Inevitably in a debate of this kind, the picture of the economy, its prospects and progress as seen from the Opposition benches must be somewhat different from how it is presented from the Government benches.
Deputy Brugha in the latter end of his speech was, I felt, being selective. The picture he drew is one of unremitting gloom which does not reflect the reality of our situation. There are a number of aspects of our economic situation today and of the way in which it is moving as a result of Government policies that are encouraging, but are not getting as much attention as they should. Perhaps it is the fault of this side of the House for not bringing out these aspects of the situation. I am not suggesting for a moment that we do not face great economic difficulties; of course we do. I do not want to diminish the difficulties we face or the very serious inflationary problems we have had, their impact on Government finances and Government taxation policies. In all these areas, the world economic situation and its overflow effects on us, have had adverse effects which are undoubted and grave.
The question we must ask ourselves is this. Within the context of the world situation, in which we are in the lee, and very closely linked to the British economy, has our performance, in comparison with that of other countries and in the light of our close links with the British economy with all its weaknesses, been as bad as the Opposition say, or has it perhaps, in a number of respects, been somewhat better? At this stage we can see some signs of recovery here which reflect, perhaps in part, the beginnings of a recovery in other parts of the world, but which significantly reflect the impact of Government policies. If we look, for example, at the situation with regard to prices and wages it is by no means as gloomy as the Opposition suggest. The fact is that as a result of the measures taken by the budget in June last year, the increase that took place in prices in the second six months of last year was only 2 per cent. Of course, we have had in the last prices figure a bigger increase, partly because it reflects the impact of a budget and the indirect tax increases in the budget, to which I shall return, and partly because of other factors which have given a bit of a boost to prices at that point. Nonetheless, to have achieved in the second half of 1975 a price increase as low as 2 per cent is, I think, without parallel in western Europe. I cannot, offhand, think of any country in other parts of the world which has a similar achievement to its credit and because this was closely linked to the renegotiation of the national wage round in which we secured the co-operation of the trade unions, which is of vital importance in these matters, the increase in wages over this period has been only 2.8 per cent. It has to be said that that followed a period when there was very rapid wage inflation and the impact of the previous national wage agreement and its closing stages on wages and costs was very great indeed.
We suffered in the first half of 1975 from a very high rate of inflation but since then, both in terms of prices and wages in the second half of last year, the performance of this country was by any standards exemplary. The result has been that taking the last 12 months, taking the good with the bad, taking the bad period in the early part of 1975 and the good period in the second half, our inflation rate has been notably lower than that in the United Kingdom. The figures for the 12 months to February show a 16 per cent rate of growth in prices here. That is a drop of more than a third of the figure for the nine months earlier. It compares with the United Kingdom figure of 23 per cent. Those figures include the impact of indirect taxes in the different budgets. If you exclude them, the comparisons in some respects are even more favourable.
Some economic commentators have recently been talking as if this 16 per cent increase in consumer prices is a measure of our competitiveness in world markets. This is not the case because this reflects the increase to consumers in the cost of an average package of goods they buy, including the tax increases in the recent budget. That is not a measure of industrial costs. I have not got a precise measure of industrial costs ready to hand but given the fact that during the second half of last year, when the increase in wages was 2.8 per cent and even allowing for the heavy increase in import prices, the increase in industrial costs must have been something much nearer to 10 per cent than to 16 per cent over the last 12 months. One might measure it, perhaps, very crudely—it would be a crude measurement and, perhaps, one that would exaggerate it somewhat— by taking the consumer price increase over this period, exclusive of taxes. That would work out at approximately 12½ per cent. That is not an accurate measure of the increase in industrial costs which are influenced by things other than consumer prices but it is probably a figure of a similar order of magnitude, although, perhaps, the true figure for industrial costs increase over the year is somewhat lower. My guess is that it would be between 10 per cent and 12 per cent but I have not got the precise figures and I have not done the calculations necessary to give the House something which I would regard as authoritative. Certainly the figure 16 per cent increase in the consumer price index is no measure at all of the increase in industrial costs, which has been very much lower.
That is in terms of our own currency but for reasons outside our control our currency linked to sterling has been depreciating and has depreciated by about 7½ per cent over the last couple of weeks alone. In terms of competitiveness vis-à-vis Britain undoubtedly our position has markedly improved. The consumer price index figure gives one a good measurement of that but it is not a true measurement of industrial costs differences. Certainly in the past 12 months our industrial costs have risen much less than in Britain and our competitiveness vis-à-vis Britain has certainly improved.
When one looks at the position vis-à-vis the rest of the world the combination of the devaluation effect which, of course, is equal and identical in the case of Ireland and Britain, with the lower domestic industrial costs increase here our competitiveness in terms of selling to countries outside Britain must have moved at a rate which bears favourable comparison with almost any country. Again, I have not the precise figures but it is very hard to see how, given the combination of the devaluation effect and our significantly better domestic cost increase in the case of the United Kingdom, our competitive position could not have improved very much over this period. It has improved in relation to other countries where costs have arisen more sharply.
We are now getting the first results of this in the recovery in manufactured exports of which there are already signs in the first couple of months of this year, a harbinger I hope of a significant improvement during the rest of the year. Figures can be very misleading and one must interpret them carefully but the reality behind the figures is more favourable than would appear at first sight. Of course, this is only part of the story because it is not just what has happened that matters but what will happen. The achievements of this period, during which prices have kept down and wages have risen by a very small amount, indeed, in response to the small price increases, are capable of being destroyed if we fail to reach a satisfactory outcome in the negotiations currently in progress. I hope and believe that we will reach such an outcome. The importance for employment is so great and so evident that the trade unions, with their great sense of responsibility in relation to matters of employment, are, I am convinced, anxious to find a solution which, on the one hand, will meet the legitimate needs, requirements and desires of their members and, on the other hand, will ensure the safeguarding of employment.
With the achievements of the second half of last year behind us, in terms of improved competitiveness, reduction in the rate of costs and prices, we are now in a position to take real advantage of this and to come through this year with a significant improvement in the employment situation if we can now negotiate, or if there can now be agreed, by one method or another, increases in wages which will be moderate and appropriate to the needs of our employment situation. This must be our hope. I know that the Opposition share the Government's hope in this respect and would wish those negotiations to succeed and would wish them well.
The unemployment situation has been significantly less unfavourable than people have made out. Of course, it grew very sharply, alarmingly and tragically during much of 1975, from the autumn of 1974 to the autumn of 1975. The increase was much less in percentage terms than in most other countries. In fact, it is hard to find any other country where the percentage increase in unemployment during this critical period was as low as here. Nonetheless, because our unemployment started at a high level, and has always been at a high level, even a low percentage increase relative to other countries is a big increase in real terms. It is big in terms of the number of percentage points and it raises unemployment to a disturbingly high level. We should not attempt to disguise that fact. That is central to all our policies. It must be the central preoccupation of the Government, the Opposition, trade unions and employers alike.
During the winter months, while you get the usual seasonal increase in unemployment, followed by a seasonal decrease which we have had in the last month or six weeks, the underlying trend of unemployment in this period has not by any means been unfavourable. I have not got an accurate figure for the end of March period. When we have that it may show some slight adjustment but basically over the period from September to March seasonally adjusted figures will show virtually no increase in unemployment. I think the increase over six months would be no more than 2 per cent and I am not convinced it is necessarily quite as high as that. The big push in the growth of unemployment occurred between the autumn of 1974 and 1975. Since September, 1975, there has been no significant increase in the underlying trend of unemployment measured in seasonally adjusted figures. That is an achievement that has not been matched in every country. It is true that in some countries unemployment has begun to fall but it is by no means universal. For a country whose growth in employment in terms of percentage increase was as low as ours, to have reached the point where unemployment virtually ceased to rise as early as September, 1975, well in advance of the general world recovery, is itself an achievement and one that reflects on the success of the Government's management of the economy in very difficult circumstances.
Since the middle of last year our performance in wages, prices, unemployment and in competitiveness has been remarkably good in extremely difficult circumstances. We have recovered a good deal of the ground lost in the period before then because of the impact which the previous national wage round made on our costs, because of the impact of the world economic crisis and the vast increase in import prices on our costs. Much of the ground has been recovered and a firm basis has been laid on which we can build, in co-operation with the trade unions, with a view to securing a significant improvement in the employment situation in the 12 months ahead.
The budget must be seen against this background. Of course, any budget is open to criticism because necessarily a budget involves making choices, choices of policies and, so far as taxes have to be made, it involves choices between taxes. There is no infallible guide to this and any Government may take a different view to that of another Government. Any commentator may legitimately have a different view from another commentator regarding what is best to do. I am sure if I were in Opposition I could make criticisms of the balance of this budget and probably I would do so. It is the job of the Opposition to seek out any chinks there may be.
Basically, one has to face the fact that choices have to be made. There are only two arguments of a broad kind that the Opposition can use. They can say they would have handled the budget differently or they can say they would not have got into the position from which we started when we framed the budget. The latter is always a much safer kind of argument and I think I may have used it myself. However, I do not think one can let the matter rest at that because one would have to consider what exactly Fianna Fáil would have done or not have done had they been in Government last year. There are only a limited number of key things they could have done, different from what the Government have done, that would have affected significantly the starting point for the budget. I will list them and if the Opposition want to add to the list I should be glad to accept any appropriate interruptions to that effect.
It seems to me that the kind of action they might have taken would be, first, to reject last year's national wage agreement. Arguably that might have been done. Because of the way prices went and the measure of indexation involved, the agreement turned out to be extremely costly. They could make a case for having refused to participate in it and allowed a free-for-all. Even with hindsight, I think the balance of advantage lay with accepting the agreement although I must say that aspects of the agreement were formulated in a manner that seemed to take inadequate account of the particular needs of the public sector. However, that is another day's work. I wonder if Fianna Fáil are really saying that we should have rejected the agreement last year?
They could also say they would have accepted the agreement but that they simply would not have paid the increases under the agreement or under the various arbitration awards to the public service. If we had not paid those awards and increases our budgetary position would have been enormously better coming into the present year. A large part of our problems derived from the carry-over effect of national wage rounds and of special negotiations with the public sector and to the ordinary incremental system which is a feature of the public sector that is not widely matched in the private sector. The cumulative effect of these was to face us with the burden of additional expenditure last year, which, leaving everything else on one side, vastly exceeded the buoyancy of revenue.
There was also an increase in debt service because of the situation in the previous year which also absorbed the whole of the buoyancy of revenue. Therefore, the buoyancy was absorbed twice over by these two items. The Opposition could say that they would not have paid the public service pay claims, although I have not heard them say that. It is arguable that it was unwise to take on these obligations and to have entered into the agreements. On the whole I think the Government were right to honour the agreements and not to attempt to break them at that time. I doubt if we would have had public support for a move of that kind and to my knowledge the Opposition have not suggested it. It does not seem a way they would have taken to avoid starting from where we started.
Would they have cut back further Government services? Perhaps they might. In the current year we cut significantly non-pay services where it could be done without affecting employment. The Opposition may argue they would have done this somewhat earlier. However, I have not heard them argue that with any specificity, that is, I have not heard them say what they would have cut last year that we have not cut this year. If anything they are complaining about the cuts we have made rather than suggesting they should have been made earlier.
They could argue, perhaps, that they would not have increased social welfare payments. Much that has been said from the Opposition benches about social welfare carries with it a remarkably right-wing tinge that is somewhat anomalous for a party which historically played a significant role, particularly in the thirties, in radically improving social welfare. Is it the case that these hints from the Opposition benches regarding excessive social welfare payments mean they would not have increased old age pensions and widows pensions as we did, that they would not have introduced the new services for unmarried mothers, for prisoners' wives, for spinsters aged 58 years and over? Is this what they are saying? If it is, in honesty they should say it more bluntly and openly than they have done up to now.
Unless the Opposition say we should have done, and that they would have done, some or all of these things, or perhaps something else I have not thought of, we must accept that if the Government were right in not doing them—and that is my contention—we started in a budget situation where there was a very large gap that had to be bridged. The Opposition have criticised the level of borrowing and clearly they are not suggesting we should have borrowed more. Rather they seem to be suggesting we should have borrowed less. In view of the deficit situation we faced, if we were to borrow no more than we borrowed, that would involve increases in taxation and cuts in non-pay services that do not involve employment elements and this we have undertaken.
Of course, we could have chosen to cut somewhat different things. The Opposition may have a point in their criticisms of the cuts we have made because these are matters of choice. However, a responsible Opposition would require that in suggesting that certain things should not have been cut, or that we should have borrowed less, that the alternative cuts should be sketched in. If, on the other hand, it is felt that these cuts are acceptable, the question arises regarding taxation. Is it the Opposition's contention that we should have cut more and increased taxation to a lesser extent, or that we should have cut less and increased taxation to a greater extent? There seems to be a certain ambivalence on the Opposition benches between these two alternatives.
I think that the cuts we made were very significant. On the whole they were well-judged and they managed to do something that I do not recall any other Government doing for a long time past, namely, to hold down in real terms slightly below the previous year's level the cost of non-pay services in real terms. That is a real, difficult and painful achievement and to do it without cutting into services that give employment is extremely difficult. The range of manoeuvre of Governments is small, as was said by one or two of the heads of Government at the recent European Council meeting. The actual margin any Government can play with is small because most Government expenditure is pre-empted by commitments that cannot be changed.
On the taxation side we were left with the situation where, having made the cuts and feeling we could not cut further without affecting employment, we had to find £100 million in taxation. Again, the Opposition may have criticism regarding the package of taxation. I think they should be more specific in their criticisms. The choice lay broadly between direct and indirect taxation. A case can be made for more direct taxation, for saying that the right thing to do would have been to increase income tax by increasing the present surcharges or by some other means and not to have increased indirect taxes as much. If that had been done, we would not have had the same increase in the consumer price index. It would have looked better and would certainly have left us less open to criticism about the rate of increase in the consumer price index from the Opposition. But would it have been the right thing to do, given that direct tax, income tax had been increased by the surcharge in the previous year? Would it have been wise to increase them further? It would be interesting to hear the Opposition on that, to hear if they think that is what we should have done, that we should have raised the bulk of the £100 million by increasing income tax. A very respectable argument could be made for that and I would listen attentively if the Opposition were to make that argument. We chose indirect taxation and tried to pick those items which would, first, produce the necessary yield and, secondly, be least painful. We do not claim that they are not painful, that all of them are mere luxuries—far from it. It was not possible to raise the kind of money required by taxing what are rightly or wrongly regarded as luxuries, drink and tobacco.
It was also necessary to increase VAT and the tax on petrol. The money could not have been raised if his had not been done. If the Opposition feel that the particular package we chose was not the best, they are entitled to say so and, perhaps, have a duty to tell us what their package would have been. A debate on those lines would be useful and enlightening. But, perhaps, it is not in the tradition of the House to debate the budget in that way and, perhaps, it is unreasonable to expect that the Opposition would meet all these issues head on. It may be wiser for them— perhaps Oppositions always tend to do this—to dance around the surface hitting here and there but never actually putting forward a consistent counter thesis which, if it were to be consistent and add up to a budget that would bridge the gaps involved, might be a very unpopular alternative.
Just as the Opposition are entitled to dance across the surface of the water like a dragonfly in this way we are entitled to point out the inadequacy of that sort of criticism and to put forward the thesis that we could not easily, without great pain and damage to the economy, have avoided finding ourselves in the position in which we were in formulating this budget and that in that position the overall balance of the budget is about right and that we have heard no arguments to suggest that it should have been different, arguments putting forward a cohesive, consistent counter-thesis.
In those circumstances, I believe the budget was broadly appropriate to the needs of the situation which I wish had been otherwise. Certainly, the condition of the world's economies today and the situation in which Britain and ourselves have been left is one which nobody would wish to face, one we never thought we would face and one which I hope we shall never face again.
I spoke of the progress we made in the second half of last year and of our hopes that this progress can be maintained by close co-operation between trade unions and employers and that the discussions now going on will lead to some constructive outcome. That this is very necessary is quite evident and was brought home very much to all of us at the European Council meeting last week. There has been much criticism of that meeting for not producing any concrete results, and this is broadly valid. Some of us did not expect it to produce very concrete results and we are correspondingly not so disappointed. Given that we did not expect much from it, I was favourably impressed by the quality of the economic discussion.
When we met in Rome in December there was some discussion on the economic and social situation which I found thoroughly depressing and in certain respects rather boring. Nothing was said that seemed to do more than skim the surface of reality. This time people were talking about real issues and there was serious discussion. I do not suggest that everybody had turned over a new leaf and that all were converts to united Community action to solve our problems—there is a very long way to go before that point is reached—but at least there was a real discussion and I think everybody there felt the better of it.
It was interesting to see how people responded to it, how when some heads of Government put very forcibly the economic realities, the others accepted them, uncomfortable as they were. There was no attempt by people to avoid their responsibilities. The British and Italian economies and our own, so clearly linked to Britain, are the three which are, in present circumstances, least well placed and have the highest rates of inflation. I think the reaction of the leaders of these Governments was constructive and positive. There was acceptance that we have a big task ahead. We must get our inflation rates down in harmony with those of other member countries if we are not to find ourselves in a perpetual losing race, incomes and employment losing ground and finding ourselves left behind in a way which will threaten the future of the Community eventually, its solidarity and the benefits— great as they have been—that we have secured by our membership.
The onus is on the countries that have high inflation rates to take the necessary action; the onus is on the others to help us—as, indeed has been done by conceding the Community loan—and by adopting economic policies that will be more reflationary and less concerned with building of vast reserves for individual countries and more concerned with achieving economic growth in the whole Community. The onus is on us to play our part and although our inflation rate has been reduced now to a level so much below that of Britain, it is still far too high and still well above the rates of countries such as France where they have found themselves unable to keep their currency in the Snake. It is about three times the inflation rate of Germany. The German Chancellor was able to tell us that wage increases in Germany in the year ahead would be of the order of 5½ or 6 per cent—including certain fringe benefits, 6 per cent. That is what we are up against. Either we compete with that and get our inflation rates down to this sort of level or we find ourselves with Britain in a perpetual state of devaluation, perpetually having our prices pushed up by the price of imported goods rising because of devaluation and never able to catch up.
We have our chance now. The basis was laid by what was done in the second half of last year. If the negotiations now produce a good result, it may be possible for us to begin to come out of these difficulties and lay the foundation for the kind of economic growth needed in the years ahead if we are ever to get unemployment down to the level that people here would regard as acceptable. That is not easy. It is not just a question of getting through the crisis and at the end of it finding ourselves in a better position than before. If anything, when the crisis is over we and the other European countries will all find ourselves with a higher rate of structural unemployment. We will find that many workers who in that vivid phrase have been shaken out of various industries in this crisis will not find employment. The level of unemployment in a boom condition two years hence may be much higher in every country than it was previously. There is a technological revolution problem which we have not yet faced which may mean radical changes in policies here and elsewhere. These things must be faced and can be faced if we can get through our difficulties at this stage.
If we can agree on a solution to the problem of incomes in the year ahead, then we have the chance to build on that foundation and try to tackle the problem of structural unemployment. It will not be solved in one or two years. It will not be solved in the lifetime of this Government. The next Government—I believe it will be us— will be lucky if they have it substantially resolved at the end of a further term of office. It is a long-term problem. With our relatively high birth rate and the increasing number of people coming on the labour market in the years ahead, the problem will be more difficult than elsewhere and that has to be faced. We have a much higher dependency ratio and every worker has to support many more dependants than workers in other countries. That is a major problem.
We have the problem which Deputy de Valera's father was always conscious of, the problem of a republic faced with demand for imperial standards, because we were part of the United Kingdom at one time. In the nineteenth century that cost us money, we subsidised them but, in the early years of this century, the balance was switched a little. We left at a time when we could do so without any great loss to our economy, without having to give up massive subsidies. We got out in time but, nevertheless, the demonstration effect, because of the transparency of our economy with that of Britain, remains and our people have come to expect the living standards, the social service standards and the standards of every kind of service and facility they see in neighbouring Britain. Britain, by European standards, is not a rich country but it is sufficiently richer than us to create pressures on us to achieve standards which at our present levels of output we cannot attain.
We must face the reality that we cannot have under every heading the same kind of standards as exist in other countries nearby at this stage of our development. To seek to achieve this would be to wreck our economy and our prospects of ever catching up. Those prospects exist. This country has a development potential, the ability to grow at a rate as fast as and faster than most of the other member states. Given half a chance it will do so but it will require a difficult and tough period during which there will be no easy let up in the efforts we have to make and the constraints and disciplines we have to accept if we are going to achieve that objective. That all lies ahead of us.
The present problems are the wage negotiations and the sorting out of incomes, coping with structural unemployment and building up to a growth rate that will equal and excel that of our neighbours so that we may catch up with them in material standards. If we do I hope we will put the extra resources to good use and not fritter them away on even higher standards and personal material consumption. That is not what we need the money for. We need it for our poor, to raise standards of education, for cultural and social purposes and not just to buy more material goods. In that also a lead must be given. What I have said there is also in keeping with some of the things Deputy de Valera's father used say from time to time.