I should like to apologise for the absence of the Minister for Finance. I am rather taken aback to have been present for the second time in less than a week in a parliamentary assembly where the Opposition chose to walk out. While I appreciate that the reasons on this occasion were different from those advanced on the last occasion, I cannot but reflect that it does not do anything at all for democracy or for the democratic system, if, in pursuit of a point, however legitimately held, the representatives of large parties in the Houses of Parliament choose to absent themselves from the conclusion of important debates, rather than making their point in another way. I appreciate that the Leas-Chathaoirleach has returned to the Chamber and I should like to leave it at that point.
Many of the contributions here during the last few days have been about policy, or the lack of policy. I could not help but reflect, when listening to the various speakers and reading what was said yesterday, on the marked difference between the plaintive cries from the Opposition and the constant references to policy and to clearly thought-out ideas as advanced by speakers on the Government side of the House. Much of the debate, of course, was about the national plan published earlier this year. That plan had a number of objectives — firstly, to contain the growth in, and then to reverse the trend of, unemployment; secondly, to continue the task to which we addressed ourselves some years ago — of restoring order to the public finances; thirdly, to instil a sense of stability and security in all sectors of the community over the three years of the plan. The plan measured against those criteria has lived up to those criteria set for ourselves when we began to prepare it.
Central to much of what the plan is about is to halt and reverse the upward spiral of unemployment. I was taken aback to hear some Opposition Senators refer to the problem of unemployment in a way which seemed to suggest that it is not central to the thinking of Government. Very much of what all of the plan is about is designed specifically to create the climate in which employment can increase. I shall refer to that later in my contribution. The nature and mix of the policies, generally, in the national plan offer the best opportunity to achieve that objective in the present circumstances.
A key element of the plan is concerned with making our economy more efficient. We have to be able to compete better with other trading countries, not only on the foreign markets where we are endeavouring to place our exports but, indeed, with those trading countries here on our own domestic market. Worthwhile and sustainable employment can only be created for our growing population by selling more Irish goods and services at home and abroad.
There is no such thing as job creation. There is the creation of a climate where jobs which are sustainable and justifiable in their own right can come into existence. Other job creation measures are funded by the taxpayer. It is as well that we realise that, and realise it clearly. We must become more competitive as regards unit cost of production, marketing, design, after-sales service, delivery dates — all the things that go to persuading the customer to buy one product rather than another. That competitiveness must permeate all facets of Irish society if we are to achieve higher standards of living for present and future generations. This is an on-going process, continually shaped and influenced by many forces in society, especially, of course, by the Government. The need to restore order to our public finances is a vital part of that process. To avoid that issue would be to condemn future generations to declining living standards as their resources would be eaten up by the servicing of debt incurred by us.
The outlook generally for the international economy on which we depend is not unfavourable for 1985, although there are some uncertainties still prevailing. Despite the fact that it is expected that the growth in world trade will fall to about 6 per cent as opposed to 9 per cent in 1984, the growth in our main markets is expected to be sufficient to support our export targets, which are themselves setting a fair requirement from our economy. The planned target is an accumulative growth of 51 per cent over 1984 to 1987. Those targets will be achievable only if there is an improvement in competitiveness as outlined in the plan. It is important for us to remember that it is expected that the average rate of inflation for the EC will fall from just under 5 per cent this year to somewhere around 4 per cent in 1985.
The policies which are set out in the plan provide the basis for further improvement and consolidation in the economy over the coming year, provided, of course, that is, that certain groups within society observe the guidelines put forward in the plan. Then, the economic objectives set out will be realised. Indeed, developments in the period since the groundwork for the plan was carried out suggest that the economy may, in fact, be performing rather better than expected in 1984. It may also be that circumstances next year will be a little more favourable than we had assumed, so that the conditions appear favourable for the realisation of the plan's projections in 1985.
On the basis of the budgetary stance which was outlined in the plan and assuming, in particular, that pay develops in the manner which we have proposed, 1985 will be a year in which further significant progress will be made in remedying the basic imbalances in the economy, in alleviating the constraints upon our performance where this is within our own scope and in creating the conditions for sustainable growth in output and employment.
The growth in domestic output projected in the plan — at about 2½ per cent — compares favourably with current expectations for the European Community as a whole, and, as I said there is the prospect that we could turn in a somewhat better performance. Of course, it would be entirely inappropriate to gauge economic progress solely by reference to short term growth achievements. If we are to get to grips with our employment problems and to deal with our growing need for jobs, it is far more important to create conditions favourable to sustained growth over the medium term. In this regard, the key factor will be the degree to which we succeed in containing increases in costs and prices here to the rates obtaining in our trading partners. The plan envisages that inflation will be further reduced next year — continuing the favourable trend established since 1983 and maintained this year. That prospect of a further fall in inflation is attainable if incomes evolve as we have indicated that they ought.
The nature of our public finance and the problems associated with it are well documented by now. As a consequence of inexorably rising public expenditure over many years, we were faced, as a Government and as a community, with a large and rapidly increasing burden of debt interest and we had to take firm action to reverse that trend. Failure to take that action would have drained scarce resources from the economy in debt service costs, leaving less for various social and economic programmes.
The corollary of higher public expenditure is higher taxation. The Government, along with many other people, have ruled out increasing the burden of taxation further. We have accepted, and said very clearly in the national plan, that we appreciate that the level of taxation — especially personal taxation — is now at a far higher level than the Government would like to see and that one of the objectives of the plan must be to ensure that tax, as a proportion, will not increase any further and that there will be, in general terms, indexing in relation to personal taxation. All that is as a preamble towards our main objective, which ultimately must be to see a real reduction in the level of taxation being levied upon the individual. That is sustainable and justifiable only when, first, our public finances are brought under control. It is not realistic to talk about reducing the level of personal tax in a year when, despite all the harsh measures which the Government had to introduce in the last number of years, as a community we will have spent by the end of this month, for the 12 months of 1984, some £1,900,000,000 more than we collected. That is the level of borrowing between current and capital over and above what the State has funded itself for through taxation. We must realise that that borrowing has, in turn, to be paid for. Until that can be brought under control the prospect of real reductions in taxation cannot be faced up to. There are only so many balls that can be juggled in the air at any one time.
We must reduce the current budget deficit by 1987 and at the same time endeavour to keep the tax burden constant. That means that public expenditure must be reduced. We have no option but to face up to reality and that is what Building on Reality is all about.
There has been a dramatic increase in current Government expenditure in recent years. In 1960 Government expenditure as a percentage of gross national product was 21 per cent. By 1980 it rose to 42 per cent and it is estimated that current Government expenditure for this year will represent 48 per cent of GNP. The increase arose under three headings: the increase in debt service charges, the increase in transfer payments and the increase in the public service pay and pensions bill. The cost of servicing public debt has increased from less than £200 million in 1975 to an estimated £1,710 million this year. The cost of transfer payments has risen from £500 million in 1975 to £2,725 million or 18½ per cent of national resources this year. The Exchequer pay and pensions bill increased from less than £500 million in 1975 to £2,740 million this year. As a percentage of GNP, it has increased from 13 per cent to over 16 per cent.
This year the Exchequer will spend almost £1,900 million more than it receives in income. Aggregate Exchequer expenditure this year will exceed revenue by over 25 per cent while current expenditure will exceed current revenue by over 18 per cent. Those imbalances are among the highest to be found anywhere in the world. They have been that way for some years. Our rate of annual borrowing is two and a half times the EC average. Debt servicing now absorbs one third of the total revenue from taxation. It would be interesting for the House to ponder on that fact. The process where an increasing percentage of tax is pre-empted for debt service charges must stop. It is not sufficient to keep the annual borrowing level at its present level in real terms. If that was all that was done, by 1990 the proportion of tax revenue being soaked up by debt service could be in excess of 40 per cent.
There is nothing intrinsically wrong with a deficit on the balance of payments provided the deficit is run for the right reasons. Unfortunately much of our debt is due to borrowing for current expenditure. The inescapable logic of the position in which the State finds itself is that the imbalance between public expenditure and resources must be reduced so that annual recourse to new borrowing by the State can in turn be reduced. That is not a matter of choice: it is a matter of necessity in the national interest. The Government have clearly pointed at the choices which must be made and the decisions which have to be taken. It is no harm for the House to speculate on our comparative position with other countries. In the case of one, Mexico, which is a major oil producer, its overall borrowing was of the same order as ours. For particular reasons, international creditors lost confidence in that country and in one single year they decided to reduce by half the level of borrowing which the Mexican economy was then demanding. If there was that loss of confidence among our international creditors it would mean that all current spending in that year would have to be reduced by one third. That means that all social welfare payments, payments for education and all public pay would have to be reduced by one third.
It is clear from that example that there is a limited choice available to responsible Governments. The choice outlined in the plan and the actions of the Government over the last two years are designed to ensure that order is restored to the public finances and that we can begin to make the choices which the public demand of democratically elected Governments.
I should like to place on record the significant progress we have made since 1971 in controlling public finances. With a fair degree of satisfaction we can point to the fact that overall borrowing has been reduced from 16½ per cent of GNP to somewhat under 13 per cent this year. The current budget deficit has been reduced to close to 7 per cent this year from 8¼ per cent of GNP in 1982. The pattern of substantial and constant annual budget overruns has been decisively arrested. Public expenditure has been brought firmly under control with savings being shown on the budget for each of the last three years. The suggestions made by Senator Ellis regarding the present state of the public finances in comparison with three years ago are not as claimed by him.
There was a suggestion made in the House yesterday that the Government's decision regarding the liquidation of Irish Shipping means that our credit standing has been undermined on international markets. On the contrary, our credit standing continues to be good abroad and, because of the decisions taken by the Government and the way in which we have faced up to the situation, we will continue to have access to foreign funds on satisfactory terms.
As for budgetary prospects in 1985, there is a need to provide for a substantial increase in central fund requirements in 1985 mainly in respect of debt servicing payments. That increase, together with other inescapable commitments, is so large that the reductions in public spending and the tax changes announced in the plan will not ensure a decline in 1985 in the relative size of the current budget deficit and the overall Exchequer borrowing requirement. Instead the Government must ensure in the 1985 budget that both the current budget deficit and the EBR are kept broadly to their 1984 proportions of GNP. Reductions will occur after 1985 in line with the targets outlined in the plan
Senators touched on a wide variety of topics. Many of them are more appropriate to individual members of the Government and I will arrange to have the points raised by Senators brought to their attention.
A number of Senators were critical of the Government's record on employment. The situation is that after four years of continuous underlying increase, the first signs of a break in the apparently relentless rise in unemployment were evident during 1984. Decreases in deseasonalised unemployment were recorded during May and October. Further evidence of the slowdown in the growth in unemployment is provided by the fact that the year on year increase at end November was 16,900 compared with 29,700 a year earlier. When account is taken of the expansion of the labour force, this improvement suggests that total employment is now beginning to stabilise, after an estimated decline of 40,000 since 1980.
We have caught the tiger by the tail and we are turning it around. The latest figures available show a halving in the rate of decrease in manufacturing employment during the first half of 1984 compared with the corresponding period of 1983. Given the continued strength of manufacturing output, there are strong hopes that this trend can be maintained and that during 1985 an employment increase will be recorded in the sector for the first time since 1979. Given the continued strength of manufacturing output, there is strong hope that this trend can be maintained and that during 1985 an employment increase will be recorded in that sector for the first time since 1979. It is interesting to realise that the IDA approvals are 30 per cent up in 1984 on the approvals for 1983.
It is also interesting to look at the figures recently produced by the Department of Labour regarding our school leavers. A survey carried out in May and June of this year showed that of the 62,000 students who left second level education one in four had gone on to third level education. Of the remaining 45,000 approximately two out of three are in employment, and of the remaining one in three of that group one-third of those were engaged in some State employment or training scheme.
Sometimes I think the situation is represented that no job opportunities at all are available to our school leavers, yet that survey published in the last fortnight shows that in May-June 28,400 of those who had left school in the previous autumn were in employment and 15,600 were in further education. Therefore, very many jobs are available to and being taken up by school leavers. We do not often enough appreciate this fact. Surely nothing is more depressing or more debilitating for young people than to have this constant harangue directed towards them that there is no job availability on the job market. The figures published by the Department of Labour belie that allegation, and it is well that Members of the House should realise and appreciate the situation.
Also in the area of employment the success of the enterprise allowance scheme introduced by the Government last January has been outstanding. So far over 4,000 people have participated in the enterprise allowance scheme and approximately 100 people per week are taking up employment under that scheme. The Government's commitment has been exemplified further, as Senator McAuliffe-Ennis said, in the introduction of the social employment scheme which will provide employment of a half time nature for up to 10,000 people, mainly those on the long term unemployment register. The Senator also referred to the introduction of a job sharing and career break scheme. Since those two schemes were introduced in the Civil Service some seven months ago they have resulted in making available 450 additional jobs within the Civil Service and that through the introduction of those two schemes alone. Therefore, very much is being done by the Government on the general employment front but, of course, employment is inexorably bound to the economic situation. Real success in employment is the real success in tackling the public finances and in the restoration of stability to the economy.
Reference was made here to cross-Border traffic and to the high rate of VAT on a number of items. This matter was brought up particularly by Senator Lanigan. I accept that VAT rates in certain cases are high and that they seem to make the purchase of some goods in Northern Ireland attractive, although I think the supposed savings on purchases which can be legally imported can very often be exaggerated. However, the Government have indicated that they are prepared to look at VAT rates and, as Senator McAuliffe-Ennis pointed out, in the last several months there was a substantial reduction in the rate of VAT on spirits for the express purpose of combatting this cross-Border trade. We indicated then, and I reiterate, that, dependent upon the success of that experiment, we would be prepared to look favourably at other areas. I am not suggesting to the House that Members should over the Christmas period endeavour to ensure that there is success in the experiment in relation to spirits. I would not expect of the House that it alone should bring about that success. Nonetheless, once a reasonable period has elapsed from which we can gauge the effect of the reduction, we will be in a position to decide whether other items might merit similar treatment. I must make the point that was made here, that we have too many VAT rates and that removal of certain items perhaps from the luxury rate may well have to be effected by a compensating increase in VAT rates in certain other areas.
Senator Lanigan criticised the fact that the Revenue Commissioners rank as a preferential creditor where companies cease trading with outstanding liabilities. That is not privileged ranking; there are other preferential creditors. I do not think that the Senator could expect seriously that the Government would apparently waive pursuit of moneys which are due by law to the Exchequer. That would be highly irresponsible.
There was some discussion in the House regarding interest rates. I would like to make it clear to Senator Lanigan that the Government as such do not approve of increases in bank interest rates. The normal protocol is and always has been that the Minister for Finance is informed of the proposed changes shortly before they are announced and of the reasons for the changes. Therefore, there is no question of Government approval being either sought or given. The Government do not, and I do not think it should be expected that they should, interfere with the day to day administration of the Central Bank which, like its colleague banks in other countries, is independent in the carrying out of its functions. It is very desirable that that should be so. I would like to point out to the House that associated bank interest rates in this country did not increase earlier this year when key international interest rates increased and recent reductions in those same key foreign rates have for the most part still left those foreign rates significantly higher than they were in the earlier part of this year.
Reference was made to the plight of the construction industry. Of course, in recessionary times the construction industry is one that traditionally suffers. However, again it is interesting to reflect that of the £1.8 billion being provided in the public capital programme next year £1.2 billion will be devoted specifically to projects in which the Irish construction industry will be taking part. That is a very high sum by any standards, a very high injection of Exchequer funds into one sector and it will be an increase on the proportion of the PCP devoted to the construction sector for this year.
I would like to thank the House for the reception it has given to the Appropriation Bill and for the very many thoughtful contributions made by Senators. As I have said, they will be taken up with my colleagues in the relevant areas.
Finally, with your indulgence, a Chathaoirleach, I would like to take the opportunity to wish to you, the House and all those associated with it the compliments of the season. It is always a pleasure to return to earlier pastures——
