To give a little bit of the economic background to the Appropriation Bill, it is well to bear in mind the out-turn of spending and taxation for 1981. The main thing that concerns people at present is the fact that our current deficit is 8¼ per cent of gross national product. That is up 50 per cent on the previous year in money terms. The seriousness of that situation would have been far worse were it not for the July budget. In fact, it would have come out at about 10 per cent of GNP. Our basic problem in the economy at present stems from our very high reliance on foreign credit for economic activity. Last year about 14 per cent of all our spending was funded by foreign borrowing, that is, both public and private. Three-quarters of that was in the public sector and that is why the problem of the current deficit being run by the Government is so acute. We are effectively drawing on foreign resources to finance our current deficit.
The other point to bear in mind about our foreign borrowing performance is that it is a relatively recent phenomenon. In the past four years our reliance on foreign credit for our ordinary spending averaged 10 per cent of GNP. Back in the late fifties when Senator Whitaker was at the helm of the economy, at least on the public service side, even 3 per cent reliance on foreign borrowing was regarded as of crisis proportions. We really have slipped in terms of our financial performance since then. I do not believe that foreign borrowing should be avoided if we were confident that the resources were being used properly, but the size of the current deficit obviously points to the fact that we are using foreign resources in such a way that we will not be able to service the growing debt in the coming years.
I believe our problems now do not lie so much on our ability to continue borrowing abroad. In terms of the importance of public borrowing in Ireland, at least the importance of public debt as it stands now, compared to other countries, we are reasonably well placed. About one-third of our annual income is accounted for by foreign debt. That I do not believe is excessively high. But the worrying feature is that so much of that has been incurred in the past four or five years. Heretofore we did not rely at all on foreign borrowing. Therefore, we are rushing, headlong, along a dangerous road and in the coming budget we must take action to stop it.
I do not intend to try to attribute blame for introducing the practice of using borrowing to finance day-to-day spending. As Senator E. Ryan pointed out yesterday, it started in earnest under the Coalition in 1973 to 1975. Let me point out that, at that time, all of the economists were urging the Government to do precisely that. It was said that, in the wake of an oil crisis, the Arabs had vast resources with which they could do nothing else but lend. Therefore the Government at that time were advised that it would be folly not to borrow. For that reason it is a bit hollow to hear the economic commentators now berating all politicians, of all shades, for their borrowing practices because it was the enthusiasm with which politicians took up the original economic advice that has us in our present position. Given that encouragement, the Government in 1973 to 1977, realised, mid-way through their term, that it was a practice that had to be stopped. Their success, within two years, in reducing the then borrowing for current purposes from 7 per cent to 3½ per cent — halving it in effect — was a remarkable achievement. The incoming Government, in deciding on a policy of borrowing to launch the economy — as they then said — on a path of sustained growth and rising employment, were profoundly misguided. They did so at a time when the economy was recovering anyhow and the capacity to meet the extra boost in demand that they put in by borrowing was not there. Effectively the extra demand that they boosted was diverted into buying goods abroad. It did not do the economy the lasting good they had hoped. It has also undermined our room for manoeuvre now at a period when we are in economic recession. In principle it would be very desirable for a Government to be leaning very hard on new projects, investing new money in the economy now when unemployment is rising. But ability to do that has been undermined by three or four years of misguided use of foreign exchange.
The other worrying feature about our present dependence on foreign borrowing to offset our balance of payments deficit is that it seems now to be much more fundamental than it was in the mid-seventies. In 1975 we succeeded in eliminating entirely our foreign borrowing on the balance of payments although in 1973 the Arabs had put it into serious deficit with their oil price increases. It has been proven in the last two years that we have no longer the capacity to reverse our dependence on foreign borrowing in the way we were then able to do. The reason for that fundamental change in our position is that the deficit is now founded on unrealistic expectations built up over the last three years. I believe that the Government have a very hard task ahead of them in turning around people's expectations as regards the living standards that can be supported for the amount of work done. That is the economic background to our present spending situation.
At the public level — where we are dealing with public spending and public taxation — there is a deep cause for our present situation. That is the failure of the man in the street, the Oireachtas and indeed Ministers, to link spending with taxation. As regards the man in the street it will be discovered that there are very strong lobbies that build up in support of all sorts of spending proposals. But there is not at all the same strong lobby in favour of keeping down taxation. The people who are interested in reducing taxation tend to be much more scattered and weaker in their ability to muster public support whereas the people who are backing spending can always point to the true needs of extra spending in specific areas. That tendency in the mind of the man in the street is being reinforced by the way in which we consider our spending in this House. The spending estimates are completely divorced from the taxation proposals. The tax seems to be entirely the responsibility of the Minister for Finance. It is imposed in one fell swoop at the budget when everyone is prepared to say what a deplorable thing it is to be increasing taxes. On the other side, the spending proposals are farmed out among individual Ministers whose interest it is to maximise their spending to try to maximise the way they cater for their particular responsibility. I do not believe that that approach to spending and taxation — which we pursue in this House — does anything by way of improving the man in the street's ability to see why taxation is necessary and what value he is getting for that taxation.
Another matter that has encouraged our reliance on borrowing in recent years was pointed out by Dr. Kieran Kennedy, Director of the Economic and Social Research Institute recently. That is, that there have been hidden victims of our borrowing policies. He took an instance of someone who lent £99 in 1962 to support a national loan. He estimated that in real terms the value of that £99 that person lent in 1962 is, in 1981, £10. That performance, whereby people who — out of a commitment to the national economy — sank their savings into investment in the future of the economy means in effect that those people have been robbed of nine-tenths of the money they invested. That is a disappointing situation in many regards and has encouraged our use of borrowing in a way that has not been giving proper value for money.
The "Late Late Show" last Saturday threw down a clear political challenge to us to tackle the present financial problems, to tackle the problem of getting value for State money and for pulling the economy back from the very high level of unemployment now involved. The fact that we squander public money is undermining our ability to provide jobs. I believe we can tackle this problem along four distinct paths. One is to establish clearer controls and standards for the various sectors of public spending. Another is to explicitly link public spending and public taxation. A third is to look at the distribution effects of various schemes which have been introduced which, to my mind, have been largely hidden from public view. The final one — which would draw the others together to some extent — is to introduce an explicit plan for the public sector, not an ambitious one setting targets for the whole economy but a plan for public spending itself. We might not always be able to meet what we plan to do, but at least we would have clear guidance on where we go.
I should like to deal briefly with each one of those paths. On the question of practical standards and controls, it is very important that public representatives be given a means whereby they can judge the performance of various schemes in operation and debate them each year in both Houses. That to my mind does not exist at present in the system of presenting Estimates. In this House we do not even get to look at the Estimates. The Appropriation Bill provides our only opportunity to compare the performances of different areas of public spending.
As regards semi-State bodies, one way to have more effective practical controls would be to set cash limits for the contribution from the general taxpayer. In the long term, the level of contribution by the general taxpayer would be set on the basis of social objectives. In the case of CIE, there are definite social reasons for running services that are not economic, but there should be a fixed contribution from the general taxpayer for that sort of service and it should not be allowed to grow unchecked and unaccounted for.
Secondly, we should have the courage of our convictions. We have set up the semi-State bodies as independent bodies to administer certain areas of spending. We should, therefore, give them flexibility of operation and free them from political intervention in their operations. In particular, we should give them freedom in the area of pricing. In the past, there have been several efforts to prevent public semi-State agencies from implementing price increases that they believed should be brought in in order to protect the public money invested in their companies. Politicians on occasions have tried to stand in their way. That is not why we set them up as independent bodies, with independent boards.
The other area in which we should give them freedom is in their investment decisions, their decisions on policy. In return for freedom of operation and flexibility we should demand from them the same sort of responsibility for their actions as would be demanded of an executive and a board in a private company. In relation to capital spending proposals in particular, they should present their reason for choosing a particular investment over other possible alternatives and show that it is a worthwhile investment. They should publish detailed costings for its implementation and, should there be an overrun on that spending, it should be clearly available and visible in the Estimates. The executives of those companies should have clear responsibility for that overrun in much the same way as in a private company. In semi-State bodies, executives must stake their reputations on the proposals they put up and take the consequences if they deviate from them without proper explanation.
In relation to the annual operation of semi-State bodies, I would like to see the Joint Committee on State-Sponsored Bodies devise simple criteria of performance that would be available to public representatives each year, to see how they are performing in line with economic standards. We have already had a debate on Fóir Teoranta. I suggested in that case that possible criteria would be to look at the proportion of their lending which they write off each year and at the proportion of the commercial return on the public money recouped from the companies which they assisted. That would, at least give public representatives an idea of whether Fóir Teoranta were improving or deteriorating in their performance. Our Joint Committee on State-Sponsored Bodies should set about devising measures which every year would give politicians a way of looking at how these agencies are doing and not make them wait until the joint committee have got around again to having a look at that particular semi-State body.
A second way in which we could have more effective control and let the taxpayer see what is happening to his or her money would be to charge the interest on borrowing. If the Minister for Finance borrows in order to finance an agency, the loan interest on the money borrowed should be explicitly in their accounts. At present several agencies and Departments are receiving loans from the Minister for Finance without explicitly showing how much interest they ought to be paying and how much of that interest falls on the taxpayer. It would give a clearer view to public representatives and the public of what these agencies are costing the taxpayer and whether we are getting a valuable return. In the case of the IDA, they give out capital grants every year and it is never clear to the public what that means in cost to the taxpayer. There is a build-up in debt for each year they give out capital grants. It would be valuable for the public to know about this build-up.
A third effective control in getting better value for State money would be that, where grants are given there should be in all cases a now and an after element in them, the after element being conditional on the receiver of that grant having lived up to the performance asked of him. Again, in the case of IDA grants people who apply for grants do so on the basis that they are going to provide a certain number of jobs. An element of that grant should be held back to ensure that the company in question meet the standards previously outlined by them. Similarly in the case of borrowing for agricultural purposes, when farmers borrow for building, part of the grant should be paid in the beginning and part later on when they have achieved the increases in stock numbers which they intended.
On the question of how we might link spending with taxation, one way of doing this is by each new programme giving, in simple terms, the tax cost involved. It could be set out in such terms that we could see exactly what was involved. Another item which we should consider is that when we enter into an agreement with the public sector on pay, should that be exceeded by special claims in the course of the year there should be special tax measures brought in at once to recoup that amount for the Exchequer. That would strengthen the Government's resolve to resist unreasonable fresh claims. The taxpayer would also see the real cost to him or her of higher public service claims. That would be a very worthwhile link between spending and taxation.
Another suggested change to try to give the public a better view of what is happening to their tax money would be each year to publish the tax yield that would have been provided if tax bands and thresholds had been index-linked. Too often the Minister for Finance gets away with saying, "I am taking people out of the tax net by certain proposals," when in fact in the course of the previous year the process of inflation has been bringing far more people into the tax net. The taxpayer is entitled to see that in a clear way. I do not propose index-linking in the way it has been done in some of the Scandinavian economies because, in the long term, that fuelled inflation. The taxpayer is entitled to see what is happening to his or her tax and what is the real effect of tax changes.
Another area I feel strongly about in our failure to link spending with taxation is that public service pensions which are index-linked and cover a growing number of people in the public sector are in no way being funded annually by the taxpayer. In effect there is an enormous liability outstanding in the future on our tax resources and we are not making allowance for that in the way the private sector would fund a pension fund. That is something that should be seriously looked at in our approach to public spending because the problem in that area is going to get more and more serious as the large numbers of people who are recruited into the public sector in recent years move on towards retirement.
The final point I would like to make about linking spending with tax is that I am strongly in favour of introducing charges over a much wider range of services. It is not just in order to bring in extra finance although that is probably a welcome side of it. It also ensures that there is a public interest in the performance of the various schemes involved. In my local authority area the services that the public come to me most often complaining about are the ones that they pay a certain contribution to, namely, water in our area. It concentrates the minds of people administering those schemes if the public have that sort of first-hand interest in how efficient the service is. On that question of the linking of taxing with spending, I very much approve of the two recent major schemes brought in by the Government, namely, the Youth Employment Agency and the Housing Agency. Both of those have been self-financing in a way that should be done in the public sector. There is an explicit tax providing the resources for the Youth Employment Agency, and the Housing Agency is going to be a self-financing one also. They are very worthwhile improvements in our approach to public spending.
I will be very brief on the question of the distributional aspects of State spending. We have not looked at all at what is happening to social fairness in our spending in recent years. In previous contributions in this House I dwelt at some length on the effects of our spending on education, housing and on various sections of the community. The conclusion that I have drawn is that there is a clear bias in favour of the better off in those schemes. Similarly, in the area of taxation, there are several places where the tax system is achieving results that are not desirable on distributional grounds. In particular, the position of large families has deteriorated in recent years. That is something that, as public representatives, we should have information about so that we can make clear decisions about them.
Finally, I would like to turn to the question of economic planning over the longer term. In the past it was an error to try to introduce economic planning that involved very broad targets for the sectors that were not in direct Government control. No actual policies were proposed that would allow the Government to achieve those targets but they were published. What we need now is for the Government to concentrate on their own public spending. There are three goals in mind on public spending. One is to achieve efficiency, a second is to achieve a fair distribution and a third is to stabilise the economy in times of recession. These have not been adequately tackled and addressed individually, in particular in relation to allocation. There has been a complete failure, particularly on the part of the Department of the Environment, to plan in any systematic way. The county councils go through a very elaborate planning process whereby they draw five-year plans for their whole county and for individual towns within it. Those plans set out the sort of objectives they want to fulfil, for example, introducing a water or sewerage scheme in a particular area up to a certain capacity and allowing housing over the coming five years to live up to the capacity of their sewerage schemes. What happens then is that the Department of the Environment do not appear to put any financial planning into backing up those plans by the local authorities.
In my area of Meath, which is so influenced by the growth of the Dublin population, towns that we had hoped would be planned on a rational basis have not been sanctioned for the essential services that are needed in those towns. For example in east Meath, a very large section consisting of Laytown, Ashbourne and so on, we had plans for an extra water supply for that whole area. At present we are forced to try to put a stop to development and cut off water several times every year, several times over this Christmas, because we have not got the financial backing for our plans to expand the water supply in that area. That is the sort of practical approach to planning in the public sector that is needed to back up what is being done in the local authorities.
I will not delay the House any longer as I know that time is limited on this debate. I thank the House for its attention.
