I am a man of compassion and I promise the Minister I will not keep him too long. I think he has suffered enough on the Finance Bill over the past four weeks. The Minister has obviously taken Senator Harte's words to heart and believes in enduring the pains and the aches for a while longer.
There appears to be a tradition that this debate on the Finance Bill is almost infinitely wide ranging. I will not range infinitely widely but there are a number of areas that I think have produced assumptions in this country which are almost popularly and universally accepted now. The appropriate one to start on, since it is the Finance Bill we are talking about, is the question of taxation — taxes being necessary to finance public services. The Minister in his opening address stated the equation to be that if you want to achieve equity in taxation there must inevitably be an element of cuts in the level of public services. He more or less postulated the axiom that the only way in which equity can be achieved is through cuts in public services.
The realities of Irish taxation, as distinct from the popularly preceived myths which are well and truly ingrained particularly in the thinking of the media and national commentators, is that we have an enormously high level of taxation in this country. I am grateful to the Minister for a written reply to a question in the Dáil on 1 March furnishing information on the relative levels of taxation in various countries in the EEC.
Tax revenue in this country represented in 1981 38.1 per cent of gross domestic product. For a range of other countries, the UK figure was 36.8 per cent, France 42.9 per cent, Germany 37.2 per cent, the Netherlands 45.8, Luxembourg, a smaller country than Ireland, 48 per cent, Denmark 44.9 per cent. I acknowledge that Italy and Greece would have lower figures than that. We are not in an excessively different position from any other country in terms of the level of taxation and taxation as a percentage of gross domestic product. Where we differ from every other country in Europe is on our dependency levels and our dependency ratio. Our proportions of population which are below or above the productive age are vastly in excess of those in every other country, probably by an order of 50 per cent. So how, in a country with that level of dependency, can you reduce taxation or reduce public expenditure without penalising the two groups who are not in a position to produce, the old and the young? That is what we are going to do. We will inevitably have to have high levels of taxation because of the structure of our population resulting from the fact that virtually two entire generations who would be producing if they were here, have emigrated and therefore we have a large population of old people — and a large population of children — who are dependent on the productive and tax-paying sectors for their incomes.
If we are to talk about reductions in public expenditure and reductions in taxation then those who are dependent of necessity on public expenditure will be the victims. We have a higher level of dependency than anywhere else in Europe. Therefore, the implication of the fairly widespread assumption now that we must cut public expenditure will inevitably be, if there is to be any significant cut in public expenditure, that the victims will be those who are dependent on taxation for their incomes.
The solution lies in a fair distribution of the tax burden, not in any overall reduction in the level of taxation. There is a political job to be done by all politicians in making this position perfectly clear, that if we are, as we claim to be, a caring society with a commitment to those who cannot earn for themselves, then there is nothing but mythology involved in the pretence that there can be substantial reductions in the level of taxation here in the immediate future. There are adjustments and changes that can be made in the structure of taxation and I am sure successive speakers from the Labour Party have gone into this, but it is a fact that we have an extraordinary situation. We are probably one of the few countries in Europe that have had a substantial reduction in capital taxation in the last seven or eight years.
Again, I refer to written questions answered by the Minister on 1 March in the Dáil. In this country in the period from 1974 to 1981 capital taxation dropped from 11.2 per cent of revenue to 4.7 per cent of revenue. In France, in the same period there was an increase from 2.3 to 3.6; in the Netherlands from 3 to 3.7 per cent. One of the things that confused me is that on two separate questions on the same day the percentage of revenue attributable to capital tax given by the Minister's Department on these questions was different. So, I do not know which set of figures are correct. There are two different sets of figures for the percentage of revenue from capital taxation. I suspect one includes rates and the other one does not, but it takes a lot of searching through the footnotes to discover that. We seem to be unique in Europe in the fact that we reduced capital taxation while other countries were either holding it steady or increasing it.
The Minister, to his credit, has been very forthcoming with his own ideas on cutting public expenditure. I am grateful to the Confederation of Irish Industry for providing me with excerpts from a speech the Minister made, which was controversial at the time, about reducing public expenditure. The Minister mentioned a number of things. On social welfare he is quoted as saying:
I am satisfied that great strides are being made in removing the scope for unjustified claiming of benefit. Two main courses remain for further reductions in the real levels of expenditure. An adjustment in the basis in which the annual increase in benefit is calculated and the re-examination of the basis on which eligibility for some payments is established, notably payments available universally irrespective of need.
On the second one, the Minister is probably, among other things, referring to the universal availability of children's allowances. On that particular issue I agree with him. There is a serious inequity in somebody with a large family and £25,000 a year getting the same level of children's allowances as somebody with a large family and £100 a week. Quite obviously, there is a case to be answered there.
I am much more concerned about the reference to an adjustment in the basis on which the annual increase in benefits is calculated. That seems to me to be a roundabout way of saying that we should find a way of giving smaller increases for social welfare in the future. Apart from being wrong in principle, from my point of view that philosophy implies an ignoring of the level of dependency in this country and hence the necessity for high levels of welfare expenditure and there is no way you can get away from that.
I am disappointed every time I hear somebody like the Minister make references to removing the scope for unjustified claiming of benefits since we have no concrete, tangible, objective evidence that there is any widespread unjustified claiming of benefit. There is a massive prejudice; there is a considerable amount of hostility, but there is no detailed evidence that such widespread unjustified claiming of benefit exists. In fact, the only proper scientific study that has been done in this matter is in the area of health benefits or of pay-related benefits or people on sick leave. That was done by Mr. Hughes from the Economic and Social Research Institute and his conclusion was that there was no significant abuse of the scheme. That is an area which this Government have decided to tackle contrary to the objective evidence of independent researchers that there is no significant level of abuse. We need high levels of welfare (a) because it is right and (b) because it is a major contributor to social consensus and social cohesion. I will be coming back to that later on.
There is another side to social welfare. How would the Minister's party and the other parties in this House react if it was proposed in the interests of equity that anybody, but particularly a self-employed person, given a tax assessment which the Revenue Commissioners decided was appropriate, was told he must pay the tax, and if the assessment was incorrect all the tax paid would be refunded? That would produce howls of protest and howls of pain, and probably quite justifiably. This is the position of somebody on unemployment assistance or unemployment benefit. If an anonymous report is presented to the labour exchange or to the social welfare authorities that an individual is working when he is claiming unemployment benefit, the first thing done is that that person's benefit or unemployment assistance is stopped and the second is that the claim is investigated. Apparently we have one level of justice for those who are dependent on the State for their income and another level of justice, totally different, for those who are paying tax to the State. The enormous amount of hardship that can be inflicted on families by that sort of attitude to welfare speaks for itself. Therefore it is unworthy of Government Ministers to further add to the level of prejudice by implying, even indirectly, that there is substantial scope for cutbacks because of inappropriate or unjustified claiming of benefits. It is unworthy and it does enormous damage to people who are living on very limited incomes.
The Minister further identified housing subsidies as an area of concern. I would like to quote the National and Economic Social Council Report No. 20,1982, page 103:
Subsidies to local authority tenants, £62.1 million. Subsidies to the owner occupied sector £89.2 million.
I am probably being unfair to the Minister but I suspect he was talking about subsidies in local authority housing, and a major question arises here. Which subsidy are we talking about? Are we talking about the subsidy which provides shelter for those who cannot afford it? Are we talking about the subsidy which provides the better off with shelter and with increased wealth, since the subsidy has the effect of enabling them to build up wealth in the form of an asset, that is a house? If the Minister is concerned about housing subsidies he should start with the second choice which is greater in cash terms and produces, as well as a subsidy to shelter, a subsidy which enables people to accumulate wealth.
Then there are what I can only describe as the idiotic cuts in public expenditure. There is, for instance, the proposal that the courses in regional technical colleges aided by the European Social Fund should be reorganised in a way which would reduce the level of assistance to people living close to the regional colleges. It sounds a fine idea and is supposed to introduce equity but the consequence is that £270 per student will be saved by the Exchequer. That scheme attracts substantial funding from the European Community. For every £270 saved by the Exchequer there will be a reduction of £300 in EEC aid available to the same student. This seems to represent a net loss of £30 per student in this country. That does not make sense. I do not understand why it was done and, as a member of the board of a regional college, I am somewhat flummoxed at it. The whole attitude to education must be called into question. Education is a productive investment. It may not suit economists to define it as such, but it is an investment which produces a return which increases the capacity to produce further wealth. If that is not a productive investment I do not know what is. It may not meet the requirements of economists for defining a productive investment, but it is a productive investment.
It is pertinent here in the context of public expenditure generally to ask why we devote 1.6 per cent of our GNP to defence while Austria, a small country at the border between East and West, devotes only 1.3 per cent of GNP to defence, and Finland, which is also in a rather vulnerable position in terms of the East/West divide, spends only 1.4 per cent. In other words, two major neutral countries in much more vulnerable positions and much more effectively neutral than we are, manage to survive on considerably less public expenditure on defence than we do. Incidentally, both manage to maintain far larger standing armies, even in proportion to the population, than we do. They also manage to maintain a much larger second line of defence in terms of the capacity to call up further forces in cases of emergency.
I raised this point before when the Minister was here and he did not answer it with particular clarity. He said that, bearing in mind all the considerations and so on, it was regarded as the appropriate level. I repeat that we are spending well over £200 million a year on defence and we do not know why that is the appropriate level. It does not bear much comparison with similar countries. It does not bear comparison with Japan, which spends substantially less on defence than we do. All we have is a couple of thousand idiots parading around this country in paramilitary uniforms doing a lot of damage. I do not believe we need to spend 1½ per cent of our GNP to deal with that problem. We have a slight willingness to indulge certain people who want to play toy soldiers. Perhaps in times of prosperity that is good for some people because it gives them an outlet for their aggression, but in times of recession and hardship that is over £200 million at a time when the spending of every single penny needs to be scrupulously scrutinised. Why do we have to spend more of our GNP on defence than other countries with a similar population who are admittedly wealthier but who are in vastly more vulnerable positions than we are and who have much more positive policies of neutrality? This is an area in which a substantial 25 per cent cutback in expenditure could save the sort of money that would enable some of the rather ridiculous cutbacks in education to be avoided.
There are other areas of public expenditure that need to be reviewed. If as has been asserted by independent experts, in the area of agricultural production a 40 per cent increase in milk production could be achieveable without any increase in the cost of inputs, then the whole structure of the financial assistance to agriculture must be looked at. If, in spite of the enormous financial assistance that is there, people cannot be persuaded even to produce the maximum that is consistent with the level of input they are making, then a question must be asked. If it is true, as has been asserted, that in or around £100 million extra in beef exports would be generated if calf mortality rates which would be acceptable in any other country were achieved here, then again the whole area of expenditure on agriculture needs to be assessed.
Assistance in the area of public expenditure to the private manufacturing industry sector needs to be reassessed fundamentally. A report appeared in The Irish Times on May 26, on the finance page, under the heading “Irish Suppliers under Fire”. The implications of the report were that a high proportion of foreign investors in this country found Irish industrial relations to be good, Irish productivity to be good and return on investment in Ireland to be good. The figures were of the order of 80 per cent. There were a number of areas in which reservations were expressed. One was in the area of availability of skilled labour, and it is in that context that the proposed reductions in public expenditure in the area of education are highly questionable. If one of the major constraints on industrial development is a shortage of skilled labour then cutbacks in the area which produce a skilled labour force are obviously self-defeating, pointless and nonsensical.
Another area of major constraint was in the area of telecommunications and transport. The interesting thing about those areas is that they are exclusively under the Government's control. In the areas of return on investment, profitability, productivity and industrial relations things were all right. Perhaps it behoves the Government to spend less time lecturing the trade union movement and trade unionists about their obligations and more in getting their own business in order in the areas of infrastructure, training and education.
The most serious allegation contained in a report produced by the British based organisation, The Annual Investment File — I do not know their authority but it was a survey of the views of industry — was in relation to the view of foreign companies of native Irish firms as suppliers of materials and components. Only 16 per cent rated Irish firms as good in this area, while 48 per cent said they were fair, and a large 37 per cent said that native Irish firms were poor in terms of their capacity to supply goods and materials to foreign companies which had invested here. That is a serious indictment of the capacity of native Irish enterprise to meet international deadlines and international standards in terms of quality of products and so on. There appear to be two different economies and two different types of manufacturing industry developing here: one based on foreign capital and foreign expertise but involving Irish work forces who obviously can compete with the best in the world in terms of productivity, industrial relations, etc. and the other a native Irish enterprise which seems to be incapable of meeting the standard required and expected by international agencies and international corporations.
The conclusions of the authors of this report are that the figures offer no consolation at all. Nearly 40 per cent of American companies think Irish products are poor; 43 per cent of the Scandinavians agree, and only 8 per cent of British companies have a good opinion of Irish supplies. That is the conclusion of an independent agency looking at the performance of native Irish manufacturing industry.
There has been too much tendency, first to look at Irish manufacturing industry globally and to attribute the problems in certain sectors to all sectors. There has been too much willingness to attribute all our problems to excessive wage costs, so called, and there has been too much willingness to attribute our problems to low productivity by the Irish work force. There are two different sectors, one, the foreign investment based area where productivity is obviously acceptably high and there is another area where there is a serious problem. The same working people are employed in both areas. The same trade union movement represents the people in both areas. The only conclusion one can come to is that native Irish entrepreneurs are incapable or unwilling to produce goods and services of a quality and at a cost that is required by international corporations. That is a very serious problem.
The particular issue brings me to what I have described before as the new great national aim which has supplanted the restoration of the language and the reintegration of the national territory, that is, the restoration of competitiveness. It seems to be the primary and almost exclusive concern of both economists and Government Ministers of varying groups and varying parties. It is interesting to consider the views on competitiveness taken by the Confederation of Irish Industry. In their February newsletter they said that the level of income and employment in the Irish economy depends critically on one factor which is totally within our control — the cost competitiveness of industry.
In response to a couple of people's pointed comments, a somewhat different view was being expressed: competitiveness is a function of relative unit costs, quality, design, marketing skills and the application of up-to-date technology and efficiency. In two months we have come from an idea when it was simply a question of cost competitiveness to a recognition of the realities of the international market place, which is that an awful lot more than cost competitiveness is involved and that we have a lot more to do than just reduce the level of wages to produce the sort of competitiveness people are concerned about.
I would like to refer to a reasonably eminent economist, who is also a journalist, Paul Tansey, who writes for The Sunday Tribune. In an article he makes the point that attributing our problems in competitiveness exclusively to the problems of wage cost inflation is naive. It may be convenient for economists but it does not reflect the realities of Irish life. Since, he says
there is a great variation in the relative importance of wage costs between firms, it is clearly inapplicable to set a specific target for pay increases. In the traded sector, pay increases should be determined by individual companies' financial circumstances and their ability to pay.
He goes on to discuss the other areas which affect competitiveness:
Many Irish firms are too concerned with producing a commodity rather than a product. The commodity itself is only part of the product required by a customer. Adherence to delivery dates and the provision of adequate servicing and after-sales service are part of the product sold.
Referring to the comments of foreign investors on the production of Irish goods and services, it is interesting to note that Paul Tansey and many other economists are beginning to identify the distinction between a product and a commodity, and that most Irish native industrialists and businesses are not capable of producing commodities or products which are acceptable to the other section of the Irish economy, that is, the foreign investment based high technology, high efficiency area. Where do we go? As has been suggested for agriculture in recent times, we should revamp the whole structure of industrial incentives to identify companies which are capable, willing and able to produce products which are internationally competitive in the broad sense, as defined by the Confederation of Irish Industry, and that includes not just cost but things like quality, design, marketing, skills, the application of up-to-date technology, etc. That is what real competitiveness means, and it is not inherently or even initally related to labour costs which are one contributor and only one contributor.
There is the question of infrastructure, again identified by most foreign investors as one of our major problems, entirely under Government control. There is the question of telecommunications, again entirely under Government control. We need to open our eyes and look a little further than our nearest neighbour for models of how to organise society and how to organise ourselves. Before anybody starts worrying, I am not going to leap across into Eastern Europe. There is a very interesting report, with which I am sure the Minister is more familiar than I am, on the Irish economy, policy and performance from 1972 to 1981, produced by the Economic and Social Research Institute. One chapter has to do with what is called cross-country perspectives. The authors look at a number of countries, including Ireland. In particular they identify two countries which in the period 1970 to 1980 have been particularly successful in dealing with the problems of that decade — Austria and Germany. I will refer briefly to Germany, but Austria is particularly important because it is comparable in size with this country. In the period from 1970 to 1980 Austrian real GNP grew at an average rate of 4.2 per cent, our rate of GNP grew at a rate of 3.7 per cent; unemployment in Austria in the period of 1970 to 1980 actually decreased, from 2.4 per cent in 1970 to 1.9 per cent in 1980. In this country it went up from 6.4 per cent to 9.5 per cent. In Austria the average increase in the consumer price index was 6.1 per cent in that decade and in this country it was 11.7 per cent. In any parameter that can be used to measure economic performance, Austria out-performed this country consistently in the decade 1970-80, as did Germany, but Germany is regarded as a major international and economic power, and therefore it might not be altogether fair to make comparisons.
In the case of Austria, a country of comparable size and with no enormous resources, this extraordinary out-performance of this country by a small country needs to be examined in some detail, and that is what the authors of this report did. They also identified the fact that, even though increases in wages and salaries in that decade were less in Austria percentage-wise than they were in this country the actual real gain to the work force was substantially greater because prices rose at a substantially lower rate. Austrian productivity increased by 35 per cent in that decade; Irish productivity increased by 22 per cent. What is interesting and needs to be said, because it is neither popular on the radical left nor in the huge mass of the centre and right which dominates Irish politics, is that political and social circumstances were the cause of that level of success in Austria.
I read a document produced not by any left wing organisation but by the Economic and Social Research Institute and by three of its most eminent staff. They said:
What existed in Austria was a solidaristic orientation between Government and the trade union movement based on a long and strong tradition of left wing politics, and where feelings of class solidarity are resilient enough to supplant sectional interests on the part of individual unions as the overall guiding principle of the negotiations.
It is a pity to have to apologise for introducing the idea of class solidarity into a debate on the future economic performance of this country. It is a pity to have to introduce the idea of left wing politics as some sort of extraordinary phenomenon that is unworthy of the Irish people. But what I repeat is that facts are there, that the best performance of any European economy in the decade from 1970 to 1980 was that of the Austrian economy. This was on every parameter — including all the ones that those who would be obsessed with the national accounting would choose to look at like budget and trading deficits and so on and, above all else, in the area of unemployment. That was based on the fact, which was not coincidental, that in Austria during that period there was a Social Democratic Government and a well-organised, efficient trade union move-organised ment which saw its role as a partner in government with the political wing of the trade union movement. That is what we lack in our country and that is what our two major parties have not faced up to: that there is a need for the trade union movement to be a major political party, not just in what the authors of that report would call econometric concerns but in the whole area of social policy, social development and economic development.
What we need in this country, if we cannot have the sort of socialism which perhaps I would prefer, is the sort of European social democratic consensus which is best typified by both Germany and Austria. In both of these countries there is a concept of partnership which is totally different from the sort of partnership people talk about here. We do not have social partners in this country. What we have are confrontationist tactics. In that context it is the function first of all of Government and secondly of those who run and manage and organise industry to bring about the consensus.
The sort of tactics the Minister uses — this is why I referred earlier to the Minister's comments on welfare — will not create a social consensus. He will not create a social consensus by singling out wage costs as the major problem in regard to competitiveness. He will not create a social consensus by singling out a one-sided Commission of Industrial Relations report and suggesting, as employer organisations have done, that that is to be implemented, irrespective of the fact that there was no trade union participation in it. That is not the road to social consensus, and not the road this country should be taking.
We have, therefore, not just an economic problem. We have before all else a social problem of organising a small country with a sense of consensus. In Austria, as I said, there was a highly solidaristic trade union movement which was regarded as a major partner and which worked as a major partner because of a tradition of left wing politics and class solidarity — and I emphasise those two words because they are not popular in this country. In West Germany, on the other hand, at a local level they have a very highly-developed level of participation because of the highly sophisticated industrial democracy that exists there. The Government can have either model if they wish. But there is no point pretending we can develop the sort of consensus that this country needs while at the same time pursuing economic and social policies which are divisive, because they attack welfare, identify disproportionately wage costs as the cause of our lack of competitiveness, and fail to identify the failure of native Irish enterprise in particular to meet international standards as specified by international investors.
We have had an attack on welfare. We have had little consensus, and what is left is in the process of collapse. We have had dishonesty about, for instance, profit in industry. I am an engineer, not an economist, and I recognise that the function of industry is to create wealth. Therefore, if we are talking about profit as the creation of wealth by industry then I, for one, am quite happy to recognise profit as a major function of industry. But there is a difference between profit created for reinvestment and profit created to line the pockets of investors. One is an admirable and necessary increase in the sum of wealth in a community; the other is a benefit to one group and one section of society, and like all other sections should be subject to regular review and constraint.
That is what people are dishonest about. They talk about the profit motive on the one hand being the need to create wealth, but on the other hand they say that the profit motive is effectively an attempt to persuade investors to invest. You cannot have it both ways. You cannot issue long lectures to working people about the need for wage restraint and in the next breath talk about the need to create a climate of investment based on incentives, because if incentive is the model for society then everybody is entitled to material incentives and there is no point asking for solidarity consensus and patriotism from one section of society if the other section is being recognised as lacking all those qualities and, therefore, must be presented with material incentives to invest. If, on the other hand, by the profit motive you mean the need to create wealth which can be used for further investment, who is against that?
At the end of it all we have to remember that, although economists are important, and engineers are important in society, it is not an economy that we are running: it is a country populated by people. It is people who run countries. But it is politicians who run countries, because they are elected by the people to represent them, to do that job, and ultimately it is a matter of developing the sort of political leadership which can achieve the sort of consensus which existed in Austria — social, political and economic consensus based on a common analysis of the problem and an attempt to reach a common solution. This cannot be achieved with the old fashioned conservative politics which have dominated this country.
I might have a personal view about the future. What I know is that there is a realistic model of a future already in existence in some countries in Western Europe, but it is based on a totally different perspective of what a country is about and it is based on a totally different perspective of what is important in society. I refer again to the model of one country in Europe, Austria, which has achieved more economic growth, lower unemployment, lower inflation and well balanced budget, and so on by a political structure, a social structure and a role for the trade union movement from which this country is moving further and further away.
That is the way forward for this country, based — in the short term at least — on some attempt to reach consensus and away from the simplistic economic myths which try to pretend that one aspect of industrial costs, that is, wages, is the source of all our problems. We have a problem about the ineptitude of Irish industry. Irrespective of one's views on its future, it is inept, and we have the evidence of foreign manufacturers to that effect. We have the evidence of low productivity and we have the evidence of their failure to export. That is the problem and the solution will not be in terms of economic models based on numbers but on political leadership.
