The only criticism the Opposition seem able to make about the budget is an economic one. I do not like to quote the Opposition but they have said it is a fraudulent economic budget. A suggestion has been made that the budget in some way is irresponsible, that the size of the deficit cannot be justified and that it will create dangers of some kind for the country. That is a criticism that needs to be dealt with and, as it is the only one made, I shall have to deal with it at some length. Of course, I shall say something about the positive merits of the budget but that will take a long time because it is so full of merit.
Let us consider the economic situation in which the Government found themselves when preparing the budget. There had been a year of very rapid growth. The figure of growth last year has been given variously by different authorities, but despite the suggestion by Deputy Colley that economic commentators and exports had moved from the figure of 7 per cent and that the figure would be much lower, the actual figure put forward by all the various bodies concerned is 7 per cent or higher. I could not follow the suggestion that some expert somewhere was giving a lower figure.
The OECD report assessed last year's growth rate at 7½ per cent; the Economic and Social Research Institute, 7¼ per cent; the National Economic and Social Council, 7 per cent; and, with their customary moderation, the Department of Finance have taken the lowest figure of 7 per cent. None of these bodies, making independent estimates, has given any lower figure. The attempt by the Opposition to suggest that something much less was achieved last year, bolstered up by unnamed authorities—who may perhaps consist of the economic adviser to the Opposition—is without foundation. Of course, in the field of macro-economics one is never sure what the statisticians' final figure will be but at this moment there is unanimity on the part of the experts that the figure is 7 per cent or higher.
There was also agreement that the growth of the economy last year tapered off as the year went by and as we came into this year that process was aggravated by the oil crisis, to some degree because of shortage of oil. However, that proved to be temporary and the impact on the level of production was never very serious. There was the effect of the oil crisis on prices, on people's purchasing power and, consequently, on the demand for growth and production. We faced a situation, like that of many other countries, of impending recession with a real danger of rising unemployment which, of course, had been falling during the 12 months in office of the Government. In that situation there was a compelling case for a budget that would stimulate economic growth, one that would encourage expansion of the economy.
The question of the degree of expansion is appropriate and how it should be tackled are matters of opinion. It will not surprise the country if the Government and the Opposition disagree on those issues but there should be no disagreement between the Government and the Opposition—there certainly is none between the economic experts—about the need to stimulate the economy. If no action had been taken, if a neutral budget had been introduced, the growth rates foreseen by the economists ranged from a low figure of 2¾ per cent by the Economic and Social Research Institute to 3½-4 per cent from the Department of Finance and the National Economic and Social Council.
In putting forward a more optimistic figure as regards what the growth would be if the budget were not re-stimulated, the Department of Finance necessarily were putting forward an optimistic figure for the growth that would occur if nothing were done. They were reducing the margin by which they would justify reflationary measures. The conclusion they and others came to was that the capacity of the economy to expand was greater than the expansion that would take place if measures were not taken in the budget towards expansion. Therefore, an expansionary budget was required which would stimulate the growth of the economy by a figure between 1-1½ per cent.
The OECD suggested expansion of 1 per cent, although it must be said their actual figures for growth without a stimulus and for the target rate of growth suggested a 1-1½ per cent expansion. They called it a 1 per cent expansion when they wrote about it but, as they said, if the growth was between 3-3½ per cent without a stimulus, and it should be 4 per cent, the actual expansion they were talking about was in the range of 1-1½ per cent. The Economic and Social Research Institute in their analysis just published, suggested that without any stimulus the economy would grow by 2¾ per cent, that it could afford to grow by 4 per cent and, therefore, an expansion of 1¼ per cent was needed. The National Economic and Social Council spoke of expansion of the order of 1 per cent.
The Minister for Finance in the budget put forward is seeking to secure an expansion of about 1 per cent in the economic growth within the present year and perhaps 1½ per cent in the old financial year ending 31st March next. That plan is completely in line with the advice received from all of the different agencies. There is nothing here of a political attempt to produce a budget more generous than the economy can stand. On the contrary, the expansion proposed is of the order of magnitude proposed by the OECD, the Economic and Social Research Institute and the National Economic and Social Council. The budget is precisely in line with the advice of these experts—no more and no less.
Therefore, the somewhat flatulent oratory on the other side of the House on the subject is without foundation. Headlines in the papers which referred to Deputy Colley's remark about a "fraudulent budget" are so much rhetoric, lacking any foundation in economic reality. The budget is solidly founded on the advice received by the Government. The Government were not tempted to go beyond that, to give away more than could safely be given away to secure the necessary degree of economic growth that will protect employment.
As Deputies know, once growth falls to a level below 4 per cent employment stagnates and declines. In the ordinary way, the increase in productivity and output per worker which is achieved as a result of the ordinary pattern of investment is in the region of 3½-4 per cent each year. If the total growth of the economy is no more than that, that increase can be achieved with no more workers. If it falls below 3½-4 per cent, as some of the experts thought would happen —for example, the OECD and the Economic and Social Research Institute—employment would decline and unemployment would rise. The first duty of the Government is to prevent that happening, to try to secure some increase in employment even in a difficult year and to do so especially if the economic advice given is unanimously in favour of such a policy. Of course, the Government would have been unwise to go beyond that. They could have been tempted to have a more reflationary budget than the experts advised. They could have been tempted to take a chance on it and hope things would turn out for the best. They could have gone for a 5½-6 per cent growth rate, a figure near to last year's rate, that would involve a significant increase in employment. However, that would have involved taking a chance and the Government rigidly within the bounds of the advice given to them, produced a budget which is, in these circumstances, if you like, slightly conservative, certainly one that takes no risks or chances, certainly one that we can stand over and be sure it does not put the economy at risk, one that will, in fact, maintain the kind of economic growth rate this country can now achieve of 5 per cent, or a little over, and which will secure some increase in employment.
We know now from the mouths of the Deputies opposite what would have happened the country had Fianna Fáil been in power at this moment. They would not have adopted such a policy. They would have budgeted for a deficit of £25 million which would, of course in these circumstances have failed to achieve the economic growth necessary and left the country with declining employment. Nobody need be surprised that that is the policy of the party opposite because in the years in which they were in Government they regularly on every occasion pursued this particular policy. They balanced their budgets with as much concern for arithmetic precision as if each of them was Mr. Gladstone incarnate. Never did they allow economies to creep into the budget. Their budgets were bookkeeping exercises, carefully balanced, and whether the right answer for the country in a particular year was a budget surplus, to cut back inflation, to cut back demand, to accept the pressure of demand or whether, in a given year, what was needed, as in this year and, indeed, last year, was an expansionary budget, they ignored these considerations as irrelevant and, going back to their 19th century economics, balanced their budget within £2, £3, £4, £5 or £6 millions. Only at the very end of their period in office did they move marginally away from this and it was not that the Opposition were not encouraging them. We, in Opposition, were not taking the penny pinching line the present Opposition are taking a continuation of the line they took when they were in Government. We encouraged them to be more expansionary when it was necessary. I can recall advising them along that line myself when we were in Opposition, but they were not prepared to do so and, if they were in Government now, they would no doubt do what they are saying they would do—I think they are entirely honest in say ing this—namely, pursue a similar policy.
If we look now at the actual figures of budget deficits and consider what is involved we can see how appropriate the particular policy has been. I shall document this by reference to the statements of the agencies I have mentioned. Last year, the pre-budget position for the financial year 1973-74 was estimated at a £20 million deficit. Because some measure of expansion was needed in the economy last year we raised that deficit to £40 million as the planned deficit. The Minister, of course, pointed out that in doing that the very action in going for a bigger deficit would itself by expanding the economy enlarge the tax base, bringing in more revenue, and so the actual deficit would be lower than the figure mentioned; instead of £40 million it turned out to be £10 million, which was lower than the Minister himself thought likely, but the nominal deficit on the face of it, before taking account of this somewhat unquantifiable but very real budget expansionary effect, was the £40 million figure.
This year, our opening budget deficit was £22 million. We had to consider what to do. It seemed to the Government that the right thing to do was to have a budget deficit for the 12 months ahead, because we must calculate initially for a 12-month period; the nine months involves complications to do with a particular flow of expenditure and revenue at particular points in the year—I shall come back to this later—and the question was what kind of budget deficit would be appropriate to the needs of a year of threatened unemployment, a year which, if no action were taken, would certainly turn out to be more dangerous from that point of view than last year would have been, a year that needed a bigger measure of expansion in order to preserve employment and utilise to the full the capacity of the economy.
We got advice on this from various sources. I shall not quote them all at length. I shall just take one, the OECD, which is a totally external source, and this is the view of the OECD in their document. I shall quote from pages 32 and 33. I shall not read the whole report, the House will be relieved to hear, but just that part of it germane to the present debate: these are some extracts from their "Conclusions".
The prospects for real output growth in 1974 thus seem to fall short of the 4½ per cent suggested above as a reasonable aim. The overall shortfall, with a 20 per cent increase in the public capital programme, could be of the order of one percentage point, with a somewhat larger reduction in the possible rate of growth of private consumption.
The 20 per cent increase referred to was the actual increase that occurred and they were, I think, aware when they wrote this that was the planned increase. That is what would be required in the increase in expansion in the economy.
Policy action to stimulate demand and output would, therefore, seem desirable.
They go on to consider how this should be done:
An appropriate form of stimulus would, in the light of the possible development of private consumption, presumably include reductions in personal direct taxation or in indirect taxes. Indirect tax reductions would have the advantage of easing the prospective rate of inflation.
They recognise "the desirability of a revision of direct personal taxation rates to take account of the rapid growth of money incomes and prices in recent years." They go on to talk about the effect this would have. It would lead to a larger balance of payments deficit and, of course, to a larger deficit in the budget. They say:
If demand management policy were to support growth at capacity rates through 1974 the deficits on current account of both the balance of payments and the public sector would increase sharply.
This is the policy they recommend: if expansion were adopted there would be larger deficits.
The signficance of the balance of payments deficit should not be exaggerated: in large measure it would represent oil price increases whose balance of payments effects cannot be offset other than over a period of some years; and it would also contain some cyclical element if Ireland were to be more successful than its trading partners in maintaining output and employment.
This is the crucial passage:
Nor should an increased deficit on current government budget deficit be considered undesirable: indeed, if the economy is to continue to operate at full capacity over a period of sharp deterioration in the balance of payments (i.e. there is a reduction in investment abroad), and full employment is associated with roughly stable levels of domestic private investment and private sector saving, then the national accounting identity requires that the increased external deficit be matched by an increased public sector deficit.
Note the wording: "Nor should an increased deficit on current government budget deficit be considered undesirable". There was the clearest indication that what we had to do this year was plan for a bigger deficit than we planned for last year. Last year's planned deficit would be too small in the current year. It was necessary to go for something larger, and that is what we did. Instead of raising the pre-budget deficit, £20 million last year and £52 million this year, we took the good advice given by the OECD and raised it to £66 million for the year 1974-75. That increase is estimated by the Department of Finance—I sought this information from them this afternoon to ensure I was not chancing my arm in the calculation—to increase GNP by an extra 1 per cent in the nine months to the end of the year and 1½ per cent to the end of March next. That is exactly the scale of increase the various agencies I have mentioned consider necessary. The OECD said 1 per cent; they wanted 1 per cent to push up the growth rate from 3 to 4½ per cent and the ESRI wanted 1¼ per cent, so that the planned budget deficit is bigger than last year's. The OECD advised it should be, and it is designed to achieve, in the view of the experts of the Department of Finance, that expansion of the economy which is thought to be desirable and necessary by all the expert agencies.
How, in the face of that, Deputies opposite have the nerve to come in here and talk about a dangerous budget, damaging to the economy and risking inflation, I just do not know. However, I suppose they have a problem. There is nothing else on which to criticise the budget and they may think they will get away with this particular criticism. The Opposition have a difficult task at times. I found it so myself and, indeed, the task of a Deputy who has to rise to answer a budget speech which he has only had a chance of skimming through while the Minister is speaking, is always a difficult one. I know from experience how nerve-racking it is and I should not be too critical, therefore, of the attitude taken up by someone in that position but, equally, what someone in that position says should not be taken too seriously especially when it flies in the face of all the expert advice available to us.
Just to reinforce what I have said from the OECD report I would like to quote from some other documents. I should like to quote from the Economic and Social Research Institute's document. That document states:
Without a fairly sharp stimulus, either internally or externally generated, the prospects for an above average growth rate in 1974 were slight.
Given that growth: in 1974 is expected to be below average; employment is not expected to grow with the corollary that either unemployment or emigration will increase; and the reserves will almost certainly fall, there may be a case for expansionary policies pushing the growth rate more towards 4 per cent,
They have a lower expectation of growth and they believe it should be pushed up by 1¼ per cent.
The National and Economic Social Council had something similar to say. In paragraph 20 they said:
There remains the issue of whether or not expansionary policies should be applied in 1974 over and above those implicit in the budgetary assumptions. The patterns of the growth in investment and output in recent years do not suggest that productive capacity would not be available to permit a growth rate somewhere higher than 4 per cent,
I admit that the double negative is almost calculated to confuse but nonetheless reading it carefully one can see what they mean. The patterns of the growth in investment and output in recent years do not suggest that productive capacity would not be available to permit a growth rate much higher than 4 per cent. Translating that into plainer English these considerations do suggest that productive capacity is available to permit a growth rate in excess of 4 per cent. That report goes on to state:
Nor is a higher growth rate likely to be constrained by a general shortage of labour. Policies that were modestly more expansionary would be unlikely to cause a larger increase in wage—and salary—rates. Nor would they be likely to cause a faster growth in prices (than the very high rate already forecast), given the extent to which prices are affected by external influences and the terms of the 1974 National Agreement.
There is the answer to Deputies on the other side who said that we were budgeting for inflation. We are told that if we budget, in the case of the National Economic and Social Council, to expand the economy by 1 per cent this year this would not have the effect of increasing prices. They give the reasons that prices are primarily influenced by external considerations, for example by the price of imports which are not going to be affected by our budget because they are outside our control, and by the terms of the 1974 national agreement which is set and fixed and which will not affect the issue.
The only way in which prices could be pushed up by the budget in these circumstances would have been if we had sought to cut back the deficit by taxes and expenditure. This would have pushed up the cost of living and because of the escalator clause in the 1974 national agreement this would have pushed up wages and, therefore, prices still further. In the circumstances facing us this year it was very important that we should not increase our expenditure and I have not heard any Deputies opposite suggesting that we should increase income tax which is the only alternative available. In fact, not alone has the budget we have produced not had the effect of pushing up prices but if we had produced the kind of budget the Opposition want, that is reducing the deficit involving, therefore, heavier taxation and expenditure, that would have had the effect of pushing up wages and prices.
Finally, the National Economic and Social Council conclude:
Some expansionary stimulus would help to maintain or even increase the numbers at work.
The council go on to be more precise in paragraph 22 and state:
we have concluded that the aim of budgetary and monetary policies in 1974 should be to add about 1 per cent to the growth in output.
That is precisely the increase in output which this budget, from the expert advice of the Department of Finance, is likely to produce in the calendar year 1974.
The council add:
Without the modest expansionary stimulus we envisage, the growth in employment is not likely to reduce under-employment to any significant extent, or to reduce appreciably the numbers on the Live Register.
There is the warning note. There is the advice we got and the advice we took and the Opposition are welcome to any pluckings they can get from that particular fowl.
What then, given that we had to plan for a deficit of about £25 million more than was planned for last year? How should we use the additional money? Should we spend more on Government services? Should we cut taxes? Should we increase social welfare? The Government considered this and decided on a utilisation of this additional resource, on a way of using the money concerned, knowing we had to pump more money into the economy to expand it and we decided on the criteria which would be employed in determining how this money should be used.
First, and it will always be first with this Government, we felt we should use a large part of the money —about half—to cushion the poor against inflation. That has to be the first priority. About half of the money involved—we are talking of the order of £50 million altogether; there is a technicality about Exchequer balances which brings it up to almost £50 million—was set aside for improving social welfare benefits in the year to March next. In fact, of course, we are talking about nine months here in terms of the actual benefits given because there will be a new budget next January to take effect shortly after that. The first thing was to cushion the poor against inflation.
The second thing we thought necessary, and on this there was clear unanimity and by the Opposition also becasue I do not think we are in disagreement about this, was the need to give tax relief by increasing lagging personal allowances which had lagged so much, so intolerably over the whole period of Fianna Fáil Government with the exception of one minor adjustment at the end of their period of office. The bulk of the other half of approximately £45 to £50 million went into this.
We are concerned not merely to lash out the money but to do it intelligently and to take this opportunity of having a little leeway here to reform the tax system. This has been on the way throughout the past year. We have already announced our plans to reform corporate taxation and to reform capital taxation. These are all now the subject of consultation with the various interests. We were clear that we needed also to simplify the income tax system which had become intolerably complex so that very few of us really understood it. I have long gone past the point of understanding the system and when people come to my clinics with income tax problems and produce their figures and data I cannot help them. It has become much too complicated now and one has to refer to the experts and try to find out from the Revenue Commissioners what exactly the problem is.
Obviously the system must be simplified and the simplification, therefore, together with increased personal allowances in a single operation was the answer. Those were the priorities we had and that was the pattern in this budget. I think it is a wise pattern and one which I am happy to have had the opportunity of defending in this House. My only worry was that as I have to leave in a couple of hours time with the Taoiseach and the Tánaiste for London I might not get into the debate to say how happy I am to put forward my reasons for being happy with this budget. I am glad I have had that opportunity.
I should like to deal with the social welfare part of the budget and take what we have done in conjunction with what we did last year because this is a continuing operation. Last year it was somewhat easier and Deputies opposite were kind enough to point this out in last year's debate and they have, rather foolishly, mentioned it in this debate. They have mentioned that we had the EEC money estimated at £30 million. That made it easier but this year we have not got that. We have not got this sudden once-and-for-all bonanza relief and yet we have been able to do something similar to last year. In fact, the increases in money terms are generally greater. They vary and are less in children's allowances but more on the basic allowances. In a number of areas they are greater than last year and we have been able to do this without any EEC bonanza.
I should like to deal with the increases given to particular people, people in particular situations in social welfare categories, and to compare what we have achieved in two years in increases with the cost of living. Obviously one can talk about increases which sound quite impressive in social benefits but if they are written off by price increases then nobody is any better off. All it does is to keep people where they were. I should like to give a few examples of how the standard of living of these people has been immensely improved in the last 15 months.
When we came into Government 13 months ago a man on disability benefit and who had a wife and four children would have been receiving £15.50 per week. I am including in that children's allowances, having averaged them on a weekly basis. We raised that immediately by almost £5 to £20.38 and this year it is being increased to £23.96. Therefore such a person has £8.46 more now than when we came into office, an increase of 54½ per cent. Of course the cost of living has increased but let us consider the worst period, not only the past couple of years because this increase will have to last until next year and therefore we should be considering the likely increases in the cost of living in the months ahead and see how he will be cushioned against these increases during 1973-74. The best estimate we can make of the cost of living increase for this year is that it will be 14 or 15 per cent. This is a very steep figure but one that is imposed on us by external circumstances. On that pessimistic but realistic assumption the cost of living increase between 1972 and 1974 would have been about 27 per cent or 28 per cent. That means that if social welfare benefits are increased by only 27 per cent or 28 per cent the recipients are no better off in 1974 than they were in 1972. That is not what we have been doing because in this instance the increase is 54½ per cent and the real purchasing power of that family in that distressed condition has been increased by this Government during their 13-month period of office by 21 per cent.
Let us take the case of a person on unemployment benefit who has a wife and three children. When we came to office the figure for him was £13.98 but we increased that straight away to £18.02 and he will now have £21.22. That is an increase of £7.24 or 52 per cent. His living standard would have risen during the year by 19 per cent. Again, let us take the assistance category. The man in this category who had a wife and three children would have been receiving £11.78p 13 months ago. Last year we increased that to £15.82 and he will now receive £18.57, an increase of £6.79 or 57½ per cent and an improvement of 23 per cent in his standard of living in two years.
A widow with three children and receiving a contributory pension would have been getting £11.08 13 months ago but within two months of our coming to office we increased that figure to £15.07, a penny short of £4 extra. She will now receive £17.57, an increase of £6.59 or 59½ per cent and an improvement of 25 per cent in her standard of living between 1972 and 1974.
A worker with a wife and three children who had been earning £30 per week but who is now on unemployment benefit would, because of the pay-related benefit scheme, receive £30.36. When we came to office the figure was £15.50 Last year we increased that to £20.38 and the current increase represents an overall increase of almost £15 or 96 per cent in two years. This means that he is 53 per cent better off than he was 13 months ago. In the case of a man who had been earning £40 per week— that is not much more than the average wage today—and having a wife and three children the unemployment benefit payable will now be £34.36p, an increase of £18.86 or 122 per cent increase in his benefits in two years, leaving him 73 per cent better off in real terms. Thirteen months ago he would have been receiving £15.50 but we increased that last year to £20.38.
An old age pensioner whose wife had not reached 68 years of age would have received £5.15 13 months ago. Last year we increased that amount to £6.15 but on examination we realised how desperately unfair had been the Fianna Fáil system whereby when a person switched from unemployment assistance to the old age pension he lost the allowance for his spouse. We have introduced a special allowance for such cases and the amount payable will now be £10.95, an increase of £5.80 or 113 per cent. That couple would be almost two-thirds better off now than they had been two years ago.
These, then, are the examples. I have worked out the percentages and I hope they are right. In any case, they would not be wrong by more than one percentage point. The figures are an impressive testimony of what can be done if one is dedicated to——
