Vol. 296 No. 2
Nineteen seventy-six was an encouraging year. Things are looking up again. I recognise that not everybody may be willing to admit as much but in the words of the late John F. Kennedy:—
There will always be dissident voices heard in the land, expressing opposition without alternatives, finding fault but never favour, perceiving gloom on every side and seeking influence without responsibility. These voices are inevitable.
This is comic opera.
We can take pride in the number and variety of critical voices to be heard in Ireland. It is proof positive of the health and vigour of our democracy.
The economy in 1976
The economic state of the nation at the end of 1976 was rather more favourable than anybody thought possible at the beginning of the year. Two comments may be made about this. First, the hazardous nature of economic forecasting is once again made clear. The problems of accurate forecasting are shared by all economic commentators and I mean no disrespect to other practitioners of the art when I say that the Department of Finance has had a better than average track record over the last 12 months.
Second, events last year had served to emphasise once again how dependent we are on world influences over which we have for practical purposes no control. Much of our export success in 1976 was due to world trade being more buoyant than anticipated and to the sharp fall in the value of the pound sterling. Great credit is due to those of our exporters who exploited the opportunities open to them.
We made real progress in tackling our problems last year. The growth rate of 3½ per cent was a very creditable achievement in a year when agricultural output was bound to decline because of inevitable supply contraints arising mainly from the big run-down of cattle stocks in 1975. Industrial production rose by about 10 per cent in volume and in so doing surpassed the previous peak level of early 1974. In consequence, employment began to rise. Our industrial exports expanded even more rapidly than production so that, for the second year running, we increased our share of world trade in industrial goods. As the recovery in economic activity also entailed a sharp rise in the volume of imports, the balance of payments deficit widened from the abnormally low figure of £15 million recorded in 1975 to about £165 million last year.
Our employment problems have eased to some extent although they are still a cause of grave concern. The increase in numbers out of work in recent months is less than one would expect as a result of normal seasonal influences and there are indications that the underlying trend in unemployment is downward. Less satisfactory, however, has been our progress in curbing inflation. The decline of sterling and the associated adjustments to the Green pound have, of course, added to our problems. But these were compounded by failure last year to secure a more moderate rate of growth in incomes. The fall in the value of sterling has helped to cushion the effects of exorbitant income increases on our competitive position in recent years but it would, of course, be utter folly to rely on fortuitous—and unlikely to recur— circumstances such as this unearned windfall to hold our competitiveness in future.
While we have some distance to go in winding down inflation, we should not, of course, belittle our achievement so far. One can judge the improvement by looking at the trend of prices measured by the constant-tax price index, to which I referred in last year's budget. This index discounts the impact of rises in indirect taxation and, therefore, gives a more realistic picture of the underlying rate of price increases. It shows a rise of 13 per cent in 1976, a much lower figure than the 20 per cent or more experienced during the peak of our difficulties in the first half of 1975.
Economic prospects for 1977
Developments in the international economy will continue to be a dominant influence on our growth in 1977. Last year has shown us how unpredictable these developments can be and how difficult it is to make accurate forecasts of likely trends in our own economy. It will be necessary for us to monitor external trends closely in the coming months to ensure that an appropriate domestic policy is being followed.
Because of the pause in economic growth in the major industrial countries during the late summer, there are still doubts about the pace at which world trade will grow this year. In more recent months, however, there have been signs of a revival in economic activity, particularly in the United States, Germany and Japan. Present indications are that this will continue through 1977 and should be reinforced by a more expansionary economic policy in the United States. However, in Britain, our main export market, demand is likely to remain sluggish throughout the year.
Overall, the external demand prospects are reasonably good although not quite as favourable as in 1976. In view of the competitive edge in nonsterling markets we have gained from the depreciation of sterling over the past year, we have a unique opportunity for substantially increasing our share of the export market and laying a sound basis for sustained export-led growth and increased employment. Whether we take advantage of this opportunity depends on the will and ability of our industrialists to exploit it and on the discipline of the social partners in ensuring that we do not fritter away our margin of competitiveness.
Economic strategy 1977
In my Financial Statement last year, I referred to three vital requirements of economic policy, namely, to cut the rate of inflation, to safeguard employment and to limit the growth of public expenditure. We have made progress in fulfilling these requirements although not to the extent that we would have wished. Our objective this year must be to consolidate the ground gained and build upon it in 1977. The main aims of economic policy for 1977 will consequently be to expand economic growth closer to existing capacity so as to facilitate the transition to the higher growth rates outlined in the recent Green Paper, to cut our inflation rate further and to reduce unemployment to the maximum extent possible. Public expenditure will continue to be subjected therefore to stringent control.
Incomes policy
The Government regard moderation in income increases as the pivot on which the future of our economy hinges. This has been stated time and time again. It cannot be said too often. Failure to control the growth of incomes effectively would lead to a loss of competitiveness which, in turn, would result in a loss of export markets and greater penetration of our home market by imports. This would not only prevent our economy from achieving its growth potential and deprive our expanding work-force of any chance of employment but would also increase unemployment among existing workers and add to our already severe problems in this area. No action by the Government alone could counteract those developments.
The Government's concern about incomes is supported by the full weight of reputable independent domestic and international opinion. I quote from the most recently published OECD Survey on Ireland for example.
In summary, by far the most urgent task confronting the (Irish) authorities is the need to reduce substantially the increase in nominal incomes. This is a pre-requisite for improving competitiveness, setting the conditions for exported growth in the medium term, and bringing about a significant reduction in unemployment.
It is evident from our words and actions that the Government's commitment to moderation in the growth of incomes is total.
In terms of negotiations and discussions both between employers and trade unions and between the Government and the social partners 1976 was a busy year.
The interim agreement marked an important new departure in that it provided for a series of discussions between employers, trade unions and members of the Government on economic and social strategy for the years 1977-78 covering the availability of resources, employment, welfare, prices, public revenue and expenditure and all forms of income.
The tripartite conference had available for consideration the Government's Green Paper on Economic and Social Development 1976-1980. The Green Paper noted that much of our inflation stems from forces outside domestic control. That is no reason, however, for failing to act in those areas where we have responsibility, especially when we know that domestic actions have added to rather than reduced the effects of imported inflation.
Increased competitiveness is the key to greater home and export markets for Irish goods but by insistence on large nominal increases in incomes we were threatening this competitiveness and we were choosing consciously or otherwise to give preference to greater short-term increases in living standards for those at work rather than more jobs for others.
It was against this background that the Government at the tripartite discussions made their offer of tax concessions of £50 million and proposals for expenditure of £50 million extra on employment-giving projects in return for income moderation.
The Government have informed the parties to the Employer-Labour Conference that they are disposed to maintain the tax concessions and expenditure offer if the reasonable national agreement now in prospect is eventually ratified. Indeed, I am glad to say that the Government have now decided to boost the allocation for the employment projects to almost £56 million. This revised figure represents a substantial increase on the original offer. I shall give details of these measures later but I must make it quite clear here and now that their implementation is contingent upon ratification of the proposals for a new national pay agreement. In the event of non-ratification of the agreement it would unfortunately not be possible to maintain the revenue-losing tax reliefs and to spend £56 million on new jobs if even more money had to be expended in paying those who are at present working. It is, therefore, to be hoped that between now and the Finance Bill developments on the incomes front will enable me to include in the Bill the tax reliefs which are universally desired.
The combination of tax concessions, expenditure on employment-giving projects and reasonable standard pay increases is possible only because the new provisions put limits on costly special claims. Such claims have in the past added greatly to costs in both the public and private sectors. It is the total increase in labour costs which is important and which affects both the competitiveness of industry and the burden that the taxpayer and consumer have to meet.
Despite the rise in earnings which will result from the new agreement, we can still manage to improve our competitiveness in 1977 provided we secure an adequate increase in productivity. This is essential if we are to achieve the expansion in exports necessary to shift the economy on to a higher growth path. It is, moreover, of vital importance for cutting significantly our high rate of inflation. In 1977, the economic and monetary situation abroad should be more stable than in 1976, a factor which will assist our own efforts to reduce the rate of price increase.
Increased exports would not of themselves achieve a sufficient acceleration in the growth of output and employment this year. For this reason, the Government have decided to impart a significant stimulus to the economy through to-day's measures. Even on a pre-budget basis we have substantially increased the public capital programme and in selecting items for additional current expenditure the prospect of increasing employment was also given top priority.
Public sector pay
General considerations
The public sector is of its nature labour-intensive. It is not surprising, therefore, that public service pay at £582 million is the largest single element in current public expenditure. The term public service pay covers the cost of the civil service, national and secondary teachers, the Defence Forces and Garda together with the Exchequer contribution, which is substantial, to the pay of nurses, doctors and other health board employees and vocational teachers. In addition the Exchequer bears another £106 million of the pay of the staffs of certain State-sponsored bodies, universities and voluntary hospitals and about £55 million on public service pensions.
This total of £743 million for pay and pensions falling on the Exchequer compares with an estimated 1976 outturn of £679 million and represents an increase of 9.5 per cent. Large as this total is, it does not include any provision for the various increases arising under a further national pay agreement in 1977.
New developments
In last year's budget I was reluctantly forced by the financial situation to announce that consideration of claims for increases additional to standard national agreement increases should, apart from a few minor exceptions, be deferred. In line with this constraint the State as employer had to invoke those provisions of the national agreement covering employers faced with serious economic and financial difficulties.
Despite some improvement since the last budget, our present circumstances leave little money available for such cases in 1977. The Government are anxious however, as I am sure public servants will accept, that what money is available should be devoted to those cases where the most serious inequity arises. We are confident that public servants will show the responsibility which is required to keep the cost to the Exchequer within modest limits and thus enable the Government to avoid the need to invoke those provisions of the national agreement to which I have referred.
On that basis and on the assumption that the proposals for a national agreement are ratified, I am providing a total sum of £46 million to cover all increases in public service pay in 1977. The terms of the proposed national agreement will, of course, be applied to all increases.
I must stress that the large sum I am providing for public service pay and pensions represents the limit of expenditure on these items in 1977. Any further increase here would necessitate the imposition of extra taxation which would be harmful to the interests of the nation and, indeed, to the real interests of the recipients themselves.
Pensions
Pension increases for public service pensioners, including the full year cost of the 10.6 per cent average increase last July and another increase as from 1st July next, together with a rising number of pensioners, account, in the main, for the increased cost to the Exchequer of public service pensions. The cost for 1977, exclusive of increases that may follow from any new national agreement, is estimated at £55.3 million, an increase of almost 10 per cent or about £5 million on the provisions for 1976.
Public service numbers
Civil service
Since the beginning of 1975 the Government have taken steps to restrict increases in the number of civil servants as far as reasonably possible. In the civil service there has been a rigid control on staff numbers and increases have been allowed only where there was a clear and immediate need for more staff to avoid serious disruption of work. The effect of this has been that the increase in the number of civil servants has been 2 per cent in 1975 and less than 1 per cent in 1976, whereas the average annual increase in serving numbers in the preceding 5 years was nearly 6 per cent.
Public service
Outside the civil service, tight control on numbers has as far as possible also been maintained but it has not been possible to limit, to the same extent, increases in the teaching and security services. Because of the continuing increase in the number of pupils, teacher numbers have had to be expanded to maintain teacher-pupil ratios and rose by more than 5 per cent in 1975 and by approximately 4 per cent in 1976. The continuing difficult security situation has also necessitated significant expansion in the Garda and Defence Forces.
Budgetary realities leave the Government with no option but to continue a restriction on public service numbers. This will create problems in some areas where the volume of work is continually expanding. Such problems can be and indeed have been offset by improvements in efficiency and better deployment of staff. Considerable progress has been made in these respects over the last two years.
Outturn of current budget 1976
Last year I referred to the disturbing rate of growth in public expenditure— particularly in non-capital expenditure —over the previous decade and I said that, while high spending policies were justified during a period of depression such as we had been experiencing in common with other countries, nevertheless as soon as economic recovery returned the Government would have to be extremely vigilant to ensure that public expenditure did not pre-empt resources needed by the private sector. I emphasised that the Government's budgetary aim for 1976 would be to use public expenditure, within the real constraints on resources, to stimulate economic activity and that in order to achieve this current expenditure would be pruned where it did not contribute significantly to increased economic activity in order to free resources for growth and job creation.
I allowed in my 1976 budget for total current spending of £1,683 million. An indication of the success of the Government's policy of keeping a tight rein on current expenditure is that not alone was this figure not exceeded, despite a continued high level of inflation, but it was possible to accommodate an additional £5 million for social welfare and £11 million for the health services as well as meeting the 1976 cost, £13 million, of the interim pay agreement for the public service within a reduced total expenditure figure of £1,672 million, that is, £11 million less. This is a unique and most heartening achievement. Never before in the past 20 years has it been possible to contain public expenditure during the course of a year within the original budget estimate.
The current budget deficit for 1976 was £201.4 million, about £126 million less than the amount originally estimated in the 1976 budget. This reduction combined with a lower than anticipated level of capital spending to bring the overall Exchequer borrowing requirement down from £679 million to £506 million.
Another important factor in reducing the current budget deficit for 1976 was tax revenue buoyancy. Tax revenue exceeded budget estimates by £115 million, of which about £35 million is attributable to increased incomes and personal consumption arising from the increases under the subsequent interim pay agreement, which could not of course have been taken into account at budget time. As well, revenue buoyancy rose in step with the faster than expected improvement in the general rate of economic growth during the year. VAT receipts were particularly buoyant, bringing in £41 million more than the budget estimate, while customs and excise receipts exceeded the budget estimate by £24 million: a considerable portion of the extra customs receipts, for instance, was directly attributable to the rising level of imports as industrial activity picked up. An important influence on the performance of revenue under those heads was the spurt in motor vehicle sales during the course of the year and an increase in petrol sales to almost 4 per cent above pre oil-crisis levels.
There has been a good deal of illinformed and misleading comment on the significance for 1977 budgetary policy of this relative improvement in the state of the public finances, particularly on current account. The fact is conveniently overlooked that the increased revenue buoyancy and the strict control on public expenditure during 1976 simply enabled the amount of borrowing required to meet the current budget deficit to be reduced by some £126 million below the all-time high level anticipated at the beginning of the year. Despite that reduction, it was still necessary to borrow £201 million or about 4.6 per cent of GNP to finance the current budget deficit alone. This relative improvement clearly cannot be regarded as a windfall available to finance concessions or as a signal that the way is now clear for a spending spree in 1977. There is in fact no room for complacency based on the expectation of a continuation of this pattern in 1977.
Budgetary policy 1976 and 1977
The sharp reduction in the current deficit and borrowing requirement that emerged during the course of 1976 marked the beginning of a transition from recession to economic recovery. In 1974 and 1975 successive injections of public expenditure had been necessary to stimulate economic activity and support living standards and employment at a time when little could be expected from the private sector. It is undeniable that the heavy borrowing to finance growing current deficits as well as capital spending was the correct response to the economic situation then facing us. With the movement into the recovery phase, however, continuation of the pattern of a growing volume of public expenditure, increasing deficits and heavy borrowing would progressively hinder rather than sustain economic activity and the burden of debt service would quickly become insupportable. At the present time growing debt service charges related to earlier borrowings are beginning to eat into available revenue at an undesirable rate. In 1977 debt service charges will absorb one-quarter of all tax revenue; they will rise even more steeply in the next few years. Further borrowings during a period of economic recovery run the risk of crowding out the growing demands from the private sector for funds to finance expansion. It was for this reason that the 1976 budget was designed to provide for substantially slower volume growth of Government consumption than in 1975 and for the imposition of higher indirect taxes. A further significant development in policy was that within the overall total of Government expenditure a start was made in changing the emphasis from current to capital expenditure, notably to manufacturing investment. Thus the groundwork was laid for the acceleration of manufacturing investment which is necessary if growth potential is to be realised and further employment created.
The Government will pursue this realignment again in 1977. A tight rein will continue to be maintained on current expenditure which, apart from Central Fund Services related to service of debt, is estimated to grow by no more than about 10½ per cent in cash terms on a pre-budget basis. This is well below the growth forecast for GNP in money terms. Capital expenditure on the other hand will be maintained in volume terms, even before account is taken of the capital element of the special employment-giving addition of almost £56 million which is related to ratification of the terms of the proposed national agreement.
In setting ceilings for the current budget deficit and for the borrowing requirement in 1977 we must carefully watch the danger of undermining the recovery of the economy particularly at a time such as the present when growth and consumption are extremely sensitive to budgetary action. An over-sharp reduction in the deficit and borrowing requirement would require cuts in public expenditure programmes or tax increases so severe that their deflationary effects would seriously affect the performance of the economy in 1977 and reduce rather than increase employment. Higher unemployment itself results in additional Government expenditure in the form of social welfare benefits and also reduces tax yields.
Revenue buoyancy
As I have already indicated, revenue buoyancy improved dramatically in 1976 as the recovery got under way. However, with a lower level of inflation and a more modest increase in incomes, a somewhat lower rate of increase in revenue yields is to be expected in 1977. My estimate of total receipts for 1977 from tax revenue, including motor vehicle duties and non-tax revenue, as shown in the White Paper on Receipts and Expenditure, is £1,755 million. This shows an increase of £284 million or over 19 per cent on the 1976 outturn.
1977 non-capital allocations
In stressing the need for a sharp reduction in the rate of growth of public expenditure, the Government have pointed out that such a reduction is particularly necessary at a time when demands from the private sector for funds for development will increase in step with the return to a higher level of economic growth. This concern has also, of course, been expressed in many other quarters.
It is much easier to introduce new public services to meet needs as they emerge than it is to terminate programmes introduced in earlier years whose life-span may have begun to outlast their real relevance. As a result, the aggregate cost and coverage of public expenditure tends to snowball as the burden of past decisions remains with us. If the rate of growth of public expenditure is to be brought under control it is essential that steps be taken to reappraise all existing expenditures in the light of present and future—not just past—needs.
The Government are determined to act in the national interest, though any moves in this direction, I need hardly say, are sometimes far from popular. Temporary political capital can easily be made about the result of attempts to tailor public expenditures more closely to present and future needs and within existing resources, but I have no doubt that thinking people will welcome expenditure control. Steps are being taken to ensure that the examination of public expenditures from the point of view of effectiveness and relevance will continue throughout the year rather than being compressed into the crowded few months in which departmental spending allocations are decided. I intend to ensure that this continuous review of existing public expenditure programmes will become a growing feature of the work of all Departments of State and believe that this will make a substantial contribution towards achieving the Government's objectives of getting the best possible value for money in order to free resources for productive capital investment.
The opening total for current expenditure in 1977 is £1,917 million. Of this, by far the largest component is the non-capital supply services which, as published last week in the Estimates Volume, at £1,496 million, show an increase of £138 million, or 10 per cent, over the 1976 level of expenditure on these services. As indicated earlier, this figure makes no provision for any pay increases which may arise in the public service in 1977 nor does it include the cost of any additional social welfare measures or employment-creating schemes. It does, however, allow for additional expenditure of £34 million on the health services, including the final instalment of the transfer of the health charges from the rates to the Exchequer. An additional £20 million is being allocated for education, while security-related expenditure on the Army and Garda is up by £14 million. Expenditure on local government services shows an increase of £9 million of which £5 million is for housing subsidy. The Estimates Volume provisions will, in general, enable existing services to be continued at their present levels.
1976 Public Capital Programme outturn
Expenditure on the public capital programme in 1976 was £544 million, that is some 9 per cent, or £52 million, less than the budget estimate. The difference between the budget estimate and actual expenditure did not in any way result from a financial cut-back. The money was there but the demand for it was not. There was a saving of £29.5 million on industrial investment and on loan finance for industry attributable to a slower rate of maturing payments, non-completion of development plans for some projects and, in the case of Fóir Teoranta, a drop in the number of firms in financial difficulty looking for assistance—always a healthy sign. There was a sharp drop in demand for Exchequer-financed local authority house purchase loans due to greater availability of funds from the building societies. Incidentally, about half of this saving was used to increase the allocations for sanitary and environmental services. Withdrawal of services by veterinary surgeons resulted in net underspending of £11 million on animal disease eradication but again about half of this saving was diverted to the farm modernisation, farm buildings and land project schemes. Finally, the provision of £3 million in last year's programme for investment in mining concerns was not spent because of the lateness of the arbitrator's decision on the value of mining shares.
1977 Public Capital Programme
The 1977 public capital programme recently published amounts to £627 million, that is, 15 per cent over the 1976 outturn. This level of expenditure will more than maintain the impetus of the expanded capital programme of recent years. The Government, in determining the composition of the programme, have emphasised productive and infrastructural investment, which together amount to 75 per cent of the programme, compared to 71 per cent in 1976, and have given priority to items of major economic importance. For example, the allocation for energy investment, including the development of resources of natural gas and peat, is £28 million, or 56 per cent up on the 1976 level of expenditure.
Employment-creating public expenditure package
As I have already indicated, acceptance of reasonable income increases in 1977 will make possible extra expenditure on highly desirable employment-creating projects. Because of limitation on resources this expenditure is dependent on ratification of the proposals for a new national agreement. I am, therefore, in hopeful anticipation, allocating £55.5 million in order to improve job prospects. £36.6 million of this extra spending will take place under the public capital programme. Among the major increases are:—
—£12¼ million to increase the provision for industrial investment
—£12 million to be spent on increased building and construction investment in schools, hospitals, office buildings and training centres
—£2½ million on harbour development works including provision for a start to work on the Cork Harbour Development scheme
—£2½ million for telephone development
—£2½ million for the farm modernisation scheme
—£2 million for loan finance for industry.
I should, of course, mention that in addition to the extra direct investment of £12 million in the building and construction activities I have listed, the increased allocations for industry, harbours, farm modernisation and telecommunications will also directly generate increased building and construction activity.
Current expenditure allocations directly related to improving job prospects are being increased by £18.9 million. Some £11.8 million will be spent to increase job opportunities in the health—£10 million—and teaching— £1.8 million—services. The additional expenditure on teaching will be particularly helpful in increasing the number of teachers for first and secondlevel schools in urban areas to reduce the size of classes. £4.1 million will be expended on a new premium scheme for extra workers. There will be a special scheme to encourage employers to engage school leavers. Provision will also be made for employment of young people on desirable community works that would not be undertaken in the normal course. There will be increased spending—£2 million—on road improvement works. The contents of the job creation programme are described in greater detail in the "Principal Features of the Budget" statement which will be circulated on the conclusion of my statement.
The additional direct employment to which these expenditures will give rise should be of the order of 7,000 new jobs mainly in 1977. The indirect consequences for employment creation should be even more far-reaching when account is taken of the effects throughout the economy of the additional activity to which these increased allocations will give rise.
I cannot too strongly stress the importance of not relying unduly on public expenditure to generate jobs. Between 1971-72 and 1976, with the objective of increasing employment, public capital expenditure rose by 154 per cent. At the end of that period the number of persons in employment had not increased. That is why, as I will indicate later on, special incentives are being given to the private sector to increase employment opportunities.
Higher education grants
The employment-creating package of special measures to assist school leavers and the additional education building programme lead me to mention a related matter in the area of services for youth.
With effect from the 1977-78 academic year the maximum maintenance grants will be increased from £300 to £350 for university students whose normal family residence is outside a university town and from £120 to £140 in the case of other students. Corresponding increases will be paid in the case of scholarships provided by the vocational education committees. These increases are, of course, over and above the improvements in fee grants which have kept pace with rises in fees generally. The cost of these improvements will amount to £300,000 in a full year.
Extension of fishery limits
The extension of our fishery limits to 200 miles necessitates the strengthening of our national fishery protection capacity. Our EEC partners have, of course, agreed to share equitably the expenditure involved in patrolling and controlling the extended zone off the Irish coast. In anticipation of the Community meeting not less than 75 per cent of the cost, I propose to make an additional allocation of £1.2 million for fishery protection over and above what is already provided in the Estimate for Defence for 1977. Some £440,000 of the supplementary expenditure will be in respect of the down-payment on a third allweather fishery protection vessel to be constructed in Ireland.
Monetary policy
Monetary policy in 1976 was designed to contribute towards economic recovery, in particular by ensuring that the reasonable credit needs of the private sector would be met. There has been a substantial and welcome increase in lending to the private sector. The fact that much of this increase was to manufacturing industry and agriculture is a further reflection of the improvement in the economy during the past year. It is important that during the coming year available credit should be used to support and sustain national development. The productive sectors of the economy and the promotion of exports must continue to have priority. The continued participation of the associated banks in the provision of credit on competitive terms for exports of capital goods and housing finance will be most helpful and I would like to take this opportunity to thank them for their co-operation. In 1975 the banks agreed to invest £40 million in house-purchase loans over a two-year period. This amount has been fully committed and has financed the purchase of approximately 3,600 houses. The banks have intimated to me that, depending on the rate of growth in their resources and the overall demand for credit, they plan to allocate at least a further £20 million for house-purchase loans this year.
As recently announced the banks have also decided to introduce a scheme tailored to the long-term development needs of agriculture. This is further welcome evidence of the continued readiness of the banking system to support worthwhile national developments. Coupled with the development loan scheme operated by the Agricultural Credit Corporation, it means that a substantial pool of long-term capital on attractive terms is now at the disposal of farmers anxious to undertake the planned improvement of their holdings.
On the subject of housing, it is fitting to acknowledge the major contribution of the building societies in this field. Final figures are not yet to hand but all the pointers are that the societies in 1976 paid out loans of the order of £95 million in respect of 12,000 houses, almost half as much again as in 1975, which was itself a record year. This massive investment was made possible because of a very high level of savings. It is well to underline the lesson, obvious though it should be, that all investment depends in the final analysis on saving. We shall not achieve our aims in housing, industry or agriculture unless we are prepared to transfer resources from present consumption to capital formation.
Interest rates
After a fall in the early part of 1976 bank rates are again at very high levels. Developments internationally and particularly in Britain made increases in Irish interest rates unavoidable—unsuitable as are high interest rates in our state of development. The increases in bank interest rates here were, however, moderated to the greatest extent practicable in order to minimise their effect on the country's economic growth. Interest rate trends are currently drifting downwards again and offer hope of a return to rates more suited to Ireland's long-term needs.
The course of interest rates in 1977 is closely bound up with the likely pace of recovery in the major trading economies and the fortunes of the sterling exchange rate. The situation will be kept under close scrutiny in coming months and our interest rates will be brought back to a level more in keeping with our needs, at the first opportune moment.
Exchequer borrowing
The reduction in the 1976 current budget deficit from £327 million to £201 million and the savings on the capital budget reduced the Exchequer's borrowing requirement from an estimated £679 million to £506 million last year.
The volume of sales of securities to the non-bank public, at £138 million, was satisfactory and indicated investors' confidence in the soundness of the economy. Receipts from this source prior to 1975 were generally of the order of only £20 million to £30 million. Sales of securities to the banks in 1976, at £46 million, were below expectations. Investment by the banks in Government securities in 1975 had, however, been substantially higher than was necessary to comply with the Central Bank's liquidity ratios so that they entered 1976 with part of their commitment already met. This, combined with the effect on their resources of the regrettable bank strike, accounts for the disappointing outcome.
The Government's overall borrowing requirement in 1976, at £506 million, represented 11.5 per cent of GNP. While this is still very high by reference to the past and by international standards it represents a substantial improvement over the 1975 figure of 16.9 per cent. As I have repeatedly stated, such a high reliance on borrowed funds, correct at the time of recession, cannot continue indefinitely. The worst effects of the depression are now, hopefully, over and significant progress has already been made towards restoring greater equilibrium in the national finances. This must be a gradual process and nobody could sensibly argue for drastic sudden changes. I shall discuss the borrowing requirement for 1977 later in my statement.
National loan
No national loan was issued last year. The immediate reason for this was the unsettled state of interest rates and the consequent difficulty of setting a price which, because of the time needed for printing, distribution and subscription, must be fixed about a month in advance of the final subscription date. In any event in recent years national loans have played a diminishing role in State financing. The market in Government securities is now sufficiently developed to ensure that the vast bulk of funds available for investment is catered for by the issue from time to time of tranches of existing securities. New stock issues will continue to be necessary but procedures better suited to developments in the market will be followed.
Debt service cost
Exchequer borrowing results in a heavy burden of debt service charges. From £337 million last year, the cost of servicing the public debt will rise to £448 million in the current year. If Exchequer borrowing were to continue at the rate of recent years, an ever-increasing share of future revenues would be pre-empted by debt service costs. The fact that so much of our borrowing has been in foreign currencies compounds the problem. In 1976 the equivalent in foreign currencies of £324 million was raised abroad. Foreign loans have to be repaid in foreign currencies so that a depreciation of the Irish £ against such currencies increases the cost of servicing the debts. Interest payments on foreign loans must also be paid in foreign currencies and unlike such payments in respect of domestic borrowings no tax is recoverable. These avoidable realities ought to dispel any illusion that borrowing is a soft painless alternative to taxing.
Small savings
Small savings in 1976, at £53 million, showed a big improvement over 1975 when the figure was £39 million. Very considerable use was made of the facilities provided by the Post Office and Trustee Savings Banks during the bank strike and no doubt this experience brought home to many the advantages of saving with these institutions. I have already expressed in public my appreciation of the contribution by these institutions to the easing of the difficulties caused by the closure of the associated banks last year and I am happy to take this opportunity to do so again.
Increases in post office charges
Post office services, which should be self-financing, are running at a substantial loss on their commercial accounts. The telephone service lost £8.8 million in 1976 and now is losing almost half a million pounds a week. The loss in prospect on the postal service is £3.7 million this year. These losses have to be made good by taxpayers through general taxation.
The Post Office's financial difficulties can be attributed to sharply increasing costs which were not matched by corresponding increases in traffic and charges. Between 1971 and 1976 while increases in expenditure on the postal and telephone services, respectively, amounted to 144 per cent and 273 per cent, the charges increased in the same period by only 115 per cent and 88 per cent respectively. Those increases were in fact less than the general increase in the cost of living in the period. Inevitably, therefore, heavy losses arose on these services.
The major factor in the increased costs has been pay increases. In addition, in the case of the telephone service a significant but necessary growth in the number of staff employed reflected the very substantial development of that service.
The second important factor has been the increasingly heavy capital cost of telephone development: the cost of interest and depreciation has increased from £7.6 million in 1971 to an estimated £26.4 million in 1977, an increase of 247 per cent and now represents 38 per cent of expenditure on the telephone service. The country is now obliged to pay the cost of culpable underinvestment in the sixties and early seventies when the potential for growth in traffic to service the investment was considerably greater and when capital costs were much lower. Notwithstanding the enormous capital cost of improving the telephone service at present, the truth is that any further delay would be not merely an inconvenience but an intolerable handicap to business and industry. Unfortunately the growth in telephone traffic has fallen steeply since 1974 because of the general economic situation, despite an annual increase in the number of subscribers.
While every effort is being made to improve the efficiency of the postal and telephone services, resultant savings will have but marginal effects on costs. Unfortunately there is no solution to the problems of the Post Office other than to increase charges to cover costs. The alternative would be to require taxpayers generally to subsidise telephone losses in full. It is only reasonable that users of Post Office services should pay for the services they avail of. Increases in charges will take effect on 1st April next and will average 13 per cent on postal services and 25 per cent on telephone, telegram and telex services. My respected friend, the Minister for Posts and Telegraphs, will announce details of the increases.
I am looking to these increases to generate, in cash terms, an additional £17 million in non-tax revenue. The effects on the Post Office commercial accounts of the increases will be to eliminative the prospective deficit on the postal service in 1977 and to reduce substantially, but not to eliminate, the deficit on the telephone service. Consideration was given to bridging the gap in full between income and expenditure on the telephone service by way of increased charges alone but it was felt that such action could depress telephone usage and therefore be counter-productive. The actual reduction in the telephone service deficit will depend, apart from increased income from higher charges, on the extent of the improvement in the economic situation this year, a factor to which telephone traffic growth normally responds. Traffic should also be boosted when major works on which capital was spent in recent years become fully operational. New facilities such as a more extensive automatic dialling capacity and improvements in the quality of the telephone service almost invariably give rise to greater telephone use. It is encouraging to note that already there are signs of a reversal of the trend of slow telephone traffic growth experienced during the recession. There are indications that telephone traffic in the last half of 1976 showed a marked increase on the level of traffic experienced previously.
Indirect Taxes
While an increase in post office charges is absolutely unavoidable for the reasons I have given, I am glad to be able to say that there will be no increase at all in excise duties in this budget. The Government have decided on this course even though excise duties and VAT on a number of commodities already constitute a lower proportion of the retail price than was the case four years ago. Indeed, at no time in the past eight years has the tax content of spirits as a percentage of the retail price been as low as it is now. I am confident that the standstill on rates of excise duties will, therefore, make a considerable contribution to keeping down living costs in 1977. It should also provide a considerable stimulus to the Irish manufacturers concerned by allowing a faster expansion of their home sales base than might otherwise have been the case.
Farm incomes/Green £ effects
Developments in agriculture have been very favourable for our farmers in the past two years during which farm incomes have increased by about two-thirds. Substantial price increases for all our agricultural products have been secured as a result of the annual EEC review of prices, the aligning of our prices to the higher EEC levels as part of our transitional entry arrangements and the substantial green £ changes negotiated by my esteemed friend the Minister for Agriculture and Fisheries. With favourable market conditions, the prospects for agriculture in 1977 are very good and further substantial rises in farm incomes can be expected.
The two major changes in the green £ secured recently—7.6 per cent, effective from 11th October, 1976, and 8 per cent, effective from 17th January —will give a significant increase to farm incomes in 1977 on top of whatever price increases may otherwise arise during the year. These two green £ changes on their own should increase farm incomes by about £125 million a year. Of this increase, foreign earnings will account for about £85 million and home consumption for the balance.
The Government will continue to press vigorously to have the burden of the remaining MCAs removed in order that agriculture can make the maximum contribution to the growth of our economy.
To give liquid milk producers price increases in line with the creamery milk prices improvements which have followed from recent green £ adjustments, the Government have decided to allow an average increase of 7p per gallon for liquid milk. The details of this increase will be the subject of a separate announcement shortly by the Minister for Agriculture and Fisheries.
Food subsidies
In order to offset the consumer effects of increases in the retail prices of milk, butter and cheese as a result of recent green £ changes, the Government are providing an additional £9.5 million for food subsidies to avoid a substantial addition to the consumer price index of the order of ½ per cent which would otherwise occur. Taking account of the provisions already made for the existing subsidies on milk, butter, bread and flour the Government will, therefore, be spending a total of £48 million this year to keep down food prices. If these subsidies were removed the cost of living would immediately rise by almost 2½ per cent. This is very real evidence of the Government's efforts not only to ease the strain on the weekly family budget but also to curb the rate of inflation and provide more favourable conditions for payment restraint. Another financial easement to which I will later refer will make a further Government contribution to keeping down the consumer price index.
Taxation of farming profits
Expressed as a proportion of GNP the total revenue estimated for 1977 amounts to about one-third. While the proportion of GNP taken as tax has, as in most developed countries, risen, over time, it is not particularly high compared with other countries. For instance, in 1974, the most recent year for which comparisons are readily available, Ireland is shown as having the lowest ratio of tax receipts—including social security contributions— to GDP of all EEC member states with the single exception of Italy.
Despite the steeply progressive structure and high marginal rates of Irish personal taxation, the yield is relatively low. This striking disparity underlines a serious imbalance which requires correction. The main reasons for the low yield are, of course, the considerable size of our self-employed sector, particularly those engaged in agriculture as compared with the employee sector, and the fact that only about one-half of the 1 per cent of agricultural incomes finds its way into the direct tax system compared with about 20 per cent of employee incomes.
The measures introduced in 1974 for the taxation of farmers have so far yielded only £6 million in all. The Government have been concerned to adjust this imbalance while making proper allowance for the investment needs of farmers but the problem is how best to collect a fair share of tax from rising farm incomes without inhibiting the development of farming.
At the request of the Government, the National Economic and Social Council produced a report on farmer taxation last year. Since then farm incomes have increased, and are continuing to increase, at a rate much faster than was expected at the time the report was being prepared. Recent EEC price adjustments have given rise to substantial increases in farmers' incomes generally, the benefits of which will be fully reflected in 1977 and future years. The Government have, therefore, decided that, in all equity, a substantial contribution to the national finances in 1977 must be sought by way of income taxation from the farming sector. The threshold for liability to income tax will be reduced from the present rateable valuation of £100 to £75 for the year of assessment 1977-78. This will mean that, out of a total of some 170,000 farmers, about 6,500 will now become liable in addition to the 9,000 or so already liable.
The notional system of assessment will be retained for 1977-78. This provides an incentive to progressive farmers in that income in excess of the notional income is retained free of tax and is, therefore, available in full for reinvestment. The notional system is also warranted by the inadequacy of the accounts kept by farmers in general at present. It is, therefore, capable of providing a surer and faster return to the Exchequer than the accounts system.
As Deputies know, the multiplier is the figure by which the rateable valuation of the land is multiplied to arrive at notional income. The multiplier is now being raised from 40 to 65, although a full-value multiplier on a national basis arising from farm incomes in 1976 would be around 80. Deductions will be allowed only in respect of the normal personal reliefs, including that on interest paid on borrowing up to the limit of £2,000, and in respect of local authority rates on land. The proposed multiplier of 65 takes account of the fact that, so as to simplify and expedite assessment, wages, contractors' fees and depreciation will not be allowed as deductions. A system of marginal relief will operate for farms with rateable valuations from £75 up to £84. Under this system, a farmer with land of a rateable valuation of £75 will be liable only for one-tenth of his full income tax, a farmer with land of £76 valuation for two tenths, and so on until, at a valuation of £84 or above, he will be liable in full.
The extension of the income tax system, in the Government's view, is the fastest way of bringing farmers closer into line with the rest of the community as regards their contribution to the national finances. Very considerable delays have been experienced in collecting tax from farmers under the present system. Because farmers' incomes have risen rapidly— and will continue to rise—and in the light of the advantages which the notional system will offer to expanding farmers, the Government have decided to introduce new arrangements to speed up collection. All farmers liable for income tax will be assessed on the notional basis and the tax will be payable on 1st September, 1977. Delay or default will be subject to the usual interest charge. A farmer may appeal against his assessment to his tax inspector on the basis of accounts produced by him. If the inspector is satisfied that he has been over-taxed, the excess will be promptly refunded together with interest at the rate applicable to delays in payment of tax. To facilitate those who may not have previously been keeping accounts, appeals may, at the taxpayer's option, be based on current year's accounts instead of on accounts relating to the preceding year.
Holders of farm land who, or whose spouses, are also engaged in another trade or profession are at present liable to income tax on their farming profits if the rateable valuation of their land is over £50. Moreover, they are assessed on the basis of submitted accounts only; they are not given the option of the notional system. The Finance Bill will contain a provision to abolish the £50 threshold and to make such persons liable on their farming profits regardless of the valuation of the land. Assessment will be on the same notional basis and tax will be payable on the same day as in the case of farmers occupying land with a rateable valuation of £75 or more.
I propose to implement at this stage two of the NESC recommendations relevant to the accounts system of assessment. Free depreciation will be allowed in respect of the capital cost of fences, roadways, holding yards, drainage and land reclamation to farmers who lodge appeals, by reference to accounts submitted, against tax paid on the notional basis. The NESC recommendation that, in valuing breeding livestock for tax purposes, farmers should be given the option of an alternative to the present arrangements, is being accepted also. Consultations are taking place with farming interests with a view to the introduction of an appropriate scheme.
This completes the package of measures relating to the taxation of farming profits. It is designed to yield some £35 million revenue in 1977 which represents about 5 per cent of farming incomes, as compared with 20 per cent in the case of employee incomes. Its effects will be monitored closely, both in terms of revenue receipts and of investment and expansion in agriculture. On the results achieved will be decided what further measures are desirable in the future.
Changes in personal income tax code
As the Government's Green Paper on Economic and Social Development has pointed out, over the past 15 years our community had in effect given preference to greater nominal increases in incomes for those at work rather than to the provision of jobs for more people. The decision to maintain or increase the living standards of those at work at the cost of more unemployment was, of course, an implicit one but the effects were no less real for that. Higher rates of taxation are unavoidable when, in a situation of declining economic activity, a growing number of unemployed must be maintained by a reduced workforce. Living standards of all those who are still at work and those who are out of work inevitably suffer.
The increased output, which results from restraint in nominal income increases, in turn allows employment to be expanded and reduces the burden of public expenditure, while the increased economic activity stimulates revenue buoyancy so that the burden of taxes on the individual worker can be relieved and his living standard preserved even though nominal wages are increasing more slowly than before.
The Government recognises the need for a favourable tax environment to stimulate economic growth. In preparing the 1977 budget, therefore, I have been anxious to improve the personal tax code in order to reduce the disincentive effects of existing marginal tax rates.
A basic objective of the Government, which we spelt out at the Tripartite Conference, is to generate appreciation of the need, both on general economic grounds and in the interests of preserving living standards, for incomes settlements which would combine income restraint with reductions in personal tax rates to give worth-while improvements in takehome pay.
Deputies will be aware of the developments at the Tripartite Conference and at the Employer-Labour Conference in recent months. We now have the position that a wage settlement has been negotiated which the Government are prepared to endorse and support with reductions in personal income tax rates which will cost £50 million in 1977 and £72 million in a full year. I might usefully comment here that tax reliefs on this scale are unprecedented. Their value is highlighted also by the fact that they are being granted at a time of continuing budgetary difficulties.
In considering how best the concessions could be applied, the Government examined a number of different options in regard to changes in the code. They have settled on the following scheme as being the best and fairest. It is designed to secure worthwhile reductions in the tax burden at all levels of income and at the same time to minimise the disincentive effect inseparable from any system of taxation of incomes.
The following will be the rates applicable to bands of taxable income. By "taxable income" is meant the part of gross income which remains after personal and other allowances have been deducted: A rate of 20 per cent will apply to the first £500; a rate of 25 per cent will apply to the next £1,000; a rate of 35 per cent will apply to the next £3,000; a rate of 45 per cent will apply to the next £1,500; a rate of 50 per cent will apply to the next £1,000; a rate of 60 per cent will apply to the balance of taxable income. The reductions in rates and changes in bands, amounting to a complete restructuring of the system, will of themselves give substantial relief to taxpayers, but in addition I am increasing allowances as follows: The single allowance will be increased by £45 to £665; the married allowance will be increased by £90 to £1,100; the widowed allowance will be increased by £50 to £735.
Every taxpayer in the country will benefit from this new structure. The introduction of a new band at 20 per cent will be of considerable benefit to the lower-income taxpayer while the reduction in the top marginal rate from 77 per cent to 60 per cent provides a major incentive to enterprise. A married person earning £60 a week will save about £1.67 a week, which amounts to a reduction of about 14 per cent on his existing tax bill.
A few examples will also help to underline the advantage for workers of combining tax reliefs and wage increases rather than simply opting for higher nominal wage increases. The proposed agreement would give a person earning £80 a week at present an increase of £6.08 in his wages. If he were married, the wage increase and tax concessions together would give him an increase in weekly after-tax income of £6.30. In the absence of the tax concessions it would require an increase of £10.25 a week in his gross wages to give an equivalent increase in after-tax income. A more detailed analysis of the effects of the changes and of their effect on disposable incomes when combined with the wage increases now proposed will be found in the "Principal Features of the Budget" statement which will be circulated shortly.
I am also taking steps to ensure that nobody whose income consists entirely of a social welfare pension will be subject to income tax. In the difficult circumstances of the present time the ability to offer tax concessions on this scale represents a remarkable achievement in itself. However, as I have said already and must again emphasise, the implementation of these concessions will be possible only if the draft national pay agreement is ratified by the parties concerned.
Advancement of Schedule D payment dates
The Finance Act, 1976 provided for the advancement by six months of the due dates for payment of Schedule D tax. This advancement was to be achieved in two stages and would mean that, in the tax year 1977-78, and in subsequent years, the payment dates for the first and second moieties of Schedule D tax would be 1st July and 1st January, respectively. In deference to representations made to me that the full advancement envisaged would have undesirable effects on liquidity in some cases this year and also in order to give more time early in the tax year for settlement of assessments, I now propose that the date for payment of the first moiety of Schedule D tax be set at 1st September instead of 1st July as previously envisaged. This concession will affect 1977-78 and subsequent tax years. The date for payment of second moieties from 1977-78 onwards will be 1st January as provided for last year.
Retirement benefit schemes
One other area in which I propose to give some relief is that of premiums paid by self-employed persons in order to secure a life annuity for themselves after retirement. Tax relief is given at present in respect of these premiums up to 15 per cent of net relevant earnings subject to a maximum premium of £1,500. I propose to increase the £1,500 cash limit to £2,000. The 15 per cent limitation will, of course, remain.
Ex gratia public service widows' pensions
This is perhaps an appropriate place for me to mention another concession I propose in the pensions field. While inflation bears hard on many sectors, its effects are particularly severe on widows and their children. The State, as an employer, already provides ex gratia pensions for the widows and children of established civil servants who died or retired prior to July, 1968, and who cannot, therefore, benefit from the contributory scheme introduced from that date. These ex gratia pensions are at one-half the rate payable under the contributory scheme. Similar arrangements apply, as appropriate, to other branches of the public service. These pensioners have, of course, had their pensions increased annually each July in line with public service pensions generally.
The Government have given sympathetic consideration to the position of these widows in the light of numerous representations on their behalf. They have now decided to raise the level of the ex gratia pensions from one-half to two-thirds of the rate payable under the contributory widows' and children's pension scheme, with effect from 1st July, 1977. The Exchequer cost is approximately £460,000 in 1977, rising to £1,100,000 in a full year.
Company taxation
Inflation accounting
As my financial statement last January noted, there has been considerable controversy in recent years as to whether present accounting practices are defective in that they may overstate the real profits of a trading concern in an inflationary environment. A major recent development has been the publication by the accountancy profession of draft discussion proposals in this matter and it is hoped that agreement will result as to what changes in accounting practice may be necessary. Such changes could, of course, have far-reaching implications not only for the business community but also in the taxation field. I would like to reassure all concerned that the Government will consider carefully whatever proposals may be made by the accountancy profession in the matter. Discussions will be held as necessary with the profession and other interested parties in regard to their implications for taxation.
Stock relief
In the 1975 budget I introduced a special ad hoc tax relief for firms in certain sectors in consideration of the impact of inflation on the cost of replacing stocks. The firms benefiting were those engaged wholly or mainly in manufacturing, construction or farming or in the sale of plant, machinery or material to those sectors. The relief was given in 1975 for two years as an outright deduction so as to have immediate effect on the liquidity of the firms concerned. In the 1976 budget I extended the relief for a third year as well as bringing un-incorporated traders within the concession with retrospective effect. Although there is reason to think that the problems of business liquidity have eased somewhat, I have decided that, as inflation has continued at a high though diminishing rate, I should continue the relief for another year.
I also feel that it would not be appropriate that the relief given last year should be recovered over the next year or so except in certain limited circumstances. There is a need to remove, as far as possible, uncertainty as to whether the relief is to be regarded as an outright deduction or a temporary relief to be surrendered at a later stage. However, since the scheme is, of necessity, of a simple nature, it would be open to exploitation in the absence of safeguards. I have, therefore, decided that the relief provided last year and this year will not be recoverable except where, and to the extent that, stock values decrease in an accounting period or when a trade ceases altogether or, at any rate, ceases to be within the charge to Irish tax. These provisions and other more detailed safeguards will be set out in the Finance Bill.
Capital allowances
The existing tax provisions for the giving of accelerated capital allowances outside the designated areas are due to expire on 31st March next. Also due to expire then is the special 20 per cent investment allowance in respect of new plant and machinery for use in the designated areas. If these provisions are not renewed, the allowances for investment in plant and machinery and industrial buildings will revert to levels which, although realistic, might not be regarded as offering a sufficiently attractive inducement for investment in present circumstances. Bearing in mind the absolute necessity for investment at present, the Government have decided to extend for a further period of two years the existing arrangements in respect of capital allowances. As an example of the effect, I might mention that this will enable the entire cost of investment in plant and machinery outside the designated areas to be deducted straight away for tax purposes, while 120 per cent of such cost can be deducted for investment in the designated areas.
Reduction in rates of corporation tax and increase in thresholds
Adequate profit for invested capital is as necessary as a just wage for labour. To meet the employment targets, which must be met if Ireland is to provide enough jobs for her fastgrowing population, investment on a massive scale will be required in the years immediately ahead of us. We must, therefore, make it more attractive than ever to invest in Irish industry.
In furtherance of the objective of increasing incentives for industry, the Government propose to provide the following new corporation tax reliefs which will apply in respect of profits made from 1st January, 1977. The 50 per cent corporation tax rate will fall to 45 per cent and the 40 per cent rate will fall to 35 per cent for all businesses.
The present corporation tax thresholds for small firms of £5,000 and £10,000 will rise to £10,000 and £15,000, respectively. These thresholds will be for the purpose of application of the 35 per cent to 45 per cent range of rates and of the 45 per cent rate, respectively.
Output employment incentive relief for manufacturing companies
The Government feel that, notwithstanding the fact that the various existing reliefs, most of which are related to investment, reduce the overall company tax yield by over one-third, a further special incentive should be provided in present circumstances in order to encourage investment and thereby stimulate employment in manufacturing industry.
A scheme will, therefore, be introduced to provide a special reduced corporation tax rate of 25 per cent for three years on taxable profits made from 1st January, 1977, by manufacturers who can show certain increases in output and employment in that period. This scheme will be especially helpful to manufacturers catering for the home market for whom it should provide an incentive to investment and expansion, and thus to increased employment. The conditions to govern the relief will be discussed with representatives of manufacturing industry and the detailed scheme will be set out in the Finance Bill.
Even apart from the special scheme just mentioned, the package of corporation tax reliefs will, I am sure, be welcome news to business generally because of the reductions proposed in the main rates of the tax. The additional relief for small businesses is designed to encourage them to develop and expand. We are confident that the overall package will give the necessary fillip to getting output and employment rising satisfactorily and will thus help to broaden significantly our industrial and commercial base and increase worthwhile employment opportunities.
Stamp duty on office buildings
Contracts for the construction of office buildings outside certain designated areas, as defined in the Industrial Development Act, 1969, are at present liable to stamp duty. The rate of duty is 10 per cent except in the case of projects in Dublin city and county, including Dún Laoghaire, where the rate is 15 per cent. In order to provide an immediate stimulus to employment and output in the construction industry, the Government have decided, in the case of all chargeable contracts for office-building entered into as from to-day, that stamp duty paid will be refunded in full provided that the office building is completed by 31st December, 1978. Where such an office building is not completed by that date, a refund of duty will be made proportionate to the extent to which work on the contract will have been completed by that date. In the case of contracts that were entered into before to-day, a refund of duty will be made on a similar basis but proportionate to the extent to which work was carried out in the interval between to-day and 31st December, 1978. Provision accordingly will be made in the forthcoming Finance Bill. The cost of this relief is estimated at £200,000 in the current year.
These taxation concessions have been specially designed to induce developers to complete current office-building schemes with the minimum of delay and to bring forward other schemes originally scheduled for later years, thereby providing an immediate and rapid boost to employment and output in the construction industry. The measures will be of considerable assistance to the office-building sector of the construction industry, which sector has been operating recently well below capacity because of the economic recession.
Social welfare
Turning to social welfare, the past four years have seen an unprecedented expansion and development of services, notwithstanding the exceptional economic difficulties of the period. As a consequence, the pre-budget Exchequer provision of £258 million for social welfare in 1977 is nearly three times that spent in 1972-73.
The Government remain firmly resolved that pensioners and other social welfare recipients should not lose the ground which has been gained in the last few years and indeed should receive their share from the general growth of the economy envisaged for 1977, in the form of some further extensions and improvements.
I am happy, therefore, to announce that all weekly rates of social welfare payments and health allowances will be raised from April next by amounts which will ensure that, taking account of the increases last October, all rates will have been increased by 15 per cent since April, 1976—which should more than compensate all beneficiaries for rising prices up to next April. This will mean an increase, over the level reached in October last, of £2.05 a week in the maximum contributory old age pension for a married couple both of whom are of pension age and under 80. Their new rate of pension will be £24.40 a week. In the case of a married man with two children receiving unemployment benefit, the increase will be £3.45 giving a total of £27.65 a week.
Notwithstanding the expected reduction in the pace of inflation in 1977, the Government are anxious that welfare recipients should not be left to absorb price rises over a full-year period following on the April increase in payments. Provision is, therefore, being made for a further 5 per cent increase in rates from October next to provide against such price increases.
Children's allowances will also be increased, from July next by 50 pence per month in respect of all children other than the first child in each family.
On three occasions in the last four years the Government have made a one-year reduction in the qualifying age for old age contributory and non-contributory pensions and, consequently, for the associated benefits of the free travel, electricity allowance and television licence schemes. I am happy to say that a further one-year reduction will be made this year, with effect from October, so that the qualifying age will stand at 66. As a result of this measure, an extra 15,000 persons will benefit from pensions and the associated fringe benefits.
The position of old age pensioners living alone is a matter of special concern. In many such cases there is still an element of hardship which does not exist where a pensioner lives with relatives, notwithstanding the substantial increases granted to pensioners in recent years, the easing of means tests where these apply and special benefits such as the free electricity and television licence schemes, or differential rents. There will, therefore, be a special additional increase of £1 per week from April next for all social welfare pensioners over old age pension age and living alone.
The Government have also found it possible to meet some particular needs of two groups who are specially dependent on the social welfare services. Invalidity pensioners will have the schemes of free travel, electricity allowances and free television licences extended to them, while there will be a substantial increase in the amount of earnings disregarded specially in assessing the means of blind persons for pension purposes.
Unemployment assistance for smallholders
Last year certain restrictions were announced on the unemployment assistance scheme for smallholders. The vast bulk of smallholders in what are known as the specified areas have their means assessed on a notional basis. For this purpose multipliers related to their rateable land valuations are used which are highly concessionary by reference to present levels of farm income. A factual basis of assessment of means applies to all other assistance recipients—including smallholders outside the specified areas. The Government have reviewed the position and consider that, at present levels of farm income, there is no justification for notional assessment in the case of smallholders with land valuation exceeding £20. These smallholders will, of course, continue to be eligible for unemployment assistance on the basis of factual assessment of means. The Government have also decided that, with the improvement in farm income, existing rates of unemployment assistance will remain unchanged for smallholders with land valuation exceeding £10 but not exceeding £20 and whose means are assessed notionally.
The net cost of all the social welfare and health changes I have announced is estimated at £44.5 million in 1977 of which the Exchequer will bear £34.8 million.
As regards the financing of social welfare, it will be recalled that a first step was taken in 1976 in pursuance of the policy adopted by the Government of progressively reducing the Exchequer contribution to the social insurance fund to bring the Exchequer contribution in Ireland into line with EEC levels and in order to free resources for productive investment. The taxpayer's share of these costs remains unduly high but the balance of economic considerations at this juncture— in particular, the need to restrict the growth in labour costs—indicates that in 1977 the increase in the social insurance contribution should be kept to a minimum. Accordingly, the Government have decided to defer further action in 1977 on their policy of reducing the Exchequer contribution. The 1977 social insurance contribution increases will be further reduced because we are removing in April an element which was introduced for one year in 1976 to recoup a shortfall in contribution income. Accordingly, the stamp increase, including an additional 6p for health costs, will be about 69p; 42p from the employer and 27p from the employee—that is much less than in 1976.
Abuses of the social welfare code have attracted a growing volume of comment in recent times and tend to bring the social welfare code into disrepute. The criticism is probably attributable in part to the substantial improvements in the level of payments in recent years.
I wish to assure the public of the Government's anxiety to combat actively and forestall abuse wherever it may arise. It will be recalled that this time last year a limit of 85 per cent of pre-unemployment post-tax income was put on the benefits payable to unemployed persons. Legislation was passed last year also, increasing the statutory penalties for persons who abuse the welfare system. The Government are increasing the staffing strength wherever necessary to combat fraud effectively.
People who abuse the social welfare system, like tax evaders, are simply putting their hands in the pockets of the ordinary taxpayer who has to pay for their dishonesty.
In addition to the sum of £34.8 million, which represents the cost of the improvements I have outlined, I have to provide a further £1.5 million for the cost to the Exchequer as employer of the increase in the social insurance contribution. The additional expenditure involved in the improved employment premium scheme will, of course, be offset by an estimated reduction of £2.9 million in social welfare costs. Thus, the net additional charge which falls on the Exchequer for social welfare is £33.4 million.
Rates relief
The Government have been giving sympathetic consideration to the problem of rates on domestic property. The rates bill is a significant part of the average family budget and indeed there have been demands from some quarters for their complete abolition. Complete abolition would cost over £60 million in 1977. If this burden were to be transferred to excise duties it would, for example, put up the duty content of a gallon of petrol by 10p, a pint of stout by 5p, a glass of spirits by 5p and 20 cigarettes by 5p.
It will be recalled that a White Paper published by our predecessors two months before they left office forecast that rates could not be replaced without increasing income tax by 14p. At that time the total rates bill was only £70 million of which £36 million was on private dwellings. This Government do not accept the idea of imposing new taxes to replace rates. Such a policy is less than honest, socially regressive and economically indefensible.
At the time of entering into office in 1973, this Government committed themselves to transferring housing subsidies and health charges from the rates. This commitment has now been honoured in full without imposing new taxes to replace rates. The relief involved for ratepayers in 1977 amounts to about £90 million in total. If we had not relieved ratepayers of this burden the rates would now be higher by well over £6 in the £ on average. Unfortunately for ratepayers the effect of this relief has been frustrated to a considerable extent because of the enormous increases in services and related expenditures in the areas remaining within the financial responsibility of local authorities. Between 1972-73 and the current year rates-financed expenditure on services not subject to the rates transfer increased by a massive 211 per cent from £39.2 million to £122 million.
The Government consider that the right course is to give whatever measure of extra rates relief that can be accommodated without increasing taxation and within the limits of a tolerable deficit on the current budget and the borrowing requirement in 1977. We have decided, therefore, that, for 1977, the Exchequer will pay 25 per cent of rates on domestic dwellings. For this purpose I am providing £15.5 million in 1977. Domestic rates bills due in respect of the first half of the year will fall to be paid as usual, but the bills for the second moiety will be reduced by half.
Each domestic ratepayer will get the full benefit of the appropriate reduction in the course of the second half of the year. Apart from the immediate and worthwhile relief which the reduction of the rates bill will give to every household, it will have the added benefit of reducing the consumer price index by 0.4 per cent. The detailed implementation of this rates relief will be notified to the local authorities by my good friend, the Minister for Local Government, in due course.
Rates waiver
Notwithstanding the generous help which these and previous years' measures by the Government have meant for ratepayers, there still remain cases of special hardship which merit further relief. Some local authorities have been operating a rates waiver scheme for some years directed to helping non-contributory old age pensioners and other persons of small means. Existing schemes will cost £2 million in 1977. The Government have decided to double this expenditure by providing a further £2 million from the Exchequer for the relief of rates in deserving cases. This extra money will be used to improve and extend the system operated by the local authorities and will also enable those local authorities who do not operate schemes to introduce them now. The flexibility of the existing scheme will be retained and assistance will be available to additional persons on reduced incomes for whom the impact of rates must be a grave source of concern.
Future rates policy
The Government intend that the Exchequer will in future assume still greater liability for the financing of local services, thereby relieving individual ratepayers. Because of this Government's policies, domestic ratepayers will pay only 12 per cent of the cost of local services in 1977 instead of the 28 per cent which they would have had to pay if there had been no rates relief since 1972-73. There is but a small part of the road left now to travel to give full relief on domestic dwellings. The Government are determined to complete their work on rates relief for private dwellings at the earliest possible date without relying on alternative taxes or resorting to fanciful theory to achieve that goal.
Medium-term planning
The Green Paper on Economic and Social Development published last September set out clearly the problems and issues facing this country over the next four years. It proposed a wide range of measures for discussion with the social partners as part of the process for formulating a plan for recovery in the years to 1980.
Many constructive suggestions for action have been submitted and are being examined. The National Economic and Social Council have been asked to advise on a number of the policy proposals which were outlined in the Green Paper, including measures to improve business confidence, to intensify agricultural production and to minimise the tax burden by eliminating circular transfers. I have also asked the council to advise on how best to promote co-operation between the public and private sectors so as to maximise growth, and to consider ways to achieve a proper balance between economic advancement and social progress.
Concurrent with this process of consultation, work is under way on the more technical aspects of the plan and the resolution of issues within the Government's direct and immediate area of concern. The Government hope to receive the contributions of the social partners and other interests at an early date. These will be drawn together with the work proceeding in Departments and the final provisions of the plan settled. It is the Government's intention that after publication the plan should be reviewed annually and extended for a further year in the light of progress achieved.
Effect of the budget on the economy
The main economic purpose of the budget is to maintain and improve the growth to which we returned last year and to create a momentum for faster growth in future years. I have aimed at ensuring that the general advance of the economy will be on a broad front so as to spread the benefits of growth throughout the community.
If the new pay settlement is ratified, the outlook will be encouraging. The competitiveness of our economy will be enhanced, to the benefit, on both home and foreign markets, of our producers and the tax concessions, taken with the other measures I have announced, will provide a boost for consumer demand which in turn will elicit greater domestic growth. In the normal course of events, given the degree of spare capacity still existing in the economy, employment might not respond all that quickly to rising output. It was for that reason that I have provided the special measures I have already described, specifically aimed at encouraging employment creation.
Reduced profits in industry generally in recent years, combined with the recession, have affected investment which is so essential to economic development. In the light of the growth achieved last year and the favourable outlook for this year, the concessions provided to-day for industry should provide a strong stimulus to investment. Moreover, the continuing restraint on public expenditure will ensure that the demands of the public sector will not further encroach on national resources this year.
All the measures I have announced will have the combined effect of raising the growth rate this year to over 4 per cent. This means that, following last year's achievement of a growth rate of 3½ per cent, the economy will be expanding at a pace nearer its potential and in a way that will make the medium-term growth targets set out in the Green Paper on Economic and Social Development easier of achievement.
Deficit
I opened with a deficit of £162.6 million. On the revenue side I am adding a total of £112 million made up of three items, two of which I have already described. The third is the largest item, £60 million, and is an estimate of the additional revenue buoyancy that to-day's package of fiscal measures will generate through its stimulatory effect on the economy.
When speaking earlier of the revenue provision in the White Paper on Receipts and Expenditure, I said that the more modest rates of increase in incomes and inflation in prospect for the coming year are likely to result in a corresponding slower overall rate of growth in tax revenue, as compared with 1976. However, the combined effect of the tax concessions and increased Government spending announced today will, as I have just mentioned, be to raise the growth rate to more than 4 per cent. The increased personal consumer spending and employee remuneration which will ensue, as the budgetary injection circulates throughout the economy, should, in turn, result in this increased yield from both income and expenditure taxes.
When against this total additional revenue of £112 million is offset the cost of the major income tax and other tax reliefs I am providing for today the net addition to the revenue side becomes £56.8 million.
Turning to the expenditure side, there falls to be added a sum of £127 million for the various items of additional outlay I have mentioned in the course of my statement. This year I am allowing £15 million in respect of unspent balances in the hands of Departments at the close of 1976 which, when taken into account, leaves the net additional provision necessary on the expenditure side at £112 million. When this is offset by the £56.8 million extra receipts on the revenue side, the net addition to the opening deficit is £55.2 million and I am left at the end of the day with a prospective deficit of £217.8 million on the 1977 budget, which is about 4 per cent of estimated GNP compared with the 1976 budget deficit which was more than 4.5 per cent of GNP.
This deficit, which is a reduction of one-third on that envisaged when last year's budget was introduced, represents very considerable progress towards fulfilling the Government's declared aim to phase out the current budget deficit as announced in last year's budget statement.
A reduction in our borrowing requirement was specifically included as one of the conditions attaching to the recent EEC loan and the need to reduce our borrowing was repeated in the budgetary guidelines for 1977 adopted by the Council of Ministers. The current budget deficit plus the Exchequer borrowing requirement for capital purposes will result in a total Exchequer borrowing requirement of £573 million in 1977. This figure will represent 11 per cent of GNP. It compares with a figure of £679 million when last year's budget was introduced and £506 million in the outturn, that is, 15.8 per cent and 11.5 per cent, respectively, of GNP. In relation to GNP, therefore, our borrowing requirement will continue to decline during 1977.
The policy adopted in recent budgets of stimulating the economy by deficit budgeting was a success in that the difficulties of the economy would now otherwise be much more serious. But it was success for which a price has to be paid. This policy has had unwanted side effects involving increased public expenditure and has resulted in a diversion of an increasing share of national resources away from the private sector. It has brought with it a dramatic increase in the tax burden and in the State's borrowing requirement. Now that the economy is on the way to being restored to health the need for the continuation of such a policy is clearly reduced.
Conclusion
An appropriate description of to-day's budget is an "incentive budget". Its distinctive character is to be found in the number and nature of the incentives it provides. Incentive is the purpose of the measures to relieve the burden of personal income taxation so often now felt in our society to be a serious discouragement to effort and enterprise. Incentive is the motif of the package of measures proposed for companies, that is, the special scheme of tax relief designed to encourage output and employment, the reductions in the rate of corporation tax, the continuation of stock relief and the raising of the thresholds for the payment of tax by small companies. There are incentives also to provide thousands of extra jobs this year on works financed by the Exchequer and, of course, special incentives to employers to engage school leavers. The incentive theme is also apparent in the Government's determination to ensure that the public sector does not crowd out the demands of the private sector for investment funds for growth.
I believe in creating a climate in our society in which enterprise will be positively encouraged and supported by the State. The work ethos should have the central position among an energetic and resourceful people. To-day's measures represent a very definite move in this direction. A strong subsidiary aim of today's budget is to spread out the benefits of the growing economic prosperity that are accruing to the agricultural sector as a result of the favourable developments in agriculture since our entry to the EEC. In the past, prior to our entry to the European Community, the fruits of economic growth in the rest of the community were redistributed by the State towards the agricultural sector by means of subsidies and subventions which for many years bore heavily on taxpayers. Now the wheel has come full circle and it is only fair that the rest of the community should share in the increasing prosperity of the agricultural sector.
We have encountered and weathered the most serious world-wide recession for half a century. The worst is now behind us. While EEC membership will undoubtedly continue to be of incalculable assistance to us, in the last analysis we cannot expect the Community to carry us and we shall have to rely on ourselves in future for progress and prosperity.
Ireland will be as prosperous as her citizens are prepared to make her. This is why we have put the emphasis in this budget on the promotion of personal initiative.
Arthur Griffith recalled in an essay on the Economic Oppression of Ireland that—
Ancient Ireland traded extensively with the Roman Empire, Gaul, Spain and Greece. In the Middle Ages Ireland carried on extensive commerce with France, Flanders, Italy, Spain, Portugal, Germany, and independent Scotland, Wales and England. The Guild merchants of the great Continental trade centres mostly included Irishmen— Bordeaux, Rouen, Bruges, and other cities contain memorials of the Irish merchants. A Flemish sixteenth-century writer records that in his time the Irish merchants held two fairs yearly in Bruges, where they sold friezes, serges, furs, skins, etc. An Italian poet of the Middle Ages sings the praise of Ireland for the "noble woollen stuffs" she sent to Italy, and Irish robes were used by the Queen of Hungary.
If our forbears, against immeasurably greater odds, could succeed in selling their merchandise and wares to the ends of the then-known world surely we can, indeed must, emulate their example. This budget gives the green light to do so.
TABLE EXPLANATORY OF THE CURRENT BUDGET, 1977
|
REVENUE |
£million |
EXPENDITURE |
||||||
|
1. Tax revenue (excluding 2 below) |
1,452.0 |
1. Debt service and other Central Fund charges |
400.0 |
|||||
|
2. Motor vehicle duties |
42.5 |
2. Payments to Road Fund |
21.2 |
|||||
|
3. Non-tax revenue |
260.0 |
3. Supply services (non-capital) |
1,495.9 |
|||||
|
1,754.5 |
1,917.1 |
|||||||
|
4. Add: |
4. Add: |
|||||||
|
Tax revenue buoyancy arising from Budget |
60.0 |
Social welfare—improvements |
31.9 |
|||||
|
Tax on farm income |
35.0 |
—stamp costs (Exchequer) |
1.5 |
33.4 |
||||
|
Post office charges |
17.0 |
112.0 |
Employment creation |
18.9 |
||||
|
Rates relief |
17.5 |
|||||||
|
Food subsidies |
9.5 |
|||||||
|
Fisheries protection |
1.2 |
|||||||
|
Public service pay |
46.0 |
|||||||
|
Public service widows' pensions |
0.5 |
127.0 |
||||||
|
5. Deduct: |
5. Deduct |
|||||||
|
Personal income tax relief |
50.0 |
Estimated departmental balances |
15.0 |
112.0 |
||||
|
Stock relief |
5.0 |
|||||||
|
Stamp duty relief-office buildings |
0.2 |
55.2 |
56.8 |
|||||
|
1,811.3 |
||||||||
|
6. Deficit |
217.8 |
|||||||
|
2,029.1 |
2,029.1 |
DEPARTMENT OF FINANCE
26 January, 1977.
SUMMARY OF CAPITAL BUDGET (INCLUDING CURRENT BUDGET DEFICIT) 1976 OUTTURN AND 1977 ESTIMATE
|
£ million |
|||
|
Requirements |
1976 |
1977 |
|
|
Budget Estimate |
Outturn |
Estimate |
|
|
1. Public Capital Programme |
596.3 |
544.1 |
663.7 |
|
2. Non-Programme Outlays |
347.3 |
235.0 |
233.3 |
|
of which (a) Exchequer Financed |
|||
|
(i) Current Budget Deficit |
327.0 |
201.4 |
217.8 |
|
(ii) Miscellaneous |
6.9 |
13.9 |
5.3 |
|
(b) Non-Exchequer financed |
13.4 |
19.7 |
10.2 |
|
3. Total Requirements |
943.6 |
779.1 |
897.0 |
|
Resources |
|||
|
4. Non-Exchequer Resources of State Bodies and Local Authorities |
194.6 |
193.4 |
245.7 |
|
of which (a) State Bodies |
189.1 |
183.9 |
234.3 |
|
(b) Local Authorities |
5.5 |
9.5 |
11.4 |
|
5. Exchequer Internal Resources |
58.0 |
71.6 |
67.0 |
|
of which (a) Loan repayments |
21.0 |
23.0 |
27.0 |
|
(b) Sinking Funds |
37.0 |
48.6 |
40.0 |
|
6. European Regional Development Fund |
12.0 |
8.5 |
11.0 |
|
7. Exchequer Borrowing |
679.0 |
505.6 |
573.3 |
|
of which: (a) Net sales of domestic securities: |
|||
|
(i) to the public |
679.0 |
137.8 |
573.3 |
|
(ii) to commercial banks |
45.9 |
||
|
(b) Small savings |
52.7 |
||
|
(c) Intervention Agency refund |
11.3 |
||
|
(d) Foreign borrowing |
323.7 |
||
|
(e) Miscellaneous Borrowing |
1.7 |
||
|
(f) Change in liquidity of Departmental Funds |
—67.5 |
||
|
8. Total Resources |
943.6 |
779.1 |
897.0 |
CURRENT BUDGET TABLES
1977
INDEX
|
TABLE 1. |
Comparison between (i) budget estimates and (ii) actual revenue and expenditure in 1976 |
|
TABLE 2. |
Main heads of current government expenditure |
|
TABLE 3. |
Receipts and issues of Road Fund |
|
TABLE 4. |
Certain receipts and expenditure of the Exchequer and of local authorities |
|
TABLE 5. |
State expenditure in relation to agriculture |
Tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1977”.
Note—The Tables do not take account of 1977 budgetary adjustments.
TABLE 1
COMPARISON BETWEEN (i) BUDGET ESTIMATES AND (ii) ACTUAL REVENUE AND EXPENDITURE IN 1976
|
Estimated |
Actual |
Estimated |
Actual |
||
|
£m. |
£m. |
£m. |
£m. |
||
|
1. Tax revenue (excluding 2 below) |
1,112.50 |
1,227.46 |
1. Central Fund services (excluding 2 below) |
315.00 |
294.83 |
|
2. Motor vehicle duties |
37.50 |
38.17 |
2. Payments to Road Fund |
19.00 |
19.29 |
|
3. Non-tax revenue— |
3. Supply services (non-capital) (b) |
1,348.60 |
1,357.52 |
||
|
Post Office (a) |
99.40 |
90.00 |
|||
|
Miscellaneous |
106.20 |
114.57 |
|||
|
4. Deficit |
327.00 |
201.44 |
|||
|
TOTAL |
1,682.60 |
1,671.64 |
TOTAL |
1,682.60 |
1,671.64 |
(a) Postal and telecommunications' charges were increased with effect from 1 January, 1976.
(b) Includes Exchequer grants to the Road Fund of £5.36 million in both columns.
TABLE 2
MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE
(£000)
|
1971/72 |
1972/73 |
1973/74 |
Apr.-Dec. 1974 |
1975 |
1976 Pro- visional |
1977 Estimate |
|
|
Service of Public Debt |
114,850 |
127,295 |
151,522 |
146,102 |
241,533 |
337,037 |
448,099 |
|
Central Fund Services |
|||||||
|
Interest |
64,641 |
74,172 |
91,398 |
84,295 |
155,601 |
217,161 |
310,750 |
|
Sinking Fund, etc. |
34,892 |
35,117 |
34,456 |
29,382 |
39,002 |
61,108 |
64,500 |
|
Supply Services |
|||||||
|
Interest |
10,830 |
13,062 |
18,953 |
26,516 |
40,526 |
51,173 |
64,078 |
|
Sinking Fund, etc. |
4,487 |
4,944 |
6,715 |
5,909 |
6,404 |
7,595 |
8,771 |
|
Social Services |
211,128 |
247,189 |
336,448 |
311,500 |
598,470 |
726,195 |
797,256 |
|
Social Welfare |
83,938 |
92,382 |
129,964 |
118,400 |
210,156 |
246,111 |
257,758 |
|
Education |
75,155 |
91,385 |
110,123 |
90,663 |
181,006 |
226,370 |
251,098 |
|
Health |
52,035 |
63,422 |
96,361 |
102,437 |
207,308 |
253,714 |
288,400 |
|
Economic Services |
126,871 |
142,082 |
130,178 |
109,504 |
193,098 |
241,373 |
258,861 |
|
Agriculture |
87,415 |
91,157 |
68,070 |
53,336 |
92,842 |
119,541 |
123,637 |
|
Industry |
14,048 |
17,941 |
21,221 |
17,038 |
38,081 |
52,910 |
60,102 |
|
Transport and Power |
21,393 |
28,286 |
35,859 |
35,027 |
54,740 |
59,886 |
64,677 |
|
Forestry and Fisheries |
4,015 |
4,698 |
5,028 |
4,103 |
7,435 |
9,036 |
10,445 |
|
General Services |
85,651 |
108,788 |
129,670 |
121,640 |
218,063 |
263,116 |
289,036 |
|
Post Office |
29,291 |
34,643 |
40,453 |
37,107 |
67,172 |
81,211 |
84,759 |
|
Defence |
22,181 |
29,584 |
32,974 |
31,322 |
58,482 |
72,996 |
85,223 |
|
Justice, including Gardaí |
17,530 |
23,537 |
30,536 |
30,339 |
56,256 |
61,415 |
66,872 |
|
Public service pensions |
16,649 |
21,024 |
25,707 |
22,872 |
36,153 |
47,494 |
52,182 |
|
Payments under arrangements relating to own resources of EEC |
— |
1,172 |
5,972 |
4,216 |
10,777 |
14,598 |
22,200 |
|
Other Expenditure |
32,574 |
36,938 |
46,353 |
51,532 |
73,031 |
89,319 |
101,685 |
|
TOTAL |
571,074 |
663,464 |
800,143 |
744,494 |
1,334,972 |
1,671,638 |
1,917,137 |
|
Public service remuneration included in above figures (a) |
162,700 |
200,154 |
253,129 |
237,450 |
448,885 |
530,428 |
582,313 |
|
1971 |
1972 |
1973 |
1974 |
1975 |
1976 |
||
|
£m. |
£m. |
£m. |
£m. |
£m. |
£m. |
||
|
Gross National Product |
1,910 |
2,273 |
2,724 |
2,928 |
3,561 (b) |
4,410 (b) |
|
|
Current Government Expenditure as % of GNP |
29.9% |
29.2% |
29.4% |
25.4% (c) |
37.5% |
37.9% |
(a)Comprises the pay of civil servants (including industrial employees), national and secondary teachers, the Defence Forces, Gardaí, and the Exchequer contribution to the pay of health board employees and vocational teachers.
(b) Preliminary estimates.
(c) Represents only nine months' expenditure (April-December, 1974) as a % of GNP for the calendar year 1974.
TABLE 3
ROAD FUND
ESTIMATES OF RECEIPTS AND ISSUES
|
RECEIPTS |
ISSUES |
||||
|
1976 |
1977 (Estimated) |
1976 |
1977 (Estimated) |
||
|
£000 |
£000 |
£000 |
£000 |
||
|
1. Opening balance |
— |
— |
1. Road grants (a) |
20,656 |
24,570 |
|
2. Motor taxation, etc. |
19,293 |
21,250 |
2. Administration, etc. |
3,993 |
4,250 |
|
3. Exchequer grant |
5,356 |
7,570 |
|||
|
TOTAL |
24,649 |
28,820 |
TOTAL |
24,649 |
28,820 |
(a) Including payments on foot of previous years' allocations.
TABLE 4
CERTAIN RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES
|
Exchequer |
Local Authorities (a) |
||||
|
Revenue |
Non-capital issues |
Expenditure from revenue (b) |
State grants received |
Rates collected |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
1959-60 |
129,856 |
128,682 |
55,104 |
24,480 |
21,412 |
|
1960-61 |
138,839 |
139,565 |
57,885 |
26,476 |
22,058 |
|
1961-62 |
151,686 |
152,393 |
64,165 |
28,792 |
23,203 |
|
1962-63 |
163,478 |
168,335 |
67,379 |
32,725 |
22,776 |
|
1963-64 |
184,419 |
186,638 |
71,323 |
34,871 |
24,466 |
|
1964-65 |
219,045 |
222,011 |
82,973 |
41,210 |
26,061 |
|
1965-66 |
240,761 |
248,542 |
90,588 |
46,465 |
29,761 |
|
1966-67 |
272,843 |
272,051 |
98,959 |
50,676 |
31,533 |
|
1967-68 |
305,409 |
305,621 |
107,430 |
57,472 |
34,702 |
|
1968-69 |
345,480 |
353,849 |
120,675 |
65,808 |
38,294 |
|
1969-70 |
411,012 |
411,550 |
144,540 |
76,927 |
42,953 |
|
1970-71 |
481,506 |
490,429 |
173,652 |
93,803 |
50,086 |
|
1971-72 |
569,402 |
571,602 |
196,359 |
115,473 |
59,753 |
|
1972-73 |
659,070 |
664,541 |
239,542 |
138,133 |
70,068 |
|
1973-74 |
792,913 |
803,339 |
297,661 |
182,610 |
71,335 |
|
April-Dec.1974 |
651,407 |
743,712 |
294,565(c) |
184,276(c) |
60,720(c) |
|
1975 |
1,091,226 |
1,349,987 |
483,870(c) |
339,085(c) |
84,920(c) |
|
1976 |
1,470,197 |
1,671,638 |
575,351(c) |
405,729(c) |
107,201(c) |
|
1977 |
1,754,500(d) |
1,917,137(d) |
657,525(d) |
461,523(d) |
126,000(d) |
NOTE:—(a)Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.
(b) The revenue of local authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g., rents, fees, etc.
(c) Approximate.
(d) Estimated.
TABLE 5
STATE EXPENDITURE (a) IN RELATION TO AGRICULTURE FROM 1973-74
|
1973-74 |
Apr-Dec 1974 |
1975 |
1976 Provisional |
1977 Estimate |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
1. Payments to reduce production and overhead costs and production incentives (b): |
|||||
|
Lime and fertiliser subsidies |
7,902 |
3,940 |
4,416 |
5,430 |
5,625 |
|
Reduction of land annuities |
1,650 |
976 |
1,922 |
2,023 |
2,341 |
|
Relief of rates on agricultural land |
27,467 |
23,274 |
30,091 |
36,500 |
41,200 |
|
Beef cattle incentive scheme |
9,644 |
9,587 |
5,956 (c) |
2,599 |
1,205 |
|
Sheep grants |
2,567 |
2,429 |
803 (c) |
370 |
150 |
|
Small farm incentive bonus |
940 |
837 |
829 |
600 |
500 |
|
TOTAL |
50,170 |
41,043 |
44,017 |
47,522 |
51,021 |
|
2. Schemes operated under EEC Regulations and Directives (f): |
|||||
|
Farm modernisation |
— |
— |
3,523 |
12,290 |
19,750 |
|
Farmers' retirement |
— |
38 |
1,247 |
1,708 |
1,401 |
|
Aids to farmers in certain less favoured areas |
— |
— |
6,444 |
12,730 |
12,300 |
|
Market intervention (e) |
— |
—5,619 |
3,021 |
7,130 |
3,500 |
|
Dairy herds conversion |
— |
303 |
279 |
—35 (d) |
95 |
|
Socio-economic information and vocational training for farmers |
— |
— |
43 |
142 |
164 |
|
Cattle slaughter premiums |
— |
883 |
2,309 |
38 |
— |
|
Aids for horticultural producers' organisations |
— |
— |
— |
25 |
32 |
|
Grants for individual projects |
— |
— |
— |
8 |
8 |
|
TOTAL |
—4,395 |
16,866 |
34,036 |
37,250 |
|
|
3. Education, research, and advisory services: |
|||||
|
Education |
3,319 |
2,309 |
4,204 |
6,297 |
8,329 |
|
Research |
4,228 |
3,682 |
6,203 |
7,293 |
8,044 |
|
Farm advisory services |
1,859 |
1,536 |
3,000 |
3,945 |
4,087 |
|
Technical services |
920 |
796 |
1,667 |
2,629 |
2,967 |
|
Rural organisations |
60 |
58 |
82 |
113 |
104 |
|
Land and buildings for Department of Agriculture |
696 |
— |
— |
— |
— |
|
TOTAL |
11,082 |
8,381 |
15,156 |
20,277 |
23,531 |
|
4. Disease Eradication: |
|||||
|
Bovine T.B. |
5,500 |
4,862 |
3,663 |
2,280 |
10,100 |
|
Brucellosis |
4,540 |
4,565 |
6,100 |
3,367 |
9,400 |
|
Hardship fund |
— |
— |
— |
1,000 |
— |
|
TOTAL |
10,040 |
9,427 |
9,763 |
6,647 |
19,500 |
|
5. Long-term development aids mainly of a capital nature (b): |
|||||
|
Arterial drainage |
1,623 |
1,455 |
2,606 |
2,771 |
3,664 |
|
Land reclamation |
4,394 |
3,840 |
4,806 |
4,251 |
1,216 |
|
Farm buildings and water supplies |
4,644 |
3,026 |
3,962 |
2,748 |
1,735 |
|
Equipment grants (milk coolers, forage harvesters and poultry) |
358 |
231 |
221 |
119 |
129 |
|
Improvement of cattle, horses and sheep |
679 |
606 |
1,125 |
1,228 |
1,321 |
|
Loans at reduced interest rates for breeding livestock |
93 |
64 |
121 |
86 |
25 |
|
Rural electrification |
1,546 |
834 |
1,741 |
1,886 |
2,340 |
|
Improvement of Land Commission Estates |
831 |
791 |
1,082 |
1,354 |
1,172 |
|
Horticulture |
244 |
231 |
645 |
298 |
20 |
|
Other rural improvement schemes |
1,141 |
833 |
1,105 |
1,088 |
1,083 |
|
TOTAL |
15,553 |
11,911 |
17,414 |
15,829 |
12,705 |
|
6. Market aids: |
|||||
|
Dairy produce |
— |
— |
75 |
25 |
25 |
|
Beef, mutton and lamb |
490 |
375 |
539 |
491 |
547 |
|
Bacon and pork |
— |
100 |
— |
— |
— |
|
Cereals |
4 |
1 |
1 |
— |
— |
|
Potatoes |
— |
— |
— |
18 |
— |
|
TOTAL |
494 |
476 |
615 |
534 |
572 |
|
7. Administration of Acts, regulations and schemes: |
1,633 |
1,415 |
2,847 |
3,319 |
2,393 |
|
GRAND TOTAL |
88,972 |
68,258 |
106,678 |
128,164 |
146,972 |
NOTES:—(a) The figures include both capital and non-capital expenditure and are net of appropriations-in-aid, which include recoupments from EEC for schemes in section 2 above (see note f).
(b) Further aids of this type are given under EEC schemes—see section 2.
(c) The main reason for the reductions is that many applicants have transferred to the Disadvantaged Areas Scheme.
(d) Gross expenditure of £0.18m less receipts of £0.215m received in 1976 in respect of 1975 expenditure.
(e) Expenditure and receipts for intervention expenses are as follows:—
|
Expenditure |
Receipts from EEC |
|
|
£m |
£m |
|
|
1974 (Apr-Dec) |
8.9 |
14.5 |
|
1975 |
28.7 |
25.7 |
|
1976 |
24.6 |
17.5 |
|
1977 |
21.4 |
17.9 |
(f) In addition, agriculture benefits from EEC aid under the Common Agricultural Policy viz.:—
|
1973 |
1974 |
1975 |
1976 provisional |
|
|
£m |
£m |
£m |
£m |
|
|
FEOGA GUARANTEE SECTION |
37.0 |
63.8 |
102.1 |
102.0 |
|
FEOGA GUIDANCE SECTION |
||||
|
—Individual project approvals |
2.8 |
3.9 |
2.4 |
7.8 |
|
—Other receipts |
— |
— |
0.2 |
0.5 |
We now have to listen to the dirge from Fianna Fáil.
I should like to thank the Minister for Finance, and his colleagues, for the very fine tribute they have paid to the Fianna Fáil Party by using a number of the ideas which we have been consistently being putting forward, without acknowledgment of course. For instance, although there were scathing comments by some members of the Government on the recent economic proposals we issued, I note that today's budget attempts to steal some of the ideas for job opportunities in the field of health, teaching and special schemes for school leavers. This is welcome but, unfortunately, as in the case of most things done by the National Coalition, half-hearted and not nearly as effective as it could be. However, it is a move in the right direction and it will not be too long before we get a chance to put it into operation full steam ahead and not in the half-hearted way announced today.
I note also that the food subsidies are being increased, but the House will remember that for a long time the Government said it was not possible to do this. We have been urging them to do so for nine months but they dithered and the country lost a great deal of money, particularly the farming community, and the consumer had to absorb very substantial increases in the cost of living. Eventually, they brought in food subsidies. The Government are bringing them up today to compensate for further changes in the Green Pound and I congratulate them in seeing the light although belatedly and half-heartedly. Perhaps the best example of the approach of the National Coalition is in the proposal we heard today in regard to rates. We all know how the Government waxed so eloquent and indignant at the idea of abolishing rates. There has been somebody travelling the road to Damascus because suddenly we have this lightning conversion and the Government aim to abolish rates eventually.
The Deputy is travelling the road to the everlasting bonfire.
This year it is a poor effort, but it is an effort. However, I should like to draw attention to one important aspect of it. We were asked how we proposed to pay for the abolition of rates in full and we spelt out how we would do so. The Minister for Finance has told us how he proposes to pay for abolishing one quarter of the rates, to borrow the money. He cannot increase taxes for it and he was honest enough to say he was going to borrow the money. I hope that will be noted.
The continuation of the stock relief on capital allowances was to be expected in present economic circumstances. I am not in a position at the moment to calculate but I wonder very much whether the relief on corporation tax will be sufficient to offset the increased cost of social welfare stamps to employers and the increased postal charges. I would think it is extremely doubtful and far from being an incentive to employers and in particular to manufacturers I rather suspect, without being in a position at the moment to work out the exact figures, that a further burden is being laid on those on whom we must depend if we are to get any improvement in our economy and particularly in our massive unemployment figures.
I am glad that the Minister has made a move towards redressing the grievances of the ex gratia public service widows. He has not, of course, gone the whole way as he and a number of his colleagues promised before the last general election. Very belatedly he has gone some of the way, but it is welcome. I note also that the cost of doing so seems to be very much lower than the figures he was quoting when he was consistently refusing to do anything about it here in this House.
In regard to social welfare the Minister says that he is aiming at keeping in line with inflation. This of course is belated because last October he had no hesitation in saying that approximately half the social welfare recipients could not be brought up to keep in line with inflation. He aims at a figure of 15 per cent to keep in line with inflation. That is extremely doubtful as being realistic. The latest figure we have is 20.6 per cent for the 12 months to mid-November. If one takes it on a moving average basis it is 18 per cent. We must consider what happened yesterday with the increase in the price of coal. Deputy Dowling pointed out in this House that it represents for many people, and particularly people on social welfare, an increased cost of £1.20p per week. When one takes account of that one can judge pretty accurately just how inadequate are the Minister's proposals in regard to social welfare.
But perhaps the most disappointing aspect of the budget for individuals and how it affects them is in relation to income tax. It would appear that the position is something like this. Let us take the position of a married man with two children who was in 1972, under Fianna Fáil under the last budget Fianna Fáil brought in, earning £20 a week at that time. If you adjust that for inflation—not for actual increases in wages, which have tended to exceed inflation, but just for inflation—you find that such a man under the Minister's proposals in today's budget is getting a reduction of £45 per annum in income tax. But he would need in addition £145 simply to restore his position in real terms under Fianna Fáil. Similarly, if you take a man who was then earning £50 per week he would need another £250 tax relief on what he is promised today simply to restore his position as it was under Fianna Fáil. Of course, the position is true of any other kind of example you care to take.
I do not want to dwell unduly on that but it is disappointing, particularly so in the light of all the talk there was before the budget about the substantial tax reliefs which would be given. They are anything but substantial and they are no way commensurate with inflation. Indeed they are not tax cuts; they are simply a step on the road to restoring the position in real terms as it was even in this past year. In the example the Minister gave, he said that it would represent a 14 per cent decrease in tax. But, as I said, inflation has been running at over 20 per cent, so even in the past year the Minister is not keeping in line with inflation.
There is a very interesting reference by the Minister to the NESC and the study of elimination of circular transfers. I trust that the Tánaiste and his Parliamentary Secretary and others in the Government who waxed indignant on this subject some time ago noted that reference. They did of course—at least the Tánaiste and his colleagues— approve of the Green Paper when it was prepared. Nevertheless it should be clear, although it was very near the end of the Minister's statement, that he has not retracted one iota from his proposal that there should be an examination of what he calls circular transfers. What he is referring to includes such things as the possibility of abolishing children's allowances and school transport. We heard about it before and we are obviously going to hear more about it because the Minister is repeating his observations in the budget.
One of the problems one is faced with is the extent to which one can rely on the figures produced by this Minister and by this Government. Even allowing for the efforts being made by the Government to bring in an election budget, the past performance of this Government is not very encouraging in trying to assess the accuracy of their projections. In 1975 they under-estimated the current deficit by over 100 per cent and in 1976 they over-estimated the current deficit by 61 per cent. On their track record alone and leaving out other considerations it is very difficult to rely on any of the figures the Minister has given us today.
The Minister for Finance was reported last night to have made a speech which I am sure made most people who heard any report of it stop short. He made a further slight reference in the same vein here today. He is reported to have said that the economic recession is over. How can one have any faith whatever in the Minister for Finance who says that in the face of all the facts? Either he is totally irresponsible for purely electoral purposes or he is totally ignorant of what has happened to our economy in 1976.
Almost to the day one year ago, on the 28th January, 1976, the Minister introduced his last budget and he set out then his aims for economic policy in 1976 and I quote from the report of the debates of this House on that day, column 622. The Minister said:
Economic policy for 1976, if it is to be soundly based, must meet three vital requirements. First, it must reduce our excessive rate of price inflation. Second, it must, within the taxation and borrowing resources available and the limited opportunities for growth, give a high priority to safeguarding employment. It must, finally, limit the growth of public expenditure, the expansion of which has been such a feature of recent years.
At that time inflation was 21 per cent per annum. Today on the latest figures available it is 20.6 per cent. At that time registered unemployment was over 117,000. Today it is over 117,000, and that of course is not counting all the additional school leavers and others unregistered who have since come on. At that time the current deficit was £258.8 million. Now on the year just finished it was £201.4 million, a slight improvement but an improvement in the wrong area of our economy and for the wrong reasons, as I will demonstrate later.
In face of these facts how can anyone say the economic recession is over? There has been some improvement in the growth of the economy, but I would commend to the House a comment made in a report of the NESC a couple of years ago on the subject. They said:
Growth is only superficial about things. In reality it is about people and their welfare.
That is true and we should never overlook the truth of that statement. The fact is that the growth achieved in 1976 was of virtually no benefit to our people. There was an increase in industrial production but that increase was on the low base of 1975, the first year since this country started on industrialisation when there was a fall in industrial production. So it was on that low base that we measure the increase in industrial production. That increase was due mainly to the falling value of the £ and to the fact that some new foreign firms came on stream. But that produced very little increased employment and no reduction in unemployment. Is that evidence —and that is what the Minister was relying on last night—that the recession is over and on a long-term basis, too, he said?
Industrial exports increased for similar reasons but the great dependence that the Minister and his colleagues are placing now is on what happened as a result of the falling value of the £. If anybody has any doubt about this in regard to industrial exports, he can appreciate it if he looks at what happened in 1976 when industrial exports to non-sterling areas increased by 18 per cent but industrial exports to the UK, where the falling £ made no difference, decreased by 6 per cent. Nobody need to have any doubt about what was the real cause of the increased growth in industrial exports.
I note that the Minister for Foreign Affairs recently spoke on this matter and he gave it a new twist when he said that the collapse of sterling in 1976 had been a major destabilising force in a period when in other respects the performance of the Irish economy had been, by any standards, remarkable. Of course, a new kind of situation in which Ministers are relying on the collapse of our currency as the main indicator of any economic improvement is a bad situation. But a situation that is even worse is one in which apparently they do not know or understand what happened to our economy in 1976 and do not understand the serious implications for us, in the longer term, of the fall in value of the £.
Hopefully, the £ has been stabilised. We cannot be sure of that but the indications now are far better than at any time in a number of years that the £ is fairly well stabilised. If it is, what does the Minister say we should rely on next year, or in 1977, to achieve the kind of growth we have to achieve, the kind of industrial exports we have to achieve? If the froth of the collapse of sterling had been taken away in 1976, what would have happened to our economy? Let us face the reality of what is happening and not be painting a picture of something that does not exist and leading our people into a totally false position for the coming year.
No impact whatever has been made on unemployment by any improvement that took place in our economy in the past year, but there has been an effect from the falling value of sterling in relation to prices. We have already suffered substantial price increases as a result of the collapse of sterling and the trouble is we will suffer more in the next few months. Therefore, none of this in the longer term is of any help to us. Indeed, it is a hindrance and we ought to recognise it as such.
The slight improvement in the chaotic condition of the State's finances was achieved at a cost of about 5 percentage points in our inflation in 1976, that is, five percentage points out of 20, and it was also achieved at a cost of making Schedule D income taxpayers pay an extra half year's tax during 1976 as well as by bringing civil servants and others into the PAYE system. Clearly this cannot be repeated and it is no basis for optimism in the long term to rely on the increased tax receipts in 1976.
However, the cause of this chaos in the State's finances is quite clear. It is that in the past few years current State expenditure has been let to rip and we have had huge borrowings, especially foreign borrowings, for non-productive purposes. It is too easy for the Minister for Finance or any of his colleagues to say when we complain: "What would you cut back on?".
I want to draw the Minister's attention to something I stated as reported in the Official Report on 10th May, 1976, at columns 1722 and 1723. I was referring to the fact that we had been consistently urging on the Minister the necessity for curbing Government expenditure, and I went on:
The key is not to allow expenditure to grow at too fast a rate. Every Minister for Finance is tempted to allow expenditure to grow more than he knows it should grow and more than the economy can bear at a particular time. He is tempted because there are some very worth-while things he can do, and he is tempted for purely political advancement. If he lets spending grow without regard to the capacity of the economy to pay, he can have short-term political advantages, but as sure as night follows day he reaches the situation we are in today. It is no answer for a Minister for Finance who has allowed that to happen and who has not exercised the discipline he should on himself and his colleagues in successive budgets to say now: "But what would you cut: what are the consequences of cutting?" His failure began with the first budget he introduced in 1973 and it has continued since.
The trouble is that the position is now so bad in regard to the State's finances that any worth-while cuts would be massively deflationary, and there is every appearance that it is on that course the Coalition have embarked. Having allowed the expenditure to rip instead of controlling it on a regular basis, they are now approaching it on a basis that suggests very substantial cut-backs, which are not the answer when you reach the level we have reached, where any substantial cutbacks will do enormous damage. Apart from what the Minister announced today, the Estimates of Receipts and Expenditure for 1977, published by the Government recently, show an 8 per cent increase in current expenditure against a projected inflation increase of at least 15 per cent and on the capital side a projected increase of only 15 per cent—in other words, no real increase.
One of the major constraints on the Government's room to manoeuvre is the enormous cost of the foreign borrowing in which they have engaged and there is a serious question to be answered about this that has never been answered. I refer the House to Table 6 of the Statistical Appendix of the Central Bank of Ireland's Report of Winter, 1976. We see from that that at the end of 1976 the amount outstanding in external Government debt was £781.6 million at face value, but allowing for exchange rate changes the real amount outstanding was £1,028 million, and over half of that is repayable in less than five years. We find in Table 7 of the same appendix that the external debt of Statesponsored bodies was £229 million at face value at the end of 1976, but the real value of that debt was £323 million, and again more than half of it is repayable in less than five years. The question that has not yet been answered, and should be answered, is why was so much foreign borrowing necessary? As the Minister pointed out today, it is far more expensive than borrowing at home because of the exchange rate problem and because of the fact that the Exchequer gets no tax from it. It is also far more inflationary, and the Government sooner or later will have to explain why they have saddled this country with this enormous debt for which we have nothing to show.
Given the present position in which we find ourselves, the Fianna Fáil priority is to tackle unemployment and inflation and thereby to get well on the way to getting the State's finances into order. There seems to be a fundamental difference between us and the Coalition in this regard. I am glad that there is that fundamental difference and that it is quite clear, because the only progress that has been made by the Coalition in regard to the three major problems facing the economy— unemployment, inflation and the State's finances—illusory progress though it is as I have pointed out, is in regard to the State's finances. There has been no progress in regard to unemployment or inflation. As far as we are concerned, this is the wrong approach. Unemployment is the first priority, and this is no new preoccupation with Fianna Fáil. I refer to this stage of the discussion in the debate of the 28th January last year as reported in volume 287 of the Official Report, column 692 when I said, referring to last year's budget:
The major issue arising in connection with this budget and the Government's performance is the question of unemployment and what is being done about that unemployment.
We know the answer now at the end of the year—nothing.
But the appalling record of the Coalition in regard to unemployment does not relate only to the numbers unemployed. It is worse than that, because if one examines the record one finds a consistent failure to tackle the problem of unemployment. The major weapon of any Government in tackling unemployment is the public capital programme. The Government themselves in a press release with the public capital programme for 1977 say that it is one of the main instruments of Government policy in the areas of economic and social development. Any Government serious about tackling unemployment will utilise the public capital programme to the maximum possible extent. What do we find? The Government brought in a special budget in June, 1975, and with a great flourish the Minister for Finance announced that he was providing £28 million for capital development in order to stimulate employment. Six months later on the out-turn it transpired that £22½ million of that £28 million was not spent. In 1976 we find that over £50 million of the public capital programme was not spent. In 1976 capital spending as a percentage of total Government spending was at its lowest level for the last five years and the public capital programme as published for 1977 is even lower. Ominously enough, one finds proposed in the public capital programme an allocation of £183 million in 1977 for building construction against £181 million in 1976, and this with inflation at 15 per cent. There is an addition announced in the budget today, but even that will not mean any real increase in that area, the key area for any Government who want to tackle unemployment.
I suggest that the record of this Government when examined in this way shows that they do not want to do anything about unemployment. We find that the unemployment premium scheme which they introduced a few years ago was not terribly effective but was about the only thing they were doing. That has been dropped. There is no provision in the Estimates for it, but there is the vague scheme, which the Minister referred to today and carefully did not spell out in any detail, in regard to some kind of employment premium. Since I have stood up the Minister has circulated a document which suggests that it is a substitution for the one the Government have abolished. As far as I recollect on the figures, it is not going to be any real contribution to tackling unemployment and is really a cosmetic exercise of the kind that this Coalition are so fond of indulging in. The real test of their attitude is to look at their performance over the last three years and at the real provisions they have made for the capital programme and tackling unemployment; to look not even at the projections but at what was actually spent. The Minister can give figures as he has done in previous years, and it has turned out afterwards that he did not spend the money on job creation, which is the crucial problem we are facing.
Inflation is the other major problem in the economy. I wonder how many people realise that we are getting close to the situation where prices have nearly doubled under the Coalition in less than four years, something that took about 50 years to happen previously. Of course the Government say that it is due to world conditions and it is the same all round, but that argument is wearing a bit thin. The Government on some occasion should take a look at the Central Bank Report for Winter, 1976, and examine Table 1 on page 32 where there is set out a comparison of inflation in the 12 months ending October, 1976, in respect of the USA, Canada, Japan, Germany, France, UK, Ireland, Italy, Belgium, Netherlands and Denmark. What we find is that in all except three cases inflation was in single figures and of those three cases we are the worst at 20.6 per cent. It is not an accident that that is so. In almost every budget that this Government have introduced over the past few years they have directly and deliberately increased the cost of living by four or five percentage points, a deliberate fuelling of inflation by the Government that I have never been able to understand. We have pointed out time after time what the consequences were, not only directly on inflation but on all costs; on the cost to the Government of pay increases, on the cost to industry trying to sell goods in competition with some of these other countries listed there with such lower rates of inflation. It has not registered, apparently, except once, in June, 1975, when the Government did take measures to reduce the cost of living. They were measures we had urged on them in the previous autumn and they were very effective, but all they achieved was to cancel out what had been done by the Government six months previously and they were too late to affect the level of the national pay agreement that had already been entered into.
Last year, as I indicated, we could have had a deficit less than that which was projected by the Minister in his budget and we could have had a rate of inflation reduced by a quarter if the Government had not imposed the savage taxes they then imposed and which, to comply with the Minister's projected deficit, were not needed. When one thinks about those huge and unnecessary price increases created by the Government it is very difficult not to think also of the 14 points, halting the price rise, stabilising prices. The performance of the Government is very far removed from the promises they put before the people.
The truth is that our economy needs an integrated plan to provide a kind of approach that will get it into some kind of order, just turn it around. Targets must be set and leadership must be given if we are to get out of the economic morass in which we find ourselves. Last year I appealed to the Government, even at that late stage, to do something about it. In the debate on last year's budget on 28th January, as reported in the Official Report, Volume 287, column 703, I spoke about the need for a plan of this kind. After having detailed the Minister's contortions on the subject of a plan, first he did not want it, then he could not have it, then he might have it and various promises as to when he would produce it, I said:
This country needs that plan or that programme. How can you expect to get the various sectors of our society to work together to see where we, as a community, are going and how we are to get there? How can we expect them to do that in the confused situation we are in today, if they have no targets or no programme and are just operating from day to day as the Government have been doing up to now? The economic plan is long overdue. It is not a matter to be left until it goes through one sub-committee and another, the reports are co-ordinated and they finally reach the Minister, and then they are circulated to all Departments, and so on.
The country cannot afford that kind of delay in relation to a medium term economic plan. I urge the Taoiseach and the Minister to put their boot down on the accelerator in regard to that plan and get it out fast. Even if it is defective, let us get something to work to. At the moment the country is going around in circles and in a fog of confusion largely contributed to by the Government. Let us try to get some kind of order into our economic efforts. That is a most important step.
We all know the response of the Government to that was nil until they produced the Green Paper. This was supposed to be a substitute for some kind of plan. It was a poor one but, nevertheless, it was produced. I noticed that belatedly the Government seemed to have accepted the proposition I was putting forward because at page 36 of the Green Paper under the heading: "Outline of proposals to stimulate economic growth" we find the following stated:
1. Measures to create new confidence and to stimulate enterprise and expansion in the private sector.
First, the preparation of a clearly defined plan for economic growth, setting out agreed priorities, and offering a sound basis for investment in the private sector.
Where is that plan? The Minister should have been able to tell us at least at this stage what were the targets and what was the plan that would be used to achieve those targets. Even still, having set this out as one of the major requirements of the economy, we still have not got it. We will never get it because this Coalition cannot agree and they will never produce an economic plan. The need for such a plan is so obvious and so great that although it is not the duty of an Opposition to do so we produced a plan. To this day the Government are running around in circles unable to come up with anything that even remotely resembles a plan. We will, without it, drift further and further, aimlessly from one crisis to another.
We have at least a plan produced by the Opposition. The basic strategy of that plan has not been disagreed with by any reputable economist or economic commentator. That basic strategy involves getting people back to work, reducing inflation as part of that process and thereby reducing the demands on the Exchequer in respect of social welfare and increasing the revenue of the Exchequer as a consequence of both direct and indirect taxes coming from those who get to work and get paid and so starting on the necessary process of getting the finances of the State into order.
There is a fundamental difference of priority between Fianna Fáil and the Coalition in regard to the way our present economic crisis and emergency should be tackled. The Minister gave some details about proposed social welfare increases which I have dealt with. When listening to the Minister, particularly when he is saying things like: "The economic recession is over and things are looking up," it is very difficult——
Grimms' Fairy Tales.
One has to think back, not very far, in fact back to last October. Remember what was happening to the social welfare people at that time. Remember what the Minister for Finance was saying that if any person in receipt of social welfare was to get the increase promised by the Tánaiste and his Parliamentary Secretary, he would have to bring in an ICTU budget and even after his arm had been twisted and approximately half of the social welfare recipients got an increase, merely to keep them in line with the cost of living—there was no increase in their real standard of living—the Parliamentary Secretary, Deputy Cluskey, issued a statement, reported in The Irish Press of Wednesday, 13th October, 1976, in the course of which he said:
There was, however, the question of priorities in the present grave financial and economic difficulties.
Later on in that statement he said:
The Government's decision must be seen against the background of the general economic situation and of severe budgetary constraints.
Did the Minister for Finance and the Tánaiste at that time know that revenue was running at a rate in excess of £100 million over and above that projected? If the Minister for Finance knew that, why were those people deprived even of an increase just to keep in line with the cost of living? Why were those people subjected to a real fall in their standard of living? Those are the people on the lowest level of the income scale in the country. Did the Minister for Finance know it and conceal it from his colleagues to enable him to give greater largesse here today? Did all the members of the Government know it and join in the conspiracy? What reason can be given, with revenue running as it was, with the projected deficit being reduced substantially, as it was, for the refusal, despite pressure from this party, from the Irish Congress of Trade Unions and from some of the bishops, at first, to give any increase to social welfare recipients and, in the end, to about half of them only at a time when revenue was running well over £100 million ahead of that projected? If there was a grave financial and economic situation, as stated by the Parliamentary Secretary on the 13th October last, how is it that approximately four months later the recession is over? What happened in those four months? Did we discover some oil and gas that nobody has told us anything about yet? What happened? Did the Minister get a magic wand?
I performed a few miracles the Deputy did not like.
Something happened. The thought did occur to some cynics that an election had something to do with it. But I can hardly believe that there could be such a gross and blatant transformation brought about simply by the imminence of an election, that even the Minister for Finance would have the brass neck four months later —having told us about such terrible constraints that he would have to bring in an ICTU budget to meet the Government's commitments on social welfare—to tell us the recession is over.
(Dublin Central): The Minister is the only person in the country who believes it.
It is a question the Minister will be asked on a few occasions and I shall be interested to hear his reply as to what brought about this magnificent transformation. What this country needs in 1977 is what it needed in 1976 and what it did not get, that is a real improvement in the employment situation and a real improvement in the inflation situation also.
When we look at the budget presented today can we say that there is any real improvement in prospects? There is tinkering here and there. But, if one regards unemployment as the major crisis facing the country, surely one would say what is needed is an emergency crash programme, not tinkering here and there as we have had today, not a cosmetic exercise or one concerned solely with creating an impression for electoral purposes but rather one that means something in real economic terms, in terms of alleviating human misery, getting people back to work and the country moving again.
What is there in this budget to reduce inflation? In the light of recent budgets of the Coalition I suppose we are to be grateful that they have not imposed the enormous and savage taxes on so many items that they did before, producing a four or five percentage point increase in the cost of living. We are supposed to be grateful for that. Of course there are factors in this budget today that will increase inflation. But what is there in it that will reduce inflation? Very little; there is a little in regard to consumer subsidies, but very little. The real effort needed to tackle the country's economic problems of today has not been made, was not made last year despite all the high-sounding noises in the budget statement then, and it will not be made this year by this Government. But I believe it will be made this year a little later by another Government who know what they are at, know how to get the country moving again and will do so as soon as the people give them an opportunity.
