available for building results in more people being employed. We need to have more people in employment rather than on the dole. We have provided increased grants for the IDA. Again, nobody can doubt but that this is resulting in increased production.

Senator Yeats criticised the relationship between borrowing and our gross national product. He compared us unfavourably in this respect with other countries. One can argue on the other side of the coin on that score. The situation is that there is a great deal of unused productive capacity in our economy at the moment, and unemployment is the most graphic illustration of that unused human and physical capacity. If there is a business or a farm that had unused capacity, it is common business sense, if you have not got the money yourself to get that capacity to work, to borrow it from somebody else to make sure that what you have there and what is available for use be used. Any farmer or businessman who approaches this problem of under-utilisation of capacity in our economy would see the logic in borrowing in this current situation.

The Senator inquired about the calculation of deficits. I can tell him that the public service pay increases announced on 29th May were included in the calculation of the deficit and that the calculation, as announced, includes all known trends in public expenditure as of now.

Mr. Yeats

And for the rest of the year?

Mr. Bruton

As of now, yes. I should like to thank Senators for their welcome of this Bill, and I hope it will have a speedy passage through its remaining Stages.

Question put and agreed to.

Agreed to take remaining Stages today.