I challenged the Deputy to produce the letter or to recite what is in it and he has failed to do so. If he has a letter I will deal with it in good time. I hope the Deputy does not deal with it as he did in Cavan through a pamphlet when he tried to denounce the employment given at Verolme Dockyard.
We regard the Budget as well suited to the state of the economy at the present time and as well designed to encourage a high rate of growth in employment, a high rate of investment in national production. The prospect of continued progress at a good and satisfactory rate involves no excessive risks on the balance of payments provided the pace of the increase in money incomes and in bank credit is not as fast as it was in 1968. All in all, as I said in my broadcast last Saturday, the Government are taking a progressive and confident line favouring economic expansion and social equity through the medium of this Budget. We are relying on the good sense and co-operation of the public not to act in any way which would spoil the country's prospects, by making our products less competitive or by running us into balance of payments difficulties.
Those are, I think, two of the main fundamental matters we have to face up to whether in the Budget or in the ordinary course of administration. On the social side, the Budget carries forward to a marked extent the Government's policy of looking after the less fortunate members of our community. The net increases in taxation it imposes, all of which are on less essential expenditure, go almost entirely to help the larger families, the old, the widowed and those dependent on social welfare payments generally. The children's allowance scheme, for example, which was introduced by Fianna Fáil in the first instance, has been improved substantially so as to give a significant increase to the second and later children of all but the best off families.
The old age pensioners and other recipients of social welfare benefits are getting an extra 10/- a week and, I might remind the Opposition, not for the first time. However, I will refer to that again later. Public service pensioners are again brought closer to present day standards and for the first time provision is being made for the widows of public servants who died in office before the contributory pension scheme was effective. The tax increases, therefore, are a means of redistributing part of the substantially increased incomes of those in a position to negotiate and receive them in the interests of social equity. As a community, I feel, we will recognise the justice of this and that we will neither resent nor react against the means by which it must be accomplished. We surely want to have a society in which fair play dominates. Indeed, as a Government, we were gratified at the reaction of the public generally to the taxes that were imposed in order to make available the substantial benefits that are provided for in the Budget.
On the economic side, the Government's policy is to maintain a high rate of growth. A steady upward trend in production mainly for sale abroad is the condition of all progress, social as well as economical. I think we can look forward to 1969 as being a year of significant advance, a year in which we will add four and a half per cent of new output and wealth to the ten per cent gain that we have enjoyed in the last two years provided we manage our affairs well, provided we keep on working together and provided also we accept the disciplines necessary to any reasonable progress.
As in all growing economies there are risks associated with growth and development, particularly the risk of claims and expectations running ahead of resources but those risks, which can be summed up as those of inflation, if faced up to and contained, are much less frightening than the consequences of stagnation. Goodness knows we have plenty of cause to know what stagnation meant during the Coalition years.
We have entered 1969 with a strong impulse of growth behind us but also, it must be admitted, with some inflationary dangers to contend with. The gross national product rose about five and a half per cent in 1968 and employment in services and industry increased by some 11,000. Incomes generally rose by about five and a half per cent in real terms after allowing for the increase in the cost of living. In Ireland more than elsewhere sustained growth must have for its basis an increase in exports of goods and of services.
It is, therefore, particularly encouraging that the growth in output in 1968 was largely due to a substantial rise in the volume of sales abroad.
In part, however, the growth in output was generated by an expansion of domestic demand which was inflationary in the sense that money incomes grew much faster than output and which, besides causing price increases of five per cent, caused the balance of payments position to worsen by £35 million. It was always evident that the inflationary implications of excessive increases in domestic demand in 1968 were unlikely to be confined to that year if only because further high rates of increase in incomes were contracted for 1969 as well and the full effects on expenditure of increases in incomes are not felt all at once. The prospect, therefore, had to be faced of the deficit on external account growing larger during 1969 and, perhaps, running beyond £50 million.
To help contain this excessive deficit, it was necessary to reduce the expansionary impact of Government borrowing. Special efforts were made this year to curb the rise in current expenditure and so eliminate the deficit in the current Budget. Public capital expenditure was sheltered as far as possible from this campaign because of the vital importance it has in laying foundations for future development. The reductions in current expansion to which I have referred amounted to £25 million in all. Nevertheless, the current bill without any improvements or increases in benefits represented £41 million over and above last year's figure. This was met— and it was a substantial sum to meet— without any extra taxation. I might say that three-quarters of this £41 million extra current expenditure was made up of increases in agriculture and in social services.
The Government's aim is to move gradually in a way which will not disrupt economic activity and progress towards a more manageable balance of payments position. I want to make it absolutely clear that the choice is between, on the one hand, maintenance of growth through a planned and a phased return to a more manageable state of the external account and, on the other hand, a setback to national production and employment should persistent inflation force us to take corrective measures again. Happily, we have adequate external monetary reserves to sustain us through a process of readjustment without recession or stagnation. The purpose of external reserves is to permit occasional overall deficits in the interests of greater stability and growth but we cannot afford to forget that the reserves are not such as to permit, with impunity, a long succession of overall deficits.
In the first quarter of 1969 domestic demand continued to expand rapidly having significant effects on both prices and external trade. The increase in consumer prices was substantial even when allowance is made for the addition to the wholesale tax, while the rise in merchandise imports was roughly twice that in exports, so that there was an increase of more than £12 million in our imports excess. This development suggests that the tendency may be towards a deficit in 1969 even greater than we had originally anticipated. It may be argued that the worsening in the balance of trade in the first quarter of this year can be attributed in part, at least, to the effects of the maintenance strike. The situation will have to be watched and the maintenance strike is by no means the whole story. At present, therefore, the outlook for external trade and payments continues to be the main cause for concern. Provided, however, no further inflationary elements are introduced into the situation the probability is that the adverse trend may be reversed adequately, and in time. In the formulation of budgetary policy great pains were taken to avoid measures which would have an inflationary effect, either directly or indirectly, and in this respect I suggest that the Budget has been highly successful.
It will be the task of the Government, however, to ensure that, so far as the forces of competition fail to do so, avoidable increases in prices do not take place. Nonetheless, the prospect of a balance of payments deficit of the order of £50 million—the second highest on record—cannot be viewed with equanimity. Indeed, we must now be working for a substantial reduction in that deficit, and with all reasonable speed. The principal danger of a worsening of the situation is the possibility of an excessive increase in money incomes. These include not only wages and salaries but also profits and professional earnings. A slowing-down of the recent rate of increase is absolutely vital. So far as the immediate future is concerned the problem of keeping aggregate increases in incomes within the limits which the economy can afford concerns primarily wages and salaries, not only because they constitute the largest proportion of incomes but because they directly affect export competitiveness.
I want to advert particularly to developments in this sphere. Even if there were no general increase in rates of remuneration, employee incomes would record a big increase in 1969 as a result of growth in employment, wage drift and the "carry-over" from 1968, where the rise in wage and salary rates did not apply for the whole of that year. To this must be added the 1969 increases provided for in existing agreements. In such a situation it is very encouraging to note the recent statement of the general secretary of the Irish Transport and General Workers' Union to the effect that, in the case of existing agreements, no revisions will be sought until they have run their course. This is a most understanding and responsible attitude.
The next problem will be to try to set new agreements, as they arise, on the course which the national interest requires. I cannot emphasise too strongly that not only are the terms of settlement of the maintenance strike irrelevant as an indication of the increases in incomes which the economy can afford, but so too are annual rates of increases which have lately become the standard. The issue which we are facing has been stated before in this very simple, but inescapable, piece of arithmetic. If our rate of growth is 4 per cent and prices abroad are rising by say 2 per cent, we cannot have money incomes rising by more than 6 per cent without danger to the competitiveness of our products. Even 6 per cent gives too high an indication of the sustainable rate of increase for purposes of negotiations, because it does not allow for any increase in the volume of employment, or for the inevitable wage drift which is built into modern economic systems such as ours. Without going into further arithmetic in detail, it must be obvious that the sustainable rate of increase which should guide future wage negotiations is close to the attainable real rate of economic growth. It is high time that the community faced up honestly to the task of providing greater opportunities for employment, recognising that these depend ultimately on a reasonable rate of increase in individual money incomes. I do not pretend that it will ever be easy to arrange our economic affairs in accordance with this arithmetic but I can see no escape from the need for trying, from the need for seeking the understanding and the co-operation of all in so arranging them.
We can take the risk of permitting a rise in the deficit on external account this year only if we believe that we shall manage from now on to bring the increase in money incomes more closely into line with real growth. I do not think any real sacrifice is involved in this. Workers will benefit just as much in their standards of living from an annual 5 per cent increase in money incomes related to a 5 per cent growth in national production and no rise in prices, as would arise from a greater increase which is cut down by an inevitable rise in prices.
At this point, perhaps, I could deal with what Deputy Fitzpatrick and other Deputies have said about the speech made by the Minister for Finance on radio and television about the middle of last month. When he spoke on these media he did so with the object of warning the people of the gravity of the situation which was likely to develop if the settlement in the maintenance craftsmen's dispute were to set a headline for pay increases in the economy generally in this current year. If the craftsmen's settlement were to be followed by similar claims on a nationwide basis it would price us out of the home and export markets and result in serious inflation at home.
The Minister spoke then, not of an existing crisis, but of a possible one in the light of that situation. Even before the craftsmen's dispute there was evidence of inflation, growing expenditure and bank credit. Imports were growing faster and exports were growing more slowly than last year. Therefore, there was a prospect of a widening of the trade gap but this, of itself, did not amount to a crisis calling for drastic budgetary action as was taken in the supplementary Budget of last November. In the weeks following the craftsmen's dispute the Government had consultations with the leaders of the trade union movement and employers' representatives on the situation.
There have been welcome signs that our warnings given then are likely to be heeded and that we can proceed cautiously towards improving the relative position of lower paid workers provided the better off classes, including the better paid employees, are prepared to accept income increases within the growth of national production. The talks which have been held with the trade union movement reinforced our belief that the Budget could play an important part in implementing this policy. We, therefore, drastically pruned current expenditure and had to, as a result, postpone many desirable schemes that could have been put under way this year. In this way we hope to avoid those inflationary pressures to which I have referred and as a result we were able to devote the new taxes to helping the less well off sections of the community.
This is the philosophy behind the Budget and I want to say that it is an honest Budget, carefully planned having regard to current and expected income and that——