The Minister in his statement in presenting this Vote on Account made it clear, however, that he accepted these Estimates as being forced upon him, and that he was having them revised with a view to effecting economies. He further stated that his objective would be, amongst other things, to reduce the cost of living. I think I am hardly misquoting him when I say that one of his weapons in achieving that end was to be economy in these Estimates and in the public services. Those statements of the Minister open out practically the whole field of the present economic situation in this State. In particular, his remarks suggest that the present position in regard to the cost of living in this country should be examined at this stage more closely, and also from the point of view of seeing whether what he proposes to do can reduce the cost of living without introducing a number of serious perturbations which might have quite undesirable results.
For these reasons I propose to analyse a little further the present position in regard to the cost of living with reference to the sums expended in this Estimate. The situation in which we find ourselves developed roughly as follows: just before the war in August, 1938, the cost-of-living figure stood at 173. From 1938 onwards the economic results of the war and the preparations for war made themselves felt in a shortage of materials, in inflationary pressures and similar phenomena which inevitably tended to put the cost of living up here as well as elsewhere. In sympathy with these tendencies, the cost-of-living figure in this country rose from 173 in August, 1938, to 294 in November, 1943. Now, that was in no way a surprising result when one thinks back on the history of that period—the crisis of 1940, the difficulty of getting supplies, the peculiar problems with which this country was faced, both because of its neutrality and because of its closeness to the then centre of operations in Western Europe. It is, therefore, all the more interesting to note that from November, 1943, to February, 1947, the cost of living in this country was stabilised at a practically static value. As compared with the figure of 294 in November, 1943, the figure stood at 295 in February, 1947. In the intermediate period the fluctuations were such as to justify one in saying that the cost of living during that period was held steady.
Now, that in itself was an achievement. That result was achieved by the methods adopted by the then Administration to control prices, to control wages and to adjust the economic fabric of this country to the then existing war-time conditions. That was the situation when the war concluded. However, it is common knowledge that, as from February, 1947, the cost of living rose sharply and, in fact, the figure (corresponding to the figures I have given) for August, 1947, was 319. In other words, during the first half of 1947, the cost of living rose sharply from 295 to 319 and a somewhat similar trend was to be noticed in food items alone. During the static period from 1943 to 1947, the cost of food items rose somewhat, but only from 261 to 271. By August, 1947, the increase in the cost of food items was represented by an increase in the indices from 271 to 300.
There was the situation which led to the present situation and the causes of these changes were briefly as follows. Up to the beginning of 1947, it was possible to keep the controls effective and the influences of outside world prices for such things as wheat and tea which we imported were not sufficient to nullify the efforts which the then Minister for Supplies was making at control. In addition, wages were stabilised by the standstill Order, but, as from the latter part of 1946, a number of factors operated to bring about the situation I have already outlined and they can, roughly speaking, be grouped under three headings. The three factors which sent up the cost of living in that period and which are responsible for the rise in the cost of living to-day are, firstly, the price of such commodities as wheat and tea which we had to buy outside this country, say, in America or India, rose sharply; secondly, the price of other foodstuffs particularly produced here at home rose for reasons which I shall give in a moment; and, thirdly, in September, 1946, the standstill Order was removed and it had its contributory effect in forcing up prices. Incidentally, the whole set of circumstances tended to confirm what the more orthodox of economists would have expected.
With regard to the first factor, the world prices which we had to pay for imported goods, imported necessaries, there was the price of wheat. I may say, in parenthesis, that I find some difficulty in correlating some of the prices quoted, but I think I am not far wrong when I say that, in 1945, wheat was available at £21 per ton c.i.f. and it rose sharply during the spring of 1947 to the corresponding figure of £34 per ton, if I have read the returns in this regard correctly. In any event, it is incontrovertible that, during that period, the price of wheat in America and elsewhere rose sharply because there was keen competition in the world market for that commodity. It was a natural price reaction to the demand for wheat in the world at large and I suspect also that there were such things as increased transport charges and production costs coming into the picture; but, be that as it may, this country was then faced, as to some extent it is now faced, with the problem of paying these very much enhanced prices for the wheat we must import or go without that wheat. And going without that wheat means that the present bread and flour ration could not be maintained.
In other words, with regard to the price which must be paid for the importation of that essential commodity, no Government in this country can have any control. All that the Government could do was, by artificial means here at home, to try to adjust the price to the consumer where it has no control over the price which the importer into this country, whether the State or private individual or State-sponsored company, must pay for that wheat. It was inevitable, therefore, that the natural tendency of such a situation was to put up the price of the basic article of food in this country, wheat, flour and bread. A somewhat similar situation existed in regard to tea. The price of tea soared at about the same time and the natural tendency was to put up the cost of living. The Government could have had no control over the primary cause for the increases under these heads.
The second set of factors which influenced and caused the rise in the cost of living were concerned with production here at home, the situation being, so far as one can summarise, that our farmers found that their goods also could fetch higher prices abroad and in England particularly. They had to face increased costs of production— fertilisers were more expensive and the removal of the standstill Order made their labour costs greater. Factors of that sort put up the price of our farmers' produce, together with the natural tendency resulting from increased demand. What could the Government do about that? What could the previous Government or this Government do about such a situation as that? No more than in the case of the foreign wheat could the Government directly keep down the prices of these commodities produced here at home.
They could not keep them down by the simple direct expedient of saying: "You cannot charge any more," and so keep the price down to the consumer in the cities and towns, because, in the first place, the export trade in cattle and such animal produce as we were exporting was vital to the economy of this country, and any step designed to prevent the farmer getting the benefit of the prices in England would have been very seriously detrimental to the whole economic fabric of the State, and, if he were to be allowed to get the value of that market, be could not very well be forced to sell to people in our towns and cities at a loss—production would fall immediately—so that because of the importance of three things, our export trade, the increased cost of production which the farmer had to bear, and the need for encouraging the farmer to produce as much as he possibly could, both for home consumption and export, it was not practicable for any Government, and would not be practicable for this Government, to step in and to say to the farmer: "You must sell at such and such a controlled price to the consumer in the city." That direct line of approach was out of the question, and immediately you allowed the farmer to get the benefit of that economic situation, to get his prices, you had a price problem for the consumer, notably in the towns. In other words, that situation, like the situation with regard to world prices, was forcing up the cost of living, and, by the very nature of the problem, the Government was restrained from adopting what some people might think would be the direct mode of attack.
The other factor then contributing to this rise in prices and cost of living was the removal of the standstill Order. I remember when I was sitting on the far side of the House a number of Deputies, before this Order was revoked, constantly crying for its removal and constantly they were given the answer that that Order was being maintained in the interest of the worker, because, if the Order were removed, wages would go up and increased wages would force production costs up, and, if production costs went up, prices to the consumer would go up, and that would mean an increase in the cost of living. In fact, a race between prices and wages would start and the unfortunate fact, as such history as is available to us on the matter shows, is that, when that type of race starts, it is prices which win and the worker who is worse off. For that reason, the standstill Order was held for some time, but, unfortunately, because of the other two factors I have already mentioned, it was necessary to remove the standstill Order in September, 1946, but the very removal of that standstill Order also contributed to the inflationary trend, with the result that these three factors together put up the cost of living during the early portion of 1947 from 295 to 319.
These are the plain facts of the situation and the question is: "What possible remedy can you adopt in a situation such as that?" It seems to me that the remedies which can be adopted are, just as the causes, threefold. The remedies, taking them vis-a-vis the causes, would briefly be these. Firstly, you may try to subsidise, but subsidy is a very limited weapon and is really only a matter of forcibly adjusting the money available, or diverting the money available into certain specific channels. It cannot be a wholesale remedy for such social evils. The second line of attack is price control, but that also is limited, as price control suffers from two defects. It suffers from the difficulties of administration, which of themselves mean more cost; a very elaborate price control scheme means increased cost in administration and increased difficulty in administration; and also price control of itself tends to make black markets. For these reasons, the remedy of price control—while, if it must be applied, it should be applied— is of limited application, just as the weapon of subsidies. Lastly, there is the question of wage control. It was thought at that time that it was better to get wage control for the future on a voluntary basis; and I think all sides of the House are agreed that if that can be achieved, if wages can be related to prices by the voluntary co-operation of the unions concerned and the workers, it will prove in the long run and in the short run to be the most satisfactory weapon for dealing with such a problem.
In the long view, the only remedy for this situation—it is almost a physical law of nature—where we have a rising cost of living, is more production, a greater quantity of goods, particularly the necessaries of life, particularly those items which directly affect the cost of living in its natural sense—and even in the artificial sense, of the various items that are taken for weighting and computing the index. Therefore, it seems to me that even at the present moment, no alternative is open to the present Government for dealing with it other than the devices which have been employed to date, devices which, when external circumstances permitted it, proved reasonably effective during the years 1943 to 1947, devices which since September last have shown that at least the cost of living can be stabilised where it is, if not reduced. Those devices, in a nutshell, are a reasonable scheme of price control, as I have mentioned, coupled with a reasonable system of subsidies—but that remark must be subject to this qualification, that the aim should always be to try to get away from subsidisation if possible and that, in imposing subsidies, a long view should be taken and items likely to fall in price in the future should be selected for subsidisation rather than items likely to rise or to remain chronically dear.
Thirdly, there is voluntary wage control, the correlation of wages with prices, which the last Administration was attempting to achieve by co-operation. I am virtually certain that the present Administration will tend to take the same course. As things stand at the moment, I fail to see that, for an immediate or short-term remedy, any other course is open. It seems to me that the present Administration will be charged, for the immediate future at any rate, with the task of maintaining price control and of providing subsidies, apart from the question of voluntary wage control; and that, in particular, the Minister for Finance will be faced with the problems of finding the money for the administration of a price control scheme and finding the money for subsidies. If he continues on the basis of subsidisation—I am not dealing with how to raise the moneys for the subsidies but of the actual subsidisation of the items concerned—he can expect not only to get the cost of living down but he can expect to maintain the stability in that situation which has existed up to the moment. During the critical period early in 1947, 70 per cent. of the total rise in the cost of living was due to an increase in the cost of foodstuffs, mainly such things as butter, which was responsible for three points of a rise and which was a consequence of the guaranteed price for milk which was given to the farmers, this being another example of how a benefit in one direction has to be paid for in another. The increased price of meat, due to the increased market prices, meant an increase of 7½ points. Eggs, because of the export policy, had gone up three points. The market situation put up potatoes by three points, sugar by one point and, owing to the world situation, tea by 7½ points, and these accounted for a total of 70 per cent. of the total rise in the cost of living in that period. It was a very substantial one, being well over 20 points. Clothing, however, was only a fraction. In spite of all the talk that we heard about profiteering in the clothing business, the fact remains that clothing was responsible only for something less than 1 per cent. in the total rise in the cost of living. Fuel, however, and other sundries of that nature accounted for 12 per cent. There is the picture and in addition to that, because of the taxation which was necessary in order to give the social services which so many Deputies demanded, the tax on cigarettes and tobacco accounted for 10 per cent. in the cost-of-living rise. Notwithstanding all these increases the methods adopted last autumn succeeded in bringing down the cost of living.
When one approaches the problem in this way and analyses it, one sees that the present Administration is faced with a problem, and mark you, they are faced with a problem which they must deal with in a short-term way for there seems to be no other rational method of attack, no other method of attack which will not bring perturbations into the economic system, the disadvantages of which would outweigh the advantages which they seek to give and which they may in fact give.
Where does this leave the present Administration? It leaves us with this. The present Minister is faced with the problem of maintaining both the administration and the administrative machine for preserving the present —or at least a modified form—price control, and he is also faced with the difficulty of finding the moneys for the subsidies. I think no matter what his or my or anybody else's general views on the matter may be, that he will be forced to maintain those subsidies, at any rate for a transitional period. That is the immediate problem. In the long-term view he is faced with the problem of providing, for the years during which he is responsible for the State Exchequer, the moneys for the long-term development of this State, the development which in the increased production of consumer and other goods will make living easier in this country. In all that of course he will be forced to take into account those outside factors and influences over which he will have no direct control. What is the present position? The last Administration faced up to the problem of finding the moneys for the subsidies. They faced up to the problem as to whether those moneys should be raised there and then, or as to whether they should be raised by some method of deficit financing. These were, so to speak, the current living expenses and the then Minister for Finance took the view that the money would have to be raised at once, and of course that simply meant taxation, whether direct taxation or indirect taxation. That was the genesis of what one must admit was the unpopular Budget of last autumn out of which so much capital was made by the then Opposition Parties up to the present time. That was one method of finding money; it found the money and results were achieved in that way.
My first word to the Minister for Finance in this Government is this: You are forced to find the moneys for these subsidies and for the maintenance of the administration of price control. You are committed to abolish the taxes which were imposed in order to raise these moneys, and the question is where and how will these moneys be raised. In asking this question I have in mind that the Minister proposes to float a loan and, if I understood the reports which I have read aright, the Taoiseach has promised further loans. But I am not jumping to conclusions and thinking that these loans would be applied to the purpose of supplying subsidies, because I think the Minister mentioned that certain capital expenditure would be met by these loans. If the loans are for capital development my remarks in so far as they are critical do not apply, but if it is the Minister's intention to apply these loans for the purpose of current running expenses— because that is really what it is—then I think that we are in effect mortgaging our future.