As the House is aware, the purpose of the Appropriation Bill is to appropriate formally the amounts voted by the Dáil for the supply services. This year's Bill follows the general pattern of previous Appropriation Acts.
Section 1, which is the principal section, appropriates to the specific services set out in the Schedule to the Bill the sum of £1,693,491,010 comprising the sum of £171,559,010 in respect of Supplementary Estimates for 1975 which were not included in last year's Appropriation Act and £1,521,932,000 in respect of the Estimates for 1976. The section also authorises the use of certain departmental receipts, amounting in total to £157,304,504, as appropriations-in-aid: these are detailed in the Schedule to the Bill.
Authority to issue out of the Central Fund in respect of the items to be appropriated is contained in the Central Fund (Permanent Provisions) Act, 1965.
The debate on the Bill gives the Seanad an opportunity to debate in detail the expenditure contained in the Bill and to discuss expenditure and financial policies in general. On this occasion, I wish to avail of the opportunity to discuss the general economic situation.
As everyone is by now aware, 1975 was for the western world one of the worst years in economic terms since the depression of the 1930s. Output in most western economies fell and unemployment rose sharply. Because we, as a nation, are dependent to a greater extent than most on trade with other countries, we could not escape the effects of a recession which afflicted so severely the economies of our trading partners. It is hardly surprising, therefore, that our national product fell by an estimated 1 per cent in 1975. What is surprising and, in the circumstances, gratifying is that the fall was not greater. Indeed, many economic commentators writing in the closing months of the year were expecting declines in real GNP for 1975 of between 3 and 4 per cent. They were wrong.
The fact that our economic performance last year was somewhat better than expected is due to the recovery which set in during the final months of 1975. This was in marked contrast to the earlier part of the year when industrial output and employment were falling, consumer demand stagnating and investment being curtailed. In this period, too, the underlying trend in unemployment was rising. The lowest point of the recession was, however, reached during the third quarter of 1975. The economy began to recover in the last three or four months of the year and this welcome trend is continuing.
The single, most important element of domestic demand is personal expenditure on consumer goods and services. Accounting, as it does, for about two-thirds of GNP, the implications of a slump in consumer demand for the growth of our national product are obvious. During the recession rising unemployment and inflation combined to erode real incomes. In addition, the prevailing economic uncertainty helped to push savings to abnormally high levels. These factors reduced the level of real spending and this led to a sharp fall in the volume of retail sales in the first eight months of last year.
The budgetary measures of June, 1975, which cut the rate of inflation, boosted real incomes in the remaining months of the year. That, coupled with rising social welfare payments and a recovery in agricultural incomes, stimulated consumer expenditure. In the last four months of 1975 the volume of retail sales rose by almost 5 per cent as compared with the same period in 1974, contrasting markedly with the 6 per cent fall in their volume in the previous eight months. Nevertheless, the recovery was not sufficient to offset the depressed conditions of the earlier part of the year and real consumer expenditure fell by an estimated 2½ per cent in 1975 as a whole.
In 1975 the average increase in the consumer price index was almost 21 per cent, more than 3 per cent below Britain where the increase in consumer prices was 24¼ per cent. The lower inflation rate in Ireland in 1975 was attributable to steps taken by the Government to cut the increase in consumer prices and so initiate a winding down of the price/wage spiral. Subsidies on certain food and other items in the consumer price index were introduced. These had the effect of reducing the increase in the consumer price index at mid-August by four percentage points. In fact, between May and August, 1975, the consumer price index recorded a net fall of 0.8 per cent—its first decline in 12 years. VAT was also removed from clothes, footwear and other items. This was followed by a rise of less than 3 per cent at mid-November. The deceleration in the rate of inflation in the second half of 1975 was so dramatic that in the six months to mid-November the total rise in the consumer price index was less than 2 per cent as compared with 14½ per cent in the previous six months.
Following the record balance of payments deficit of £288 million incurred in 1974, last year saw a remarkable turnaround in our external payments position. The balance of payments deficit in 1975 is estimated to have been only £15 million. This development is largely attributable to a sharp decline in the volume of our imports—a reflection of the low level of economic activity which pertained for most of the year. On the plus side, however, an exceptionally high level of agricultural exports, together with higher receipts from tourism and a significant increase in net transfers from the EEC, also contributed to the reduction in the balance of payments deficit.
While the volume of imports fell for the year as a whole, they revived strongly from September on. This was particularly evident in the case of imports of materials for further production, reflecting both the improvement in domestic output which occurred at that time and the reconstitution of stocks which had been run-down during the recession. Because of the low levels of activity in the economies of our trading partners early in the year, our industrial exports were depressed for most of 1975. However, with the onset of recovery in the major economies in the second half of the year our industrial exports in the last four months of 1975 began to grow rapidly again.
The volume of industrial output fell by over 6 per cent in 1975 as a whole. As in the case of consumer demand and trade, however, there was an improvement in its trend within the year. The decline in the trend in production, which began early in 1974, was halted in the third quarter of 1975. With the revival of consumer expenditure and increased demand on foreign markets for our industrial goods in the final quarter of the year, the trend of production turned up. Output in the manufacturing sector was 3 per cent higher in the fourth quarter of 1975 than in the previous three months.
Output in the building industry is estimated to have fallen by about 6 per cent last year, largely due to depressed activity in the non-housing area of the industry where the effect of the postponement of investment decisions during the recession was most severely felt. Towards the end of 1975, however, some improvement in building activity became apparent.
While for most of 1975 conditions in the non-agricultural sector of the economy were depressed, it is heartening to review developments in agriculture. Last year was, in fact, one of the best ever in this important sector of the Irish economy. In complete contrast to 1974, there was strong demand and a great improvement in prices for our agricultural products on foreign markets. As a result, sales of livestock and livestock products increased substantially. Indeed, the fact that there was some growth in total exports last year is entirely attributable to buoyant demand abroad for our agricultural output. Because of the growth in its main products and, it must be added, a decline in inputs such as seeds, feeding stuffs and fertilisers, the volume of net agricultural output rose by about 10½ per cent in 1975 and, as a consequence, farmers' incomes increased by over 50 per cent.
With the decline in economic activity in 1975, employment also fell. In transportable goods industries the average fall in numbers at work was 15,000 or almost 7 per cent. Employment in the building industry fell by nearly 9 per cent. At the same time, the underlying trend in the number of unemployed persons on the live register was rising. The emergence of recovery in the last three or four months of 1975 was, however, echoed in an improvement in conditions on the labour market. At the end of the year the decline in industrial employment was halted and the trend in unemployment began to stabilise.
In drawing up their policy for 1976, the Government had to contend with the two major problems besetting the economy—unemployment and inflation. Inflation had to get priority. Firstly, it was to a great extent of domestic origin, whereas the unemployment problem was basically a product of the international recession. Secondly, it seriously jeopardised our longer-term prospects for growth and job-creation.
The Government have long made clear that, because of our dependence on exports, a substantial cut in the rate of income increase was essential to our future economic progress; indeed this was the object of the novel measures introduced in June 1975. It was also felt that inflation in Britain and the depreciation of sterling, which had hitherto afforded a measure of relief from the erosive effect of wage inflation on our international competitiveness, would not last much longer. The Government therefore proposed a solution, which the Taoiseach put to the social partners and the nation in December last. This was stark but simple—a pay pause after the end of the 1975 National Agreement.
As regards the immediate employment problems, scope for budgetary action was restricted by the undesirability of increasing the difficulties in the public finances, a consequence both of the recession itself and of the many steps taken to mitigate its impact on the domestic economy, especially on employment. The 1976 budget was designed to provide the greatest possible stimulus, within this constraint, to economic activity. Priority was given to expenditures which contribute significantly to economic activity in general and to employment in particular. The central element in this strategy was the public capital programme for 1976 which was settled at nearly £600 million— almost £130 million, or 28 per cent, more than capital expenditure in 1975. The current budget, although largely redistributive in nature, also took account of the needs of the economy, the revenue necessary to meet general increases in costs and to raise socially desirable transfers being derived from taxation of less-essential commodities. Overall, the effect of budgetary policy was estimated, assuming a pause in domestic incomes, to raise this year's growth rate by 1 per cent to about 2 per cent with consequential benefits for employment.
Nearly six months have now elapsed since the budget. In the interim the pace of world economic recovery has turned out to be rather stronger than earlier envisaged. However, our dependence on the UK market, which is still expected to grow relatively slowly, will hold back our exports. Nevertheless, it is clear from the trade statistics that we are already benefiting considerably from the recovery in external demand: in the first five months of this year our industrial exports were 30 per cent higher in value than in the same period of 1975.
On the domestic front, all the information available points to a continuation of the recovery so far this year. In the first quarter, the volume of retail sales—the prime indicator of consumer demand was 7 per cent greater than in the same period of 1975. While this may well include some additional buying in anticipation of the tax increases, it does suggest an improvement in consumer confidence. Indications of investment, too, are evincing signs of improved activity. Further evidence of a general revival in demand and output is provided by the upward trend of imports in the first five months of 1976.
We have as yet no hard information on industrial production this year but recent business surveys show a consistent improvement in output. The new constant-tax price index which is the best indicator of underlying inflation showed rises of 4.5 per cent and 4.4 per cent at mid-February and at mid-May respectively. But, as happened last year, we anticipate that inflation will slow down for the remainder of the year.
The major uncertainty in looking forward to the rest of 1976 and indeed to the years beyond is the trend of incomes. Regrettably the Government's call for a pay pause until the end of the year did not receive the response which could have conferred most benefit on the whole community. The possibility of a national pay norm remains unsettled. The Government are anxiously pursuing with the social partners the best way of obtaining income developments compatible with the overall national interest. I hope that the pay settlements which may emerge will be sufficiently moderate to meet vital national economic needs.
Given the increase in this year's capital budget and an improving economic climate supported by orderly and reasonable pay developments, demand should show a further increase in the second half of the year. The volume of industrial exports should continue buoyant over the coming months. Because of supply constraint the outlook for agricultural exports is less favourable. As for investment, the large increase in the allocation for the public capital programme should, despite the likely sluggishness of private sector activity, induce an overall volume rise. In brief, a GNP growth rate of slightly more than 2 per cent now seems a realistic prospect. Those who would point out that this forecast does not accord with another one recently published would do well to remember that last year's outturn was better than some pessimistic forecasts said it would be.
While imports, in view of last year's abnormally low level and the outlook for home demand, may show a substantial volume increase, the balance of payments deficit for 1976 should be of manageable proportions. As regards inflation, the quarterly rate of price increase is expected to slow in the second half of the year so that the annual outturn should be better than in 1975, if nevertheless still disquieting. Although the employment situation should begin to improve towards the end of the year, in response to the renewed expansion of output, unemployment in Ireland as elsewhere in the European Community is likely to remain at an unacceptably high level for quite some time. So far as Ireland is concerned unduly generous wage settlements at this time would, through their effect on competitiveness, be seriously detrimental to export prospects in 1977 and later and thereby make more intractable the primary national problem of unemployment. We must remember the longer-term dimension of this problem which is undoubtedly the more important. We have to create many thousands of additional jobs annually for the next few years, both to cater for our growing population and to reduce unemployment from its present level. The targets we will have to meet are much greater than those achieved over similar periods in the past. Clearly, a radical approach is required—in particular a fundamental change in our attitudes. A high rate of export-led growth is a prerequisite to the solution of our longer-term, as indeed of our short-term, unemployment problem. Although we can anticipate assistance from a more rapid pace of expansion internationally, especially in the post-recession phase, this alone will not suffice. We must capture an ever-larger share of world markets, recapture and hold on to a larger share of a growing home market, an outcome which relies to a large extent on whether or not we disimprove or improve our competitiveness.
I have now sketched out the general economic background against which this year's Appropriation Bill is being introduced. The problems facing Ireland are not of recent origin. Some are attributable to disadvantages of naure and geography and others to a certain lack of discipline in our national character. As the National Economic and Social Council pointed out, they have been with us for a couple of decades and no group— political, vocational, privileged or unprivileged—is entirely blameless for many of our shortcomings. In so far as our difficulties were at least in part preventable or curable by our own behaviour, we have lost out unnecessarily. As a nation we have not faced up to the hard decisions which have to be taken to get and keep this country on the right tracks. The time for knocking is over. The nation needs and, above all, has the right to expect from its public representatives objective criticism and sincerity. The kind of knocking to which I refer is exemplified inThe Irish Press today, which carries a headline saying “Budget Rule by Brussels. EEC Aid— But With Strings”. The same newspaper contains a leading article which has several falsehoods. As the whole tenor of the two articles in question is at variance with what the EEC has said about the Irish economic position and as the effect of the articles, if taken seriously, would be damaging to the country, I feel it is necessary to refer to them. If knocks are delivered then those who are knocked have a right and an obligation to defend themselves particularly when the interest of the nation is at stake.
The leading article in today'sIrish Press says that:
The European Community is unhappy about the way the Government are implementing the conditions attached to our last loan of £150 million.
That is a falsehood. The EEC have not expressed any view whatsoever about the fulfilment of the conditions. If they were to express a view, the view would have to be that the Government are conforming entirely to the conditions which are policies which the Government themselves of their own volition have spelt out in the budget statement which I presented in Dáil Éireann in January last.
Further statements inThe Irish Press today, to the effect that the EEC proposes to dictate to this country how to manage its current and capital expenditure, are also without foundation. The reality behind the story is that Ireland, in common with other countries, has been pressing for better efforts on the part of the Community to see a convergence of economic policy. This involves a transfer of resources from the better off areas of the Community to the less well off. That is inherent in the obligations of the Rome Treaty. Therefore, rather than having any reason to disapprove of any exhoration from the heads of Government in Brussels yesterday, this country is glad to hear that what it had been pleading for for so long has now been accepted as being the correct policy for the Community. That is one which would see a proper convergence of economic policies which is a great deal more than the question merely of convergence of budgetary policies. Common economic conditions require that those areas of the Community which are unable from their own resources to attain the same standards of living as the better off sections of the Community should receive help from that Community in order to move in the direction which the Community was set up to achieve for all, and that is a better and an equal standard of living for all members of the Community.
This country is proceeding on the lines that our own prudence requires us to follow. Those lines are also in conformity with the general objectives of the Community. I am glad that the Community accepts the need to give assistance to the less well-off members of the Community so that Community objectives can be achieved.
We can discuss our economic problems. We will no doubt have disagreements about them, but I would hope that the debate in this House as elsewhere in the next few months will be constructive and that old style of knocking and the attitude of "You are always wrong and we are always right" will be left behind. I would remind the House that a distinguished economist, Professor Patrick Lynch, said on radio last Monday that the reason for the failure of the three economic plans in this country since 1958 was due to a lack of discipline, which, he said, was not on the part of the Department of Finance but on the part of other Departments. He considered that the public sector behaviour was not as good as that of the private sector. I am not saying that the Department of Finance are without blame. I am not for one moment suggesting that I, personally, have not got my shortcomings. What I am saying is that when an objective expert says that blame has to be shared by all, then objective people ought to bear that in mind whenever they propose to make comment on the economic and financial situation.