This is an emergency Bill. Any doubts there might be to the contrary would be dispelled by reference to section 1. A Bill which proposes to impose an additional surcharge of 10 per cent on all income tax payers with the exception of those in one band is clearly an emergency measure. That there is an emergency is indisputable. The recent speeches of the Taoiseach in particular and of the Minister for Finance on occasions have been designed to bring home to our people that there is an emergency. The fact that we on this side of the House have been drawing attention in the first instance to the steps which were contributing to the creation of that emergency and subsequently to the existence of it, without response from the Government side, is well known and does not need to be gone into in any great detail.
A brief recital of the main economic indicators brings home to us very forcibly that there is an emergency. For instance, there is the appallingly high rate of inflation, the virtually unprecedented unemployment for this time of year, the fall in the volume of retail sales, the apparent fall now in the volume of industrial exports—a most serious matter—the overall contraction in our economy as distinct from even holding our own, the balance of payments deficit which is at a dangerous level and is held in check only because of the downturn of the economy and, of course, there is the frightening level of borrowing that we have now reached. According to the Minister for Finance in his recent budget statement, there was a budget deficit of £116 million in January but six months later this had more than doubled at £241 million. All of these factors add up to a most serious emergency situation. That being so, one can understand the necessity for the introduction of an emergency Bill.
This Bill will not cure that emergency. In fairness to the Government they do not claim it will have any such effect, but we must concern ourselves with the steps that are necessary in order to make even some inroads on that emergency situation. One of the basic problems with which we are faced in regard to this Bill is the fact that the whole thing is based on a gamble. Since budget day the Minister for Finance has referred on a number of occasions to the fact that the Government might be compelled reluctantly to withdraw one part of the package if the other part is not accepted. Should that situation arise we would be in a worse position than if the package had never been produced. This Bill contains portion of the Government's side of the package.
The Government side of the package is two edged. Section 2 is a retrieving section in so far as it provides a zero rate of VAT for a number of commodities whereas section 1 is a charging section imposing a surcharge of 10 per cent on income tax payers. But all of it is contingent presumably on the success or failure of the Government's gamble. Not only are we entitled to but we have an obligation in discussing this Bill to consider the background which has produced the circumstances necessitating the introduction of this emergency measure.
The major problem with which we are faced is that of inflation. This is now acceptable on both sides of the House as incontrovertible. That may seem a simple straightforward statement but it is only recently that this has been accepted on both sides of the House. Up to recently the stance of the Government has been that there was nothing they could do about inflation and that our major problem was to maintain employment. We have had pseudo-solemn declarations from the Government, from the Taoiseach and from the Minister for Finance to the effect that the Government were committed to the maintenance of employment and of the standard of living of our people. All the time these declarations were being made unemployment was rising and the standard of living of our people falling. While there are other factors that enter into it, there can be no doubt that, unless we conquer inflation, unemployment will worsen and the standard of living of our people will drop further.
I must blame the Government for the attitude they have adopted consistently in regard to inflation since coming into office until very recently. We have heard ad nauseam from members of the Government about the effect of world trade difficulties on this country, the effect of imported inflation. The whole thrust of their argument was that because of imported inflation and world trading difficulties it was impossible for this, or any other Irish Government, to do anything about it. That argument was simply untrue. It is now acknowledged by the Government as being untrue because they are now trying to do something about inflation, however belatedly and ineffectually.
I should like to remind the House that we, on this side of the House, pointed out to the Government that what they were doing in their budgetary stance in the past was directly fuelling inflation, firstly because of excessive budget deficits. I say "excessive" in the sense of deficits which were beyond the capacity of our economy to absorb. In so far as a budget deficit is poured into our economy and does not contribute to growth, it is directly causing inflation. We have had a succession of budget deficits from this Government which were doing precisely that. I am not saying that the total of budget deficits of this Government were not non-productive but I am saying that great bulk of them were and, to the extent that they were not contributing to growth, they were directly fuelling inflation. We pointed that out to them at the time and subsequently.
In addition to that, the other major area in which the Government have themselves caused this problem of inflation—which is now our number one enemy—has been the attitude they have tried to put across to the public, that they could not do anything about inflation, an attitude which apparently they believed themselves for some time because their actions were consistent with that belief—the ease with which price increases were allowed in respect of services directly under their control, such as postal charges, CIE fares, television licences and so on; the manner in which the Government allowed some State bodies to by-pass the National Prices Commission, and in other cases, having received recommendations from the National Prices Commission, rejected them and allowed increases considerably higher than those recommended by the Commission. All of this was direct action by the Government fuelling inflation.
We have urged on the Government at some length and over a considerable period that the battle against inflation requires consistent effort, resisting every inch of the way. Of course, one has to give way in a situation of world inflation; one will be gradually retreating but, unless the Government of the day fights every inch along that way, there is no hope for us, and this Government have not been doing so. In trying to read any coherence into their actions, as far as I can see, they believed either that they could not do anything about inflation or that it was not necessary for them to do anything about it. It is true that, in the short term, political advantage can accrue to a government which adopts that attitude.
It is true that a government can appear to be very generous and concerned about various sections of our community if they are prepared to shovel out money for this and that purpose, not caring that they cannot find the money; not caring that, in order to meet the bills thus created, they have to borrow very substantially, and very often abroad, at high interest rates, with risks, because of currency devaluation, of a substantial increase in the repayments required. A government prepared to do that can reap short-term political advantage, and this Government have sought to do so.
Leaving aside the question of right or wrong or what is good for our economy or not, but thinking purely in party political terms, I have always believed and am now quite convinced that politics, unlike what a famous dictum says, is not a short-term business. Perhaps a lot can happen in politics in a week, but politics is a long-term business. A government which embarks on the kind of short-term courting of popularity such as this Government have engaged in, without regard to the longer term consequences, ultimately will pay the price for that irresponsibility and playing around with the taxpayers' money. As I have indicated, a great deal of the expenditure undertaken by this Government, and an increasing proportion of it, has been financed by borrowing, much of it foreign borrowing. Indications are that, not alone has our indebtedness as a nation increased enormously under this Government but that the nature of that indebtedness has changed also. We have now a very high proportion of short-term borrowing which will come home to roost in a matter of two or three years on whatever government is then in power.
I suggest that that kind of approach is what has brought about the emergency situation we now face. When I say that, I do not want anybody to suggest that I ignore totally or sweep aside the very real and serious difficulties in the world around us and the effects such difficulties have on us, effects which no Irish government could control. I am not doing any such thing. But what I am saying is this : other countries, faced with the same difficulties, with the same increase in oil prices, with the same imported world inflation, have tackled this problem and reduced their inflation rates to levels which range between a half and a quarter of ours. That is the significant thing.
It is significant not only as a measure of the failure of our Government to do their duty but is also very significant for the future because if we continue with anything like our present rate of inflation, our wage rates, even if lagging behind inflation, will be way out of line with our competitors. If that continues for any length of time there is no way in which our producers can sell their goods either on the home or the export market. That creates the vicious cycle of firms closing down, of workers being laid off and the economy grinding down. As it grinds down there is less and less base for the Government to raise taxation and to stimulate the economy. So it goes on. I hope all of this is well known to the Government now. It would appear from their actions it was not well known to them up to fairly recently.
That brings me to the next matter I want to put to the Government, and to the Taoiseach in particular who is sitting in for the Minister for Finance. Previously I put this matter to the Minister for Finance and got what I considered to be a very unsatisfactory reply. Perhaps the Taoiseach can give a more satisfactory one.
The measures which the Government have taken, some of which are provided for in this Bill, are mainly measures which we advocated quite a long time ago and which we spelled out in great detail last September. In January the Government introduced a budget and we urged them to take measures of this kind because at that time we were faced with an emergency situation which required emergency measures. However, the Government did not do that; they have only done so now. The question arises, why did the Government not take those steps at least last January? That raises very serious issues. Did the Government know what was right and not take action? Did they not know and, if so, why did they not know? After all, we knew and we said so and we were prepared to go on record on the matter.
I get an impression from various statements of the Minister for Finance that there has been a tendency by him and a number of his colleagues to snatch at straws, that if there is any report, particularly by an international body which suggests even remotely that there may be an upturn in the world economy on a certain date, that he snatches at that. I hope the Government have now learned to ignore this kind of straw-snatching and that they will concentrate on what they can do in our economy to control our situation, irrespective of what is happening in the world around us. The only effect that should have is to spur us to greater efforts in regard to what we can control ourselves.
There is an even greater significance and a more serious question to answer in regard to the Government's failure in their budget last January to take the steps they have taken now, that is in relation to the national wage agreement. The Government knew, as everybody else knew, that there was a national wage agreement to be negotiated shortly after the January budget. We also knew that at the rate inflation was running that agreement would itself be inflationary if it merely provided for keeping pace with inflation. We strongly urged the Government at that time to take the kind of steps they are taking now in an effort to reduce the consumer price index. We pointed out that if the Government did that the consequence would be that the national wage agreement could be negotiated at a considerably lower level because the cost of living increase would be lower and thus a massive burden which would otherwise be imposed on business, whether manufacturing, distribution or agriculture, would be removed. In addition the burden on the Exchequer would be less because of the enormous size now of the public sector pay in the overall costs that have to be met by the Exchequer.
The Government did not take our advice. They allowed the national wage agreement to be negotiated. It is fair to point out that the Government produced a White Paper called A National Partnership. What happened in the national wage agreement was exactly what the Government had asked for in the White Paper; both the employers and trade unions paid attention to the White Paper and did what they were asked. Having agreed to the national wage agreement with considerable difficulty, and some workers having got the first phase under that agreement, the Government now come along and ask that it be renegotiated on the basis that they are taking steps to bring about a reduction, hopefully of 4 per cent, in the consumer price index.
The Government must answer the following crucial question. If this approach is right—we think it is because we advocated it a long time ago —why was it not done in January before the national wage agreement was negotiated? Is it not clear that to call for renegotiation obviously creates many difficulties that would not have arisen if the Government had done their job in January? Is it not obvious that this whole operation is shaking the faith of many people in national wage agreements and endangering the continuation of such agreements in the future? I do not think we have had any satisfactory explanation from any member of the Government for their failure to take action before the national wage agreement was negotiated, which would have led to a reduction in the burden on industry, agriculture and on the Exchequer itself. I hope that in the course of this debate the Taoiseach will indicate the reasons for the Government's failure to take action last January.
There is another aspect that suggests either a great naiveté or a gross, almost unbelievable, incompetence on the part of the Government and that is putting it in very blunt terms. If the Government had embarked on the course they took in January, they could have said to the Employer/Labour Conference : "We will do this if you will do that", and worked out an agreement on that basis. The Government are now saying: "We have done this, will you do that", and threatening that if the other side do not do it, the Government will retract what they have done.
There is no weaker position for a Government to be in than the one in which they are at the moment. The whole operation smacks of either enormous naiveté or gross incompetence. All this suggests that the Government have been taking the wrong approach to the management of our economy up to recently, that they are now belatedly trying to reverse the course and are even handling that reversal in such an incompetent manner as to inspire less than confidence that they will manage even to achieve the limited objectives provided for in this Bill and as part of the package announced by the Government.
The origin of much of what is in this Bill and the Government's package can be traced back to the introduction of the green £ in the Common Market for our agricultural produce. It will be remembered that we on this side of the House urged the Government to go for the green £ and that there was a very lengthy delay of at least six months, but nothing happened. There were, of course, many leaks from informed sources the burden of which was that the Government were not happy at the prospect of applying for the green £ because of its effect on the consumer price index. That was a very reasonable and natural concern. However, we suggested that since the bulk of the products which would be affected were exported, or paid for on an export basis, the effect on the consumer price index at home was relatively limited and that it could, and should, be counteracted by certain forms of subsidy.
The effect of that would have been that the consumer price index would not have been affected on the one hand and, on the other, farmers who were going through an extremely difficult time would have had their income boosted by approximately £40 million. The Government did not take either step. They vacillated for so long that the farmers lost this additional income and, when they finally moved, the consumer price index was allowed to rise as a direct consequence and no action was taken by way of subsidy to keep it down. A consequence of that was rolled in directly into wage increases with a cost which far outweighed what it would have cost the Exchequer to deal with the situation.
Another consequence was, as I said, the failure of the Government to obtain for the farming community at that time an addition to the income of approximately £40 million. This was reflected in our over all economic position because the farming community was going through a particularly difficult time. The net effect was that the consumption of goods overall produced in the non-agricultural sectors of our community went down, with a consequent loss of employment and increased prices to meet increased overheads because of reduced sales and production. The overall effect of the Government's failure in that regard was felt not only in the agricultural sector but right across the economy. It contributed to a considerable reduction in growth in our economy, increases in the consumer price index and consequently increases in the wage bill across the economy, not only in the private but in the public sector.
The lack of approach of the Government to that problem and, when they screwed up the courage to go for the green £ their failure to deal with the consequences arising, is reflected in what has happened since. The reason I am mentioning this matter is that it would appear that we are now about to have another change in the value of the green £. This raises serious questions. The Government ought today to indicate to this House and the country their attitude to this. To the extent that the change in the value of the green £ will improve the income of the agricultural community, I do not think the Government should hesitate for a moment but go for it.
Then the question arises, as it did last year, what about the consequences of that change on the consumer price index? Will it in whole or in part wipe out the benefits of the subsidies announced by the Minister for Finance last month? If there is a danger of that—and it would appear that there is—the Government have to make up their minds what they are going to do. Will they allow that to happen with the consequences that flow from it, or will they provide for even further subsidies to maintain the position as it was envisaged when the Minister for Finance made his announcement? If so, where will the money come from?
The Government have the responsibility for making those decisions and taking the action necessary to implement them. It is not enough, in my view, if the Government continue to vacillate as they did before about the green £ and slowly come around to the position they should have taken first. I am calling on the Government to indicate today if possible—and if not today, then within a matter of days—what action they propose to take arising out of the proposed further change in the value of the green £.
The question of the package the Government announced, of which this Bill forms part, and the threat to withdraw the Government side of the package if the other part of the package is not accepted I referred to earlier, but when we consider this Bill, implementing part of the Government's side of the package, we ought to be told just what the Government's attitude is. We ought to be told, for instance, if the subsidies announced on CIE fares and food, and so on, and the reductions in value-added tax provided for in section 2 will be withdrawn, then what will happen to section 1, the surcharge on income tax? As far as I am concerned, I want an absolute assurance. I want to make quite certain that we will not end up with a surcharge on income tax without the benefits announced by the Government for which the surcharge on income tax is to be a method of paying part of the cost. If it is a package then it is a package for everybody and, if it is withdrawn, or partially withdrawn, then we should go back to square one and the income tax payer should not be left subject to a surcharge while the benefits he was supposed to get are withdrawn. As far as we on this side of the House are concerned that is a basic position we maintain, and we will seek to ensure in the passage of this Bill that that position is safeguarded.
The whole atmosphere the Government are trying to create arising out of the emergency situation we are facing is one designed to reduce expectations and demands. I think the Government are right to do that. The problem is that the Government themselves created excess, expectations and demands, but I am not going to go back over all that. I am saying that I believe the atmosphere the Government are now trying to create is the correct one given the emergency situation with which we are faced. The leader of this party has indicated on behalf of this party that we believe, given the present circumstances, that the national interest does require restraint and renegotiation of the national wage agreement. We believe the issue involved here far transcends party politics.
We believe the whole interest of the nation is tied up in the success or failure of efforts to overcome this dire emergency. Having said that, what I said earlier in regard to how this situation has come about becomes even more serious. Furthermore, the activities of the Government in more than doubling expenditure, both capital and current, in a period of two years have contributed to the situation we are facing and unfortunately robs the Government of a considerable amount of the moral authority they would otherwise have. We do not want there to be any illusion about where the failure has lain but, granted that, the important thing to recall is that, whatever the causes, we are now faced with a most serious emergency, an emergency which cannot be overcome unless right across the board there is exercised a degree of restraint and discipline, which has not been evident up to now and, in particular, has not been evident from the Government.
We are asking the Government now to turn over a new leaf, however belatedly, and do their part in trying to ensure that the national interest is put first, as it has not been for almost the last 2½ years. Now that the chickens are coming home to roost we on this side of the House, who pointed out consistently what was happening, are still prepared, as we were in the past 2½ years—we did our part—to go on doing our part. We are supporting the Government's efforts, however belated those efforts are, to tackle the problem. Consequently we hope that the passage of this Bill will contribute in some degree to the successful renegotiation of the national wage agreement, successful in the sense of its eventuating in new terms which will take account of the emergency situation we are facing and account of the best interests of the people in whatever sector of the economy they earn their living, whether as employees or employers. We have no doubt at all that the best interests of all our people lie in a successful renegotiation of the national wage agreement and in the package the Government have announced being implemented as far as possible. To the extent that we as an Opposition can give our support to that aim we are giving it, conscious of the causes of the emergency we are facing and conscious also of the fact that, when the country is faced with an emergency of this kind, the major problem is how to overcome it, not who caused it.