Since I introduced the Budget in April last, I have been keeping the economic situation under close and continuing review. Developments to date have justified my belief that this year would show some improvement on last year. Inflationary pressures while still serious have become less insistent. Consumer prices in the second and third quarters of 1971 were about 8½ per cent higher than a year earlier, compared with rises of 10 per cent in the two preceding quarters. The indications are that the National Pay Agreement is being maintained and this, in conjunction with the economic measures taken by the Government, has helped to stabilise employment and combat redundancy. Its maintainance augurs well for a further improvement in the trend of prices and of industrial competitiveness.
Economic Situation: Statement by Minister for Finance.
On a point of order. Could the Minister let us have the courtesy of a copy of his speech?
I think Deputy Tully has a copy.
It is a stencil. It is not even typed.
That is correct.
Surely it should have been possible to give a copy to all the people who normally get copies.
This is not a Budget Statement.
All the more reason why we should have copies.
I want to draw attention to the fact that there are frequently complaints about announcements of the kind I am about to make now being made outside the House. I have notified the spokesmen on finance in the two Opposition Parties and furnished them with copies of the statement. I think that is showing due courtesy to the Opposition Parties.
Could I have a copy, please?
The Deputy will be supplied with a copy.
Could I have a copy now?
No. I do not think this is a matter of order.
It is a matter of ignorance on the Minister's part.
If the Deputy thinks so.
Just courtesy.
I would hope that Deputy Corish would have more confidence in Deputy Tully and that Deputy FitzGerald would have more confidence in Deputy O'Higgins.
Just courtesy to the leaders of the parties.
Order. The Minister for Finance.
Exports have been buoyant. In the first nine months of this year, agricultural exports rose by 24 per cent while industrial exports excluding those from the Shannon Industrial Estate, which have been affected by exceptional market circumstances abroad, rose by 18 per cent. Imports rose strongly in the early months of the year but more recently have tended to slacken off. This, combined with the buoyancy of exports, has resulted in an improvement in the import excess in recent months. When exceptional purchases of ships and aircraft are excluded there was a reduction of £11½ million in the import excess in the latest four months, compared with a rise of £21 million in the preceeding five months.
For the year as a whole, taking account of trends in external trade and net invisible receipts, it is likely that a balance of payments deficit of the order of £75 million will occur. This will be the largest deficit recorded but if exceptional purchases of ships and aircraft are excluded, the balance of payments out-turn for 1971 is expected to be no greater than last year.
Despite the size of the balance of payments deficit, the external reserves have been rising. At end-August they reached the record total of £360 million or about £70 million higher than at end-December, 1970. They have, of course, been augmented by substantial external borrowings by the State and by State bodies and, in addition, other capital inflows this year have been exceptionally large. Taken in conjunction with the improving external trade trends, the large capital inflow confirms the belief that the balance of payments position does not call for remedial action although it must, of course, be watched carefully. Some flexibility in regard to balance of payments deficit seems reasonable in these years of adaptation to freer trading conditions, provided the deficit does not result from excessive demand pressures or from a loss of international competitiveness.
I see no reason at this stage to modify my earlier forecast that the growth rate this year will be 3 per cent, a rate double that of 1970 but below the potential growth rate of the economy. Domestic demand has not been strong. Movements in the retail sales index, turnover tax receipts and new motor car registrations indicate that expenditure on consumption was sluggish in volume terms in the earlier part of the year and while some upturn is now apparent it is unlikely to provide a significant stimulus to demand for the year as a whole. Investment has shown an improvement although much of this stems from a recovery in the building sector from the low level of activity in the first half of last year.
The recovery in the building sector together with buoyant industrial exports were reflected in an increase of about 6 per cent in the output of manufacturing industries in the first quarter of 1971. If account is taken of the depressed level of industrial output last year, attributable mainly to the effects of industrial disputes, the underlying rate of growth this year is lower. There are indications, moreover, particularly by way of increased redundancies, that certain types of firms have been suffering from slack home demand, recession in certain important markets abroad and other factors. With high unemployment in the UK and a consequent drop in emigration, the unemployment rate has risen.
While there are some dangers in the present situation, the Government are now of the opinion that the economy can be allowed to expand till it reaches a growth rate nearer its potential. At the present rate of expansion, however, this may take time unless some stimulus is now given to activity by Government action. I propose, therefore, to outline certain measures which are specifically designed to provide a moderate stimulus to economic activity and to encourage business confidence.
Before referring to them. I must point to one factor which limits the room for manoeuvre in introducing any reflationary measures, namely, the increase in incomes which is likely in 1972, partly as a result of a carryover from the rise in incomes in 1971, partly from increases under the second phase of the National Pay Agreement and partly from the renewal of that agreement next year. Should the trend of income increases pose serious problems the Government will clearly have no option but to counter the excessive demand pressures which would inevitably follow.
The difficulties of the past two years have been as clear an indication as could be got of the problems arising for the economy when inordinate pay rises are given. It is essential that common sense and moderation should prevail in regard to income increases. With so many factors working against us which are not under our control, at least in the short term, it is essential that income increases, for which we alone are responsible, should be consistent with the requirement of increased employment and price stability. No measures taken by the Government to promote a faster rate of economic growth can be fully successful in the absence of reason and moderation in income increases.
Turning now to the steps which the Government propose to take, the first of these relates to the public capital programme. The programme for 1971-72 at a level of £193.4 million was intended to ensure steady economic and social advances. In particular, the allocations for industrial grants and for housing and ancillary services were £4.5 million and £4 million respectively higher than in the previous year and were expected to add significantly to the job opportunities available this year. Some of the allocations in the programme have already proved to be inadequate. Taking this into account, the Government have now decided to increase expenditure on the programme this year by about £20 million or by more than 10 per cent. Of this amount, some £15 million will be financed directly from the Exchequer and the remainder by the State bodies concerned.
In furtherance of Government policy to encourage industrial development and to promote economic growth £6 million of the extra moneys will be allotted to the IDA. A further £2 million will be utilised to provide credit for industrial concerns through Taiscí Stáit Teoranta. These extra moneys, totalling £8 million, will help to generate more jobs in industry as well as safeguard existing employment. An extra £1.25 million will be made available for capital investment in telephones and £1 million for housing, both of which should also help employment. For agriculture there will be a further £5.2 million capital available; £2.7 million will be in the form of credit made available through the Agricultural Credit Corporation while the balance will mainly represent additional State expenditure on bovine tuberculosis eradication. The balance of the increased funds—some £4 million—is being made available for other desirable investment which will support employment, including tourism, electricity development, national schools and special schools for the physically and mentally handicapped, forestry, and the Shannon Free Airport Development Company.
The increase of some £20 million brings the public capital programme total to £213 million for the current year and should serve as a useful and immediate stimulus to the economy. The financing of the extra £15 million draw on the Exchequer can be achieved without recourse to sources of finance other than those foreshadowed in the April budget. The various Government small savings schemes continue to meet with considerable success and sales of Government securities directly to the market have increased considerably during the past months. This augurs well for the success of the national loan which is normally issued at this time of the year. The prospectus of this year's loan will be published on Friday next and I am assured already of substantial institutional support for the issue.
The higher level of the public capital programme for the current year will be maintained, and if possible increased, next year so that economic and social advance may continue at a satisfactory rate.
This programme of increased capital investment will provide a powerful shot in the arm for the economy. I want to underline that this boost to the capital budget puts the emphasis where it is most needed at present. It is rooted in the Government's belief that our first priority is productive jobs in Ireland for Irish men and women. It puts the stress equally on agricultural and industrial development. This is the cornerstone upon which social and economic progress depends. The standard of living that our people will enjoy, the level of our social services, the extent to which we can help the weaker sections, our aims in regard to health, housing and education, all in the final analysis depends on more agricultural output, more factories, more exports and more workers on the pay roll. The stress is on productive investment—investment that will create more wealth. The trade figures and the increase in exports already indicate that we are reaping the first rewards of the self-discipline we accepted last year. The large expansion of productive investment on which we are now embarking gives promise of even greater rewards soon.
The Central Bank recently indicated to the Associated Banks that a reduction in lending rate would be desirable. This reduction which took effect from 30th September, should provide a further stimulus for productive private investment.
The second step which the Government are taking is to remove immediately all existing hire purchase, credit sales and hiring restrictions. These restrictions were originally imposed in November, 1968, and were strengthened and extended to a wide range of goods in January, 1970. Briefly, the restrictions impose for hire purchase transaction minimum deposits ranging from 15 per cent to 33? per cent and maximum payment periods from 12 months to 24 months; for the hiring of goods they prescribe down payments of 25 to 30 weeks rental. As I mentioned earlier, the volume of domestic consumption has increased from its depressed level earlier this year but is still likely to increase for the year as a whole at a significantly lower rate than national production. In these circumstances, and having regard to the need to stimulate the economy, I do not consider that the retention of the controls is at present justified. Their removal should give a fillip to business activity and help to safeguard employment in home industry. I want to make it clear, however, that I will not hesitate to reintroduce the controls should this prove necessary.
The third measure relates to taxation. Since company taxation was increased in October, 1970, there has been continuous and widespread pressure for the repeal of that increase on the ground that the new level of taxation bore excessively on company profits and thus adversely affected domestic investment, output and employment. When account is taken of the different company tax structures, the present rate of tax in this country is not unduly high by comparison with other European countries. Furthermore, those who refer to the excessive tax burden rarely advert to the capital allowances, and exports and other incentive reliefs provided here which are very generous by any standards. Indeed, companies had a ready means of avoiding or reducing the increase in the tax burden by stepping up their capital investment in plant and machinery.
In this year's budget, special temporary provision was made for the extension of free depreciation to the entire country and for a system of investment allowances in the designated areas. These measures were designed to encourage greater investment in manufacturing industry this year and next year. In the present economic situation the Government, however, have been considering whether some further amelioration in the tax position of companies might not serve as an additional stimulus to economic activity.
The tax increase in October, 1970, was effected by disallowing corporation profits tax as a deduction in assessing a company's liability to income tax. The Government have now decided to allow, in respect of 1972-73, 50 per cent of corporation profits tax as a deduction in assessing income tax, and to allow, in respect of 1973-74 onwards, the entire corporation profits tax liability as a deduction in computing a company's income tax. The result will be a reduction in the effective maximum rate of company taxation from 58 per cent to 54 per cent next year and to 50 per cent in the following years. These reductions will affect assessments made for 1972-73 and subsequently, but, as the income tax assessments are based on profits earned during the preceding year, the tax provisions currently being made by companies can be reduced accordingly. The changes proposed should, therefore, act as an immediate fillip and permit of increased investment in the current year and, in addition, facilitate companies in planning ahead. It is estimated that this measure will cost the Exchequer £2.7 million next year and £7.2 million in a full year.
The measures which I have just outlined are designed to step up growth, create additional employment and enable the economy to realise its full potential as quickly as possible. They are a clear indication of the Government's determination to tackle the problem of redundancies. We are now facing the challenge and the opportunity of the EEC. These measures are timed to give the economy the momentum needed to meet that challenge and to avail of that opportunity. As I said earlier, the future trend of incomes is vital. If common sense and moderation in seeking higher incomes prevail, the stage is now set for a rapid return to the path of higher growth leading to a higher level of prosperity for all our people.
It is perhaps ironic that the Minister for Finance should impliedly have suggested that since the last Budget there have been better times for the people when, in fact, he is referring to a period during which there has been an 8½ per cent rise in prices and in the cost of living. His statement has concluded without, in any way, offering any consolation or any redress to the thousands of pensioners and people on low and fixed incomes who have had to suffer considerably because of rocketing prices during the period that has just concluded.
Apart from that, the Minister's statement and the performance of the Government are another example of the pathetic stop-go mentality of the Government in relation to economic development. There is now no evidence of advance or prudent planning in so far as the management of our economy is concerned. We are suffering and have suffered a very serious business recession. With rising unemployment, reaching at the moment over 55,000, which means that some 7 per cent of our people are unemployed, together with rocketing prices, the Government have obviously been compelled to take some action to reflate the economy. Of course, they are at the same time conscious of the disorder in their own ranks and it is an each way bet on a possible election.
The tragedy is that over recent years this situation has been permitted to develop and get out of hands. One cannot forget the false illusion of prosperity deliberately created in 1969 in order to enable the Fianna Fáil Party to win the last election. If the Government party at that time had had the courage to do their duty the unemployment, the suffering and the economic troubles which have affected and caused misery to so many people might well have been avoided. We now have a limited "go" again from a Government that are obviously appalled at the desolation their mistakes have caused to our economy. On page 3 of his statement the Minister says:
While there are some dangers in the present situation, the Government are now of the opinion that the economy can be allowed to expand till it reaches a growth rate nearer its potential.
This is stilted Civil Service phraseology but what does it mean? To the unemployed in Ballyfermot and in other parts of the city it means that they were deliberately put out of work by a Government decision in the past 12 or 18 months. It means it was deliberate Government policy to deflate our economy and force up unemployment in an endeavour to conceal their own mistakes.
Of course, there has been a serious business recession. A number of companies have been forced into liquidation. The new "in" phrase for unemployment is "redundancy" and redundancies have been cropping up all over the country. One very significant factor in that developing situation of more and more redundancy has been the high level of corporation tax. The Minister has come in today and said that the Government proposes a reduction—a fat lot of thanks due to the Minister. It was a stupid decision taken 12 months ago by an incompetent Government and we pointed that fact out at the time.
Hear, hear.
The result has been that in the past 12 months everyone concerned with the economic development of the country has endeavoured to point that out to the Minister and to the Government, but they would not act, they would not admit their mistake until redundancies and unemployment reached crisis and critical proportions and now we have some effort to cure the situation—a reduction from 58 per cent to 54 per cent. In other words, Irish companies endeavouring to provide jobs for Irish citizens in relation to the home market will now have 4 per cent of the burden which was crippling them removed whilst their competitors from England can coast along paying corporation tax at 40 per cent, the differential has been reduced from 18 to 14 per cent. It is a step in the right direction, it is the beginning of an effort by the Minister, representing the Government, to accept the fact that they made a very serious blunder this time 12 months ago and like so many ministerial blunders it is not the Minister who has to pay for it; it is the unfortunate man who is thrown out of work.
Of course, we welcome any change of attitude by the Government. It is correct that they should endeavour to increase capital expenditure and provide a stimulus to the economy. This is badly needed at the moment. It is right that they should make some effort to undo the harm that has been caused to industrial development by crippling taxation but I wonder what sort of priorities the Government have got? One million pounds more is being given for housing, which is the prime social need, when, in fact, housing costs have rocketed in the past six to eight months. At the present moment we have the lowest rate of housing in Europe and we have not achieved half the level of housing provided by the last inter-Party Government. One million pounds more is to be given. Was the Minister's journey necessary?
We welcome the slight effort involved in this statement by a Government endeavouring to undo and minimise some of the mistakes they have made but it is not going to conceal the fact that our economy has been badly managed by an incompetent Government and it will not be cured by a stop-go approach; what we need is a new Government and new thinking.
I suppose I should thank the Minister for his courtesy in, first of all, notifying us that he proposed to make a statement and, secondly, in providing a stencilled copy of his speech. If a future occasion arises I would ask the Minister to ensure that at least the Leaders of the parties get copies because I am sure he appreciates the embarrassing position in which he left Deputy O'Higgins and myself today. I am quite sure the Leader of his party had an opportunity of discussing with him what he was going to say and the problem did not, therefore, arise.
It appears that this is recognition by the Minister and Government of the bad job they made of the Budget this year. They have now attempted to repair, in a small way, the damage which everybody on this side of the House was able to point out was likely to happen if the Budget was framed in a certain way. Of course, the Government knew everything and decided they were going to do this and so we had a Budget which has produced more unemployment, higher prices and a greater feeling of despair among people who are really interested in the success of this country than any Budget produced by any of the Minister's predecessors.
I do not know whether the Minister really understands what the situation is or whether he really feels that the amount of money which he has talked about today is going to make any material difference. Deputy O'Higgins referred to the fact that it might be for the purpose of a general election but if it is going to be for the purpose of a general election, then the Dáil had better be dissolved quickly because it will not take the people very long to see through this little trick. The Minister refers to £20 million and he says that £15 million will be financed directly from the Exchequer and the remainder from the semi-State bodies concerned. Where will CIE get the money? Where will Aer Lingus get the money? Where will the other State bodies concerned get the money?
This Government have got into the habit of pushing things across in the hope that somebody will believe that they are, in fact, doing something wonderful but it appears that the amount involved is £15 million and as we know that £15 million will come out of the taxpayers' pockets so the Government cannot take very much thanks for what they are doing. Does the Minister consider that the extra £1 million will make any difference to housing, that the £1 million he proposes to produce through this new budget will make a difference particularly to local authorities? I am glad the Minister for Local Government is behind the Minister because he will be answering a number of questions tomorrow about schemes submitted by my county council. I am sure similar questions could be put down by all Deputies who are county council members. Because of various reasons or excuses, efforts by local authorities to house their people are frustrated. The Department do not give sanction for one reason or another for month after month, the main reason being they have no money. The Minister is now giving them £1 million. I wonder what that amount, when spread over all of them, will achieve, particularly in view of the increased cost of houses. The Minister for Local Government must be aware that houses which were sent for sanction for tenders last year and which were not sanctioned are each costing at least £1,000 more this year. The £1 million will not be long disappearing.
I see nothing here by way of extra money for water or sewerage. One of the Minister's predecessors decided some years ago that he would solve the water and sewerage problem overnight. He invited local authorities to send him lists of the schemes they proposel to carry out. Overnight he got in about £35 million worth of work and nearly died of fright. He met many things to frighten him since. He suddenly started to arrange things so that he would not have to keep his promise. More water and sewerage schemes have been held up than could be listed here in half an hour because local authorities cannot get money from the Department. There is no reference to this in the document the Minister read out today.
We all agree that the extra money being made available for telephones is very welcome but in view of the chaos existing in the system due to the failure of Ministers of the present Government to get even the necessary supplies to maintain the improvement that was planned in the system, I do not know what it is proposed to do with slightly more than £1 million. Even the new telephone exchanges erected a few years ago were found, within two years, to be too small to meet requirements. This is evidence that the Government do not know what they are doing nor did they know a few years ago.
I do not know if the Government believe they are the only people in the country who really know what is happening and that nobody else can get the facts in regard to the unemployment register which was mentioned at Question Time today which I am sure will be mentioned frequently in the next few months. Is the Minister aware that the figures given do not take into account approximately 12,000 people who were taken off the register because they were under 50 and were living in the country and drawing the dole? When they go back we shall have the biggest register of unemployed for at least a decade. Is any provision being made to find employment for them. To suggest, as has been suggested here, that the money given to IDA or An Taiscí Stáit Teoranta will solve the problem is wishful thinking. I had the experience in the past few months of attempting with a very courteous Minister for Industry and Commerce to get some sort of grant for people who had run out of money and were in danger of having to dismiss a substantial number of employees. Despite the fact that they went to IDA themselves, we went to the Minister and on two further occasions went to the IDA. On each occasion we began at square one; the people we met were unaware of what discussions had taken place previously. While all this went on people were out of work. The IDA will have to improve their ideas. To come along now with November approaching, and talk about giving some money to save industries which the Minister must know have in many cases gone out of existence in the past five or six months for want of money to carry on, is unrealistic. Does the Minister think what he is doing now will solve the problem?
We heard the Taoiseach today trying to make out that twice 3,900 was not more than 7,500. We all knew there was only a couple of hundred in the difference and it did not matter a lot but the figures for redundancy this year will be the highest for 20 or 25 years. We get the suggestion then that a small amount of money will be made available in an attempt to solve the problem. This is only putting a very small plug in a very big hole and we shall end up with "too little and too late".
I had the experience recently of talking to somebody who had become redundant. This man told me he had not realised until now how prices had risen. When he tried to balance his budget, his wife having bought groceries in the local shop, he found to his horror that all prices had gone up, and were continuing to go up, and he was not able to meet his required outgoings. He began to value the pennies.
The Minister does not seem to worry that prices have increased. In fact, he said some time ago here that he had sanctioned a number of price increases. Does he know that it is generally accepted that his proposal for 1st March—God knows why that date should be chosen—to increase prices further by added value tax will make this suggestion unrealistic? Also, the Minister apparently has not taken into account that the standard of living of ordinary working people has been very badly damaged by the increases put on by the Government in this year's Budget and by a Bill brought in by the Minister for Health towards the end of the last session. Twenty-five new pence have been added on to the insurance stamp with effect from 1st October—a five shillings a week reduction in wages. Another 5p have been deducted because of the increase in income tax for people paying under the PAYE system.
The former Minister for Finance two years ago made an effort to do something for such people but, apparently, this was considered overgenerous by the present Minister because it was wiped out. As a result, in the past couple of weeks unfortunate low-paid workers are being notified that their income tax has been changed with effect from 5th April and they are now required to pay tax back to that date amounting to approximately £6 each. The State, when dealing with outdoor workers who are paying income tax—I suppose they are considered to be at the bottom of the ladder —insisted on deducting the whole amount from one week's wages. One unfortunate man came to me with £7 which he was bringing home to feed a wife and five children for a week—£7 out of £18. Eleven pounds had been collected in tax and insurance from his wages. Then the State tell us they are trying to do something for the low-paid worker. This is absolutely ridiculous.
While I suppose we must be thankful for small mercies. I think the suggestion by the Minister here today is an insult to the intelligence of those who are really interested in trying to do something for the ordinary people. If, as has been suggested, this had been introduced for the purpose of trying to win a general election, if the Taoiseach and his Government can screw up the courage to face the people, the quicker they do it the better it will be for everyone concerned.