I move:
That Dáil Éireann takes note of the Financial Statement made by the Minister for Finance on 26th January, 1977.
Financial Statement, 1977: Motion.
I would like at the outset to deal with the Minister's prior announcement regarding the end of the recession. It is not the first time that the Minister for Finance made such an announcement, perhaps on previous occasions not as emphatically as he did on this occasion. However, at suitable intervals during the last three years there have been these announcements from the Minister for Finance and some of his colleagues. I say "suitable intervals", because looking back on the record you will find that somehow or other they correspond with the coming or the eve of a by-election. After the event there was the return to the same old story of gloom. In one situation there was an announcement that the worst was over, that there were good times ahead, but when the Minister went out to meet the workers to urge pay restraint, the situation was completely different.
Let me trace a little of the history of this Government regarding the Minister's outlook on things from an early stage. Very early in the life of this Government the Minister for Finance was flying out to an International Monetary Fund conference in the US. He was interviewed at the airport and I remember him stating, among other things: "We have inherited a serious inflationary problem which we must tackle immediately". In making that statement he was preparing the people for their disappointment or disillusionment in relation to the 14 points which brought the Government into being. Whatever the motivation was, the fact is that he was aware then that there was an inflationary problem and one which, on his own admission, could become serious.
I do not intend to go back over all he did to exacerbate that problem, to escalate the inflation to which he then referred. Suffice it to say that there was scarcely a tax system one could think of that he has not brought into being since: capital gains tax, wealth tax, acquisition tax, increased VAT, farmer tax. Now this poacher turned gamekeeper, in a prior statement to the budget, announces that the recession has passed. It reminds me of the old story of the man in the institution who is knocking his head against the wall and, when he was asked why he was doing it, said it was nice when he stopped it. The Minister has now made an effort to make some amends for his past deeds, and the question the Irish people are asking themselves today is "Is it enough to accomplish what requires to be done, or what is the motivation for his doing it now?" Was it due to the fact that the executive of the Irish Congress of Trade Unions put a paper in front of him saying "That is what you must have in your budget"? Was it due to their putting the gun to his head and saying "We are dictating the terms of this budget not you. You must have this if you want us to co-operate". Or was it motivated by the knowledge that the Fianna Fáil policy document for dealing with the economic crisis was so well received and corresponded with the proposals of the best economists, including the OECD, who condemned the Green Paper and politely made their own suggestions for the Irish economy, which were very much in line with our proposals? Or was it the knowledge that some time between April and September next the people will be asked to give their judgment on the performance of this Government over the four years?
One thing certain is that the complete metamorphosis in thinking was not motivated by a desire to do something worthwhile to cope with the serious situation into which the Government have plunged the country. There were ulterior motives, and I think I am at one with 99 per cent of the people when, instead of calling it an incentive budget, I call it an election budget.
Our proposals for the economy were issued on 7th September and it is worth putting a summary of them on the record. Those proposals are:
The creation of 20,000 jobs, including 5,000 for school leavers and 5,000 in building and construction, immediately by the expenditure of an extra £100 million in 1977.
The creation of another 50,000 jobs over 1978 and 1979 by the implementation of the rest of the proposals.
The making of tax cuts amounting to £100 millions in 1977 in the form of income tax cuts producing an average reduction of 20 per cent in tax paid (£75 millions) and reduction in employer's social welfare contribution to parity with that of employees which will not be affected (£25 millions).
These measures are designed to secure the support of trade unions and employers for the substitution of tax cuts for pay rises.
An intensified campaign to use Irish products in place of imports.
While last year we had an increase in consumer spending it did nothing for the economy or to alleviate the unemployment situation because it was spent in an increasing amount on imported consumer goods. Little serious effort, if any, was made to ensure that marketable Irish goods were purchased during the year.
Our proposals continued:
Provision is made in the programme for the implementation of a number of other important proposals including the abolition of rates on private dwellings in 1978 and the maintenance of the real value of social welfare benefits at least at their present levels.
Under the programme, inflation is projected to be reduced to an annual rate of 7 per cent in 1977 and 5 per cent in 1978 and 1979.
Those are the highlights of our programme to deal with the economic emergency. It was well researched and was not issued on the spur of the moment. It was only issued when it was known to be a realistic document which set attainable targets. For some months the Government were wrestling with the idea of producing a programme. After more than three years they produced an insipid Green Paper on the economy. I will read one paragraph from that which will illustrate that the Government were on the way to conversion. It should be remembered that the Government had an opportunity to study our proposals, the ones on which the budget is based. The Green Paper states:
Other countries are now beginning to pull themselves out of their difficulties, reorganising their economies to take account of the new economic realities, trimming their expectations in the light of the harsher economic climate now prevailing and settling down to the hard task of ensuring their future growth and development. We cannot be left behind in this process.
That is an admission that up to then nothing was done about the position. The quotation continues:
No other country, or group of countries, will solve our economic problems for us. We will certainly benefit, in our international trade, from the growth of prosperity in our trading partners if we do not price ourselves out of those markets by our own excessive inflation rate. But the main effort must come from ourselves; That was the first real admission from the Government that our difficulties were not beyond our control or due to factors outside our jurisdiction, as was so frequently stated. It was the first time the Government accepted a responsibility which they had shirked up to then and the first time there was a ray of hope that some effort was being made.
In my view that document was prompted by the issuing of our economic proposals. The next evidence we got was when the Minister for Finance addressed the Junior Chamber of Commerce in Dublin in December. He bluntly told those present that we were too highly taxed. Up to then he was about the only person in Ireland who had not acknowledged that fact. It was obvious then that the pressures I mentioned were closing in on him and that something would be done. As a result of all that we got a budget based on the demands of the Irish Congress of Trade Unions, based on the reception the Fianna Fáil proposals received, and the prodding of such institutions as the OECD and the Central Bank. The Minister has set out to make an effort to dismantle some of the havoc he has wrought on the economy.
I can recall the Taoiseach being present here last year when I said that the Government would have to undo the shackles they had bound around the productive elements in our economy. The Taoiseach sought to make little of that suggestion, pointing out that of course there were no such things. Now we have an effort in this budget but everybody must ask today if it will really do what we would all dearly like it to do. Will it get the economy going again, reduce the ranks of the unemployed and in general continue on the path of progress, maintaining the standards of our people and raising those of the lower sector of the community? I do not think it will do any such thing.
When the Minister said that the recession has passed and warned that there was to be no more despondent talk he did not give us any real indication as to why he thought that and some people were amused at this sudden outburst. I do not know what indicators he has been reading. There is a publication called Old Moore's Almanac which comes out at this time of year and contains a good many predictions and he may have found something in that. Even those of us who are not economists in the academic sense are capable of knowing where the indications are that would really show definite signs of improvement. We had a 10 per cent increase in industrial output during the year, 10 per cent increase in volume, but when we examine the situation we find that the increased output and the increase in exports which accompanied it did not take one single individual off the unemployed list. We must examine the reasons for this and we must definitely come to the conclusion that it was due to the weakness of sterling in the markets in which we are fortunate to be dealing and that fortuitous incentive enabled our exporters to stay in business. Remember that a huge number of them were barely capable of staying in business during the time and many of them went to the wall. Is that fortuitous incentive available to them in the year ahead? Right now the situation is rapidly changing so if that is the only indicator which the Minister has been reading it is a rather dicey one.
What do manufacturing industry require at present? What do they require most? We are all agreed that exports manufacture is the area in which growth must take place for the future expansion of the economy and right now the main requirement of the manufacturing industry is liquidity, working capital. There is scarcely an industry in Ireland today, with the exception perhaps of those which have been recently set up and are using grants from the IDA, that has not a liquidity problem and I make this statement with all knowledge. It may be empirical but it is factual. If there is to be immediate aid for those people to employ more workers and get back into business and expand they have to get something more than what is attempted in this budget which we are debating today. There is no doubt about that. They got a reduction in corporation tax, 50 to 45 per cent in some cases and 40 to 35 per cent in other cases, and that is the only reason the Minister calls this an incentive budget. There are smaller things which he could easily have done which would have been of greater and more general benefit.
We proposed in that set of proposals issued in September last to ease industry of the added cost of insurance contributions which weighs heavily on them. In the past the Exchequer has been coming to the aid of the insurance fund to the extent of the shortfall at the end of the year and it always worked out at not less than one-third and sometimes went as high as 40 per cent. This was a subsidy to industry and to the workers in that the Exchequer was bearing the greater part of the share of the stamp. The effort then was roughly to have one-third from the workers, one-third from the employer and one-third from the Exchequer. Then the policy was introduced whereby the employer and the worker paid for the entire cost of the social insurance contributions, the employer paying the lion's share. That system of insurance operates in most continental countries, in highly developed countries with full employment. We are not yet ready in this country to put that imposition on manufacturing industry and certainly during a recession is not a time to get that system going. This is one which could be deferred until such time as these people get their heads over water and are in a position to meet this extra imposition. We propose removing that as one definite incentive to industry to enable them to expand, to assist the liquidity problem and to get more workers back on the job. It is a simple thing and something which could be done. It might not be so spectacular to the voters generally but it would be a very definite assistance to production.
What has the Minister done? He has added another 69p to the cost of the social welfare stamp. In itself this may seem a relatively small thing but it is indicative of the Minister's thinking and his lack of serious effort to do something worth while as an incentive to production. That immediately erodes the benefit of the change in corporation tax. If you put on top of that another £15 million which the postal service will take out of the profits of the employers you will find that there is not much incentive in the so-called incentive budget. These are the things which tend to prove a serious lack of effort by the Minister outside the cosmetics which he is applying and with which he is more concerned in this election year. It is a sad and serious commentary that the fate of our economic development should be at the mercy of political cajolery and it is no wonder that the people are becoming cynical with politicians when they see the type of thing which transcends all serious and genuine thinking. They find that the efforts which should go towards making a serious attempt to do the things that should be done at a time like this to provide work for a growing population are relegated to the background and that the dominant factor is preservation of power. Candidly, I do not think that with our enlightened electorate that this is likely to work; I would say it will be counter productive.
Industry looks to the year ahead to find itself facing a serious situation. It may be lucky if the present strengthening of sterling does not continue and the £ again declines. That is a poor look out; it is not the type of thing anybody would expect to rely on for competitiveness in the markets where we have to sell our goods. Not enough is being done to promote the sale of Irish goods and not enough is being done by the Government at Brussels to ensure that the EEC is not made a dumping ground for non-member States. It is sufficient that we have to compete with imports from member States. I believe that in a time such as we have experienced we could easily have got agreement to prohibit many of the imports which have threatened production here. Surely we should not be threatened with back-door imports which are literally putting our people out of business.
To digress for a moment, I know a small factory in my constituency which had to cease producing most of the lines they were doing because these products were on the market from Hong Kong and Taiwan at half the price at which they could be produced here. Nobody seems to take any serious interest in these things but we expect our industrialists to carry on and face every new imposition of tax that the Minister can think of. It is disgraceful; nothing the budget has done shows that the Minister is aware of the difficulties industry is experiencing at present. Definitely much more must be done if industry is to get into an expansionary situation in which we can really take up the slack in employment. There is nothing in the budget that will in any way effect that.
What the budget is supposed to do and what last year's budget was supposed to do was to seriously tackle inflation and produce a remedy for unemployment. This budget is doing neither. The Minister for Finance has frequently made statements about the economy being out of the woods, that the worst has passed, that we have turned the corner but these proved to be something that just suited the occasion. We are well aware that if he were entrusted by the Irish people to continue in office after the next election we would get an autumn budget that would raise blisters on the people because some time the problem will have to be tackled in depth. That is not being done now.
This is certainly an anti-farmer budget. The manner in which the farmers have been dealt with is clumsy and unimaginative and, to say the least, savage, not in the amount now being extracted from them but in the approach and the manner and the scene set for the future. Anybody who was in Government must be well aware of what happens when a new tax is introduced. I remember when we introduced VAT. The Revenue people were telling us that this was the great tax of all time to replace all other taxes and it would only be 5 per cent. I knew damn well where it would end. When the thin end of the wedge was being put in with the farmers tax, all the backbenchers said that it would only be a handful of wealthy farmers who would be affected but I knew perfectly well what was coming. The threshold has already been lowered and that on the eve of an election. I would swear that if there was not an election in the offing the threshold would have been abolished.
The time has come to examine what the farmers should pay and the best manner in which they should contribute equitably to the general taxation pool. The executive council of congress put its proposals before the Minister and said: "That is your budget" but the farmers were not permitted to do that. They were treated in an offhand, take-it-or-leaveit manner without any sop as regards what they pay in rates, to what extent should rates be offset, whether they should be taxed doubly or singly. We just raise the multiplier and lower the threshold and get more money from the farmers.
As one who was brought up on a farm which would not come under any of the thresholds this Government have yet thought of, I would like to say this about agriculture. Agriculture went through a tough time down the years. Fianna Fáil policy always was to retain as many people as possible on the land consistent with a reasonable standard of living. We were not very successful while emigration was rampant and the gap between industrial wages and agricultural incomes was so wide. For many years farmers were working for little or nothing. The gap between their pay and that of the industrial workers was very often responsible for emigration. The boys from the western counties went abroad in their thousands into industrial work. They left the land which they found led to drudgery. Agriculture was subject to variations in the weather, animal diseases and marketing—the victim of supply and demand. When there was a glut prices dropped to non-economic figures and when there was a scarcity prices were reasonable. In spite of these fluctuations many people stayed in agriculture trying to eke out an existence.
When we decided to become a member of the EEC the late Seán Lemass went round the member states and met the heads of the Six. He made no secret of the fact that as agriculture was our basic industry, it was the one in which we would be most interested when we joined the EEC. What retarded progress in agriculture was lack of stability in marketing and lack of knowledge of what the future would hold in relation to prices for agricultural products, whether livestock or produce from tillage. We strove hard to keep these things going because our people in industry had to be fed. Our main export was cattle. At the worst time 40 per cent of our working population were engaged on the land. They made the biggest contribution to our balance of payments and agriculture provided a livelihood for whole families. In those difficult times we had to spend a great deal of money subsidising the sale of agricultural and dairy products, butter, cheese and processing milk for sale. These were the difficult experiences of the agricultural community.
Then we found ourselves accepted as a member of the EEC. We told our people that entry would give the agricultural community new standards of living which they had not experienced before. We told them they would ultimately reach the living standards of industrial workers. Since we joined the Community the farmers had one good year. I doubt if that made up for the ravages of 1974 when they were literally robbed as a result of the fluctuations in marketing. Everybody is now shouting: "Get at them; tax them; they are living in luxury". The agricultural community are not consulted as other sections are.
The case may be made here that it is only farmers in the higher bracket who will suffer but I am particularly concerned about the abolition of the £50 limit in relation to the off-farm employment which will seriously affect the west and north west where we were, hopefully, preserving the fabric of our rural agricultural community which has suffered in this budget the most serious blow ever. If a man's wife is working in the local supermarket or if she is a teacher, or if either or both of the spouses have an off-farm job, they will be taxed on every penny of the valuation of their holding which will be added to their other income to bring them into the income tax bracket. If one read what the Minister had to say in his statement yesterday, one would think he was conferring a benefit on small farmers. It is worth reading that paragraph again:
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.
That is a sad blow to the small farming community who represent the last vestige of a decent social fabric. But it is what we have come to expect from this urban-minded Government and from a Minister who has no concern for the small farmer in the west or elsewhere. It is obvious now that the years in office of the present Government have taken their toll of the small farmer. This budget is another attempt to force people in the west to leave their small holdings but we shall reverse that policy at the earliest opportunity. A principal feature of Fianna Fáil policy has been the regarding of off-the-land employment as being the greatest incentive and assistance possible towards maintaining a family unit on a small uneconomic holding.
Some time ago a couple of professors undertook a survey in the Tubbercurry and Scariff areas and they found that in cases where there was off-the-land employment for small farmers or their families, there was much improvement in the general standard of their holdings. However, it was not necessary for me to read that report in order to be aware of that situation. I was reared in that kind of community. Being able to avail of other employment meant that people in such a community enjoyed relative prosperity to the extent that they were enabled to retain stock until it was ready to be sent to the market and also that they could carry out improvement works on their lands and to their dwellings. The solution to the problems of the small farmer lies in hibeing able to obtain off-farm employment in his local village or town.
The Minister was not satisfied merely to load the threshold and increase the multiplier. From now on depreciation of agricultural machinery or the hiring of it will no longer be deductible for tax purposes. This provision can be regarded as being in the same vein as the provision to tax off-the-land earnings because many farmers who have tractors and other machinery supplement their incomes by working occasionally with this machinery for other farmers. This, too, was an important means of supplementing incomes. Apart from that element of it, the provision can be considered a blow to tillage. I notice that the Minister is smiling. Obviously, he enjoys the prospect of extracting anything he can from the farmers but he should remember that agriculture is not yet out of the wood. They have had one good year but the Government might have waited a while before making these changes. So far as the farmers are concerned the old bogey of supply and demand is the controlling factor in marketing. However much we may wrangle in the EEC to bring about security in that regard, farmers are still in a situation where they cannot be sure from one day to another as to what their incomes will be. In other words, there is a strong element of chance in relation to their activities. They must contend with weather conditions and with the many other variations which affect their industry and, consequently, their incomes. They cannot be compared with industrial workers.
Anybody with any knowledge of farming must be aware of the many imponderables related to that sphere. The farmer's lot has improved considerably as a result of our membership of the EEC but that membership was opposed strongly by the Labour Party. They had little interest in farmers. That lack of interest is evident from the pages of that statement to which this House was subjected yesterday. However, the situation will be righted by us at the earliest opportunity possible.
I come now to social welfare. As I pointed out, the difficulties in disposing of our agricultural produce necessitated the payment of subsidies and those subsidies became a very big factor in our annual budget. They were, in fact, the most staggering figure we had to meet and the fact is that we got very little appreciation for what we did because these became accepted and taken for granted. These millions had to be paid year after year to enable farmers to sell their dairy products and thereby keep them in business. If they did not produce milk, then they did not produce calves and stock numbers would consequently run down. We were building up the cattle population through the medium of such incentives as the calved heifer scheme, which later became the beef incentive scheme, and both these schemes had a tremendous effect in building up herd numbers.
A problem was created because of the huge amounts which had to be paid and, when we entered the EEC, one of the great windfalls resulting from that entry was the relief from these subsidies. We all rushed out to announce what we would do with them and we were unanimous in the use to which they would be put, namely, the bringing up of social welfare recipients to a better standard of payment than they had experienced in the past. Before the election, we spelled out the way in which we would use this money. The then Opposition, now the Coalition Government, entered the bidding, too, and it fell to their lot to use these moneys to improve social welfare payments. That windfall enabled us to make a signficant contribution to social welfare. There is no doubt about that.
We look back now on the four years that have passed. I think Deputy Colley gave figures here yesterday but I did my sums also and, however much one must welcome any increase in social welfare, particularly in the case of old age pensioners and widows, the fact remains that the purchasing power of what a social welfare recipient received prior to 1974 is almost identical to what it is today. The percentage increase is higher in the case of old age pensioners. It is less in the case of unemployment assistance recipients. I took the figure for the latter. Before the bonanza as a result of our EEC entry was passed on a recipient of unemployment benefit in 1973 received £6.45 per week. Under this budget he will receive £12.55. Since 1973 the consumer price index has gone up by 83 per cent. It was 100 in 1973 and it is now 183. That is the figure for mid-November last. If one makes comparisons, one finds that the consumer price index has to rise only another five points to erode completely the increases unemployment benefit recipients have got. These are the facts. The same argument applies in the case of other social welfare payments. As yet, old age pension increases would not be eroded by another five points increase. In their case it would require another nine points rise. If we have increases in the CPI to the same extent as last year, it will be a case of as you were from the point of view of the purchasing power of the money these recipients are getting into their hands.
Social welfare has always been the plaything of politics. I think there are still a number of people genuinely interested in seeing something done for people genuinely in need, particularly the aged, the disabled and the widow. In my time as Minister I initiated a scheme whereby an extra payment was made in the old age pension where the pensioner had a person living with him or her for the purpose of caring for him or her, as the case might be. It was known as the prescribed relatives scheme. The home care scheme was operated by social welfare committees. I thought that was moving in the right direction and I went as far as I could with the money available to me. I saw in this scheme a means of keeping these old people out of homes where it costs from £30 to £50 a week, according to the type of home, and I thought that £3 or £4 extra in the pension in respect of a prescribed relative was a step in the right direction. I did not have the resources to go as far as I and the Government would have liked to go at the time but I certainly set a very good scheme in motion.
In this budget the Minister has ignored that scheme. He has decided to give £1 extra to pensioners living alone. This is the direct opposite of my scheme. I believe the emphasis should be on ensuring that these old people do not live alone. The emphasis should be on encouraging them to live with relatives instead of going into an institution.
Hear, hear.
That particular branch of social welfare is completely ignored in this budget. In fact, the premium put on the lonely aged pensioner is that he needs a £1 and he gets it. It is not the right direction. That is a personal view. The other scheme is the one on which we should concentrate.
Looking at the different aspects of the budget relating to industry, agriculture and social welfare, there is very little of a genuine nature designed to tackle the serious problems which are still to be tackled. The Minister copied the Fianna Fáil scheme almost in its entirely, with this omission. He went only a bit of the way with any of the suggestions made. He provided less for the creation of employment. He provided less for the relief of taxes. He went only a quarter of the way in relieving rates on dwellings, a scheme which he sneered at and said was irresponsible. It is irresponsible when Fianna Fáil propose it and it is quite responsible when the Coalition propose it. It is a faint image of the Fianna Fáil scheme. The budget does nothing worth while to tackle inflation and unemployment.
The present wage agreement has an element of inflation which must further aggravate prices. Inflation will continue. I think the Minister's figure is 14 per cent, if one can place any reliance on his predictions. The figure could be anything because there are so many imponderables left to the mercy of the fates. The only factual thing in the whole set of proposals is that nothing is done in depth to tackle any of the problems in a serious manner, the problems which are crying out to be tackled.
The Minister said he wanted no more despondent talk and that the recession is now over. Moses strikes the rock. The waters of the Red Sea are divided. It is as simple as that. While the Minister was saying that, the price of coal went up by 26 per cent and the price of cement by 22 per cent, and there are a string of new increases to be announced but not a word about them. The Minister has saddled production with problems over the past four years. At least yesterday he stopped doing what he had been doing in the past. He stopped hitting his head against the wall. It is a relief when you stop doing that.
The wealth tax, the capital gains tax, the capital acquisitions tax, the farmers tax, the increase in VAT, all the strangleholds with which he has bound production still remain. Until a genuine effort is made to cut the shackles and let production go ahead unfettered, thereby creating the opportunities for employment which have been lacking, these problems will not be solved. This is an election budget. If I am any judge—the Taoiseach is listening now—the election will not be held before 1st April, and it will definitely be held before 1st September. If we look at the goodies and the baddies we will find the date of the election lies somewhere between those dates.
The Minister did not see fit to increase the prices of the old reliables. Perhaps we have reached the stage of diminishing returns from beer, spirits and tobacco. He made the extra-ordinary statement that this would improve the home market for spirits. Perhaps he expects the electorate to go out on polling day and get drunk and vote again for the Coalition. Those are the only circumstances in which I could see it happening. Many people said today: "Thank God he has stopped. He has scourged us in the past". In the not too distant future somebody else will break the shackles with which he has bound the economy and arrested expansion.
This budget has been designed to do a number of things. The Minister made this clear yesterday. The aim is to provide incentives, to reduce inflation, to increase employment, and to do that by a series of measures involving tax concessions and company taxation incentives, to provide that farm taxation will be fair and equitable, to expand food subsidies, to increase social welfare and to give rates relief. Looked at in the light of economic conditions that is a very comprehensive package. It must be considered in the light of the following facts.
In 1972, the value of the total output of the country was approximately £2,273 million. Public expenditure in the corresponding financial year came to a total of £825 million. This year gross national product—and this after the past four years in which there has been plenty of criticism both of the Minister for Finance and the Government—will probably be more than £5,100 million and public expenditure will be near to £3,000 million. Put more succinctly, these figures mean public expenditure has risen from 36 per cent of gross national product in 1972-73 to a figure which will probably be well in excess of 60 per cent in the current year. These figures should be looked at with care by those who advocate more public expenditure and even more Government involvement in economic and social affairs.
The reasons why public expenditure has grown from the equivalent of just over £1 in every £3 of output to about £2 out of every £3 are simple enough. With falling demand in the developed world, there were no markets for many of the goods and services we produce here. Without markets, of course, there could be no extra employment or a reduction in employment. In those circumstances the Government acted as they did both deliberately and consciously. We took measures to expand the economy and to prevent the recessionary forces from destroying employment and inhibiting and preventing the prospects of growth here. We spent more on industry, agriculture, housing, health, education, welfare, security and other services which the Government had to provide. This spending expanded the scope and improved the quality of these services. We now have here a system of industrial incentives not merely as sophisticated but probably as effective as operates anywhere.
In the four years since 1973 about 60,000 new jobs have been created in industry with the aid of Government grants and other assistance. Our aids to agriculture and to service industry are both relevant and extensive. In housing—and this is very significant in the employment that is provided—we have in the four years beginning in 1973 built or aided in the building of more houses than in the previous seven years. This was all achieved at a time when the continuing strife in Northern Ireland involved a very extensive increase in the numbers and in the cost of the security forces, indeed, to such an extent that the Garda Síochána strength stands at the highest level ever and the Army strength at the highest level in peace time. The Army has been increased by almost 4,000 and now has almost 14,500 in its ranks. Including the recently authorised increase in the Garda strength, it has been raised by about 1,300 and stands at over 9,000.
This of course has been achieved at a very substantial cost. The direct cost of pay and allowances has increased from £35 million in 1972-73 to £92 million this year. This has been necessary to combat those who have been repudiated by the vast majority of the people but who nevertheless continue with their campaign of violence to obtain political ends. The Government will continue to build up the Garda Síochána and the Army to whatever extent is necessary and for so long as it is necessary to deal with this evil, which is doing more damage to the cause in which its perpetrators profess to believe than any other action or conceivable set of actions. I mention these facts because they indicate the extent to which this has involved continuing demands on the Exchequer.
The Opposition have criticised this budget on a number of grounds, mainly because they have been obliged to go through the ritual of objecting to what has been done, and at times saying that what the Government have done is merely a reflection of what they were going to do. Fianna Fáil always promise action when in Opposition but when they are in office they never provide it, and this is more obvious in the case of employment than in any other sphere. I believe the proposals which were announced in yesterday's budget fulfil the undertaking we gave to the social partners when we undertook to provide, in response to a reasonable and moderate national wage agreement, money for employment and to grant tax concessions. In fact, as some commentators have said in the papers this morning, we went further in the budget than we said we would when we met the social partners.
More money is being provided for job creation, for realisable and obtainable objectives through the increase in the capital programme, through the allocation of funds which were referred to by the Minister in the budget yesterday and which are contained in the documents circulated with the budget covering the various schemes. In addition to that, the tax concessions fulfil the undertaking that was given. In both of these areas the proposals were made to the social partners, and the view was also expressed that changes would be made to compensate social welfare recipients.
It is well to get some facts on the record. During the term of office of this Government we have transformed the way in which our society caters for the old, the sick and disabled, the unemployed, widows and other disadvantaged groups. Social welfare spending on income maintenance this year, including that involved in the improvements yesterday, will come to more than £520 million, an increase of almost 250 per cent over that which was spent in 1972-73. Part of this increase involves new benefits but the greatest part of it is attributable to the increased rate of benefit.
Contrary to what has been said here and elsewhere from time to time, these increases exceed substantially the rise in the cost of living. From March, 1973, to November last the cost of living index rose by about 87 per cent, even say 90 per cent so that the critics can have the advantage. For a person on disability or unemployment benefit without a dependant, the rate of benefit payable from 1st April next will represent an increase of 124 per cent as compared with the benefits payable in March, 1973. For a recipient of a retirement or contributory old age pension who has an adult dependant under pension age, the increase will be 120 per cent. For a widow with three children who is in receipt of a contributory pension it will be 151 per cent. For an old age pensioner with a wife under pension age it will be 242 per cent. For a man getting the urban rate of unemployment assistance with a wife and two children it will be 138 per cent. These examples are chosen at random and are not selective. The benefits are not only keeping pace with increases in the cost of living but are well ahead of them and these recipients will be afforded additional increases from October next.
Some criticism was expressed about the special provision of £1 per week extra for an old age pensioner living alone. I do not know whether Deputies opposite are opposed to that. Of course, everybody supports the view that it is much better, from every point of view, even for the safety of the pensioner, that the old, if possible, should live with members of their families, but that is not always possible. They may not have any near relatives alive or for a variety of circumstances the family may not be able to accommodate them. There are a variety of reasons why this may not be practicable and it is precisely to deal with that type of difficult case that this extra money is provided. I do not see what the alternative is. The implication is that if we pay them £1 less there will be some way of compelling somebody to take them. Everybody agrees with the view that were it possible for elderly persons to live with their family it is much more desirable and it is equally desirable that they should not, if possible, be living in an institution. The decision to provide this extra benefit for persons living alone is quite reasonable.
The expenditure I have mentioned has meant a massive growth in public expenditure in times of not only world recession but of domestic recession and this has had its effect not only on the quality of the services which are financed by it but it has shifted very remarkably the balance between the public and the private sector. I do not necessarily believe that there is a conflict between these two sectors; one must complement the other. Certain matters like security and infrastructural development are obviously better left to central authorities. Any Government anxious to encourage growth must provide not only the psychological but also the basis of physical facilities to aid confidence and encourage investment. The danger is, however, that the State may take over too wide a range of activities and in this way stifle initiative without any benefit to the people as a whole. It can take within its ambit or surveillance and control too high a proportion of the total resources not only of money but of skill and enterprise.
This is exemplified by some statistics for the number of persons at work. In total this has remained over the past four years at about one million with some variations from year to year. Within the total, however, there have been quite significant changes. The numbers employed in the public service, including civil servants, teachers, soldiers, gardaí and health authority employees, rose by more than 20,000 between 1972-1973 and last year. These increases were necessary for two main reasons: (1) because of the security situation and (2) because of the extensions of services extra staff were needed to run them. Security could not be maintained without the increased personnel and that applied to the Army and Garda Síochána. As far as the teaching services were concerned the necessary teachers had to be made available. The central administration might well break down without adequate staffing although we believe there is a case for looking closely at certain elements in it.
It is significant that the increase in staffing has been substantial in those Departments where tax collection was involved and in the Departments concerned with distributing public expenditure. The question inevitably arises as to whether there is a proper balance between one and the other, whether it might not be better for everyone concerned if the money was left in the taxpayers' pocket. This aspect of the matter has been referred to in the Green Paper on Economic and Social Development, in the section dealing with circular transfers. The staff we have in the main are doing a good job and, indeed, the numbers are necessary to implement existing policies. I should like to pay tribute to the public service and the way it operates on most occasions and to take this opportunity to reject ill-informed criticisms or generalisations based on the sort of individual lapses that may occur in any large organisation. Whatever the merits of the service the essential point is that we must not push the process of expansion further unless and until the private sector has recovered from the recession which has bitten deeply into confidence and productive capacity. It is to that end that the measures announced by the Minister yesterday were primarily designed. The incentives provided are designed to create as far as the Government can a climate of confidence in the belief that it is possible to develop and expand our economy, to go out after markets and sell our goods and to provide the services necessary.
In this situation it is important that we should look at the amount that will be paid out in wages and salaries this year. It is estimated that it will amount to about £2,500 million. This is a substantial proportion of the cost of everything we produce, consume or distribute in the country. Public service pay and pensions at a figure of more than £800 million will account for about one-third of that total. These figures explain the concern which the Government felt at the recent pay talks and this was made clear to the social partners and in comments made by the Minister for Finance, other Ministers and myself. On these figures even a small percentage change in the national pay bill can affect investment and equipment just as much as a similar movement in the total budget of about £3,000 million which we are dealing with. The budget and pay negotiations are closely connected and between them they are the major determinants of employment and investment here.
Representatives in the recent pay talks—and I think tribute should be paid to them—achieved an important breakthrough in recognising the closeness of the links between these sectors. In circumstances where the Government are faced with the proposal of a pay increase which adds a substantial extra cash margin to the £2,500 million which has to be paid out in wages or salaries without regard to increases in production, they obviously face two major difficulties. First, the public pay bill is inflated by amounts which are significant even in a total budget of £3,000 million. The extra money can only be raised through more taxation or increased charges. Secondly, the increase in the money supply in the economy without reference to increased production means that spending abroad will increase as people buy in other countries the goods or services which are too expensive to produce here and this does not help employment or growth in the economy.
To contemplate in those circumstances tax concessions in addition to excessive increases in remuneration would be a recipe for economic chaos. That is the principal reason we put to the social partners the offer of tax concessions and more money for capital development, dependent of course on a satisfactory outcome to the present pay negotiations. Naturally it is not what any Government would like to do in any year but particularly in a year in which the statutory term of the Dáil is running out. The provisional agreement as it now stands with the tax concessions in the budget will give increases in take-home pay equivalent to quite substantial pay increases on the ordinary way of reckoning without tax concessions, and I may briefly give a few examples. I should like also to refer briefly to some comments that have been made on this aspect of the budget.
A single person now paid £40 a week will get the equivalent of a pay increase of 14.5 per cent without tax concessions. The corresponding figure in the case of a married man with no children earning £60 a week is 13.4 per cent. For a married man earning £80 a week who has a wife and two children the increase is about 12 per cent. These are on any assessment worthwhile increases. Deputy Brennan said that the terms of the proposed draft agreement are in themselves probably above what is justified to keep our competitive position right. On the other hand, the draft agreement as proposed will not seriously impair our competitiveness vis-à-vis Britain or our other trading partners.
Some comment has suggested that the structure of the tax concessions is unduly weighted in favour of those higher up the scale. This is not so. Obviously the tax concessions give more in absolute terms as one goes up the scale, just as pay increases negotiated by trade unions have almost always done. But if one looks at the tax savings as a percentage of the tax payable under the old structure, I think there is a different picture. It is still the case that the percentage is fairly high at the very top of the scale. The figure that has been quoted is above £20,000 a year in the case of a married man with a wife and two children. But leaving these aside, the gains are much greater at the lower end of the scale. Taking a man in the same family circumstances, if he is earning £2,000 a year he will save 37 per cent of his tax bill. At £3,000 a year or £60 a week the saving is 16 per cent. At £4,000 a year it is 13 per cent and so on to the point where at £10,000 it falls below 10 per cent. These are the facts of the matter.
One of the criticisms that has been expressed for many years by industrialists and by those interested in either expanding or developing their concerns here is that the amount taken in taxation inhibits expansion and prevents development. As the Minister rightly remarked yesterday, profit in industry is as vital to the industry or concern as a wage increase to the employee of that concern and the changes we have made have been advocated time and time again by representatives of the social partners just as vigorously as other representatives have argued for either wage adjustments or social welfare increases, I believe that the balance is right. On this aspect of the matter it is appropriate to quote some commentators who are not directly involved. I quote from to-day's leading article in the Irish Independent:
Economically, socially and politically the Minister for Finance seems to have struck a correct balance.
That, I think, indicates the extent to which those who have assessed it——
An ex cathedra statement.
There is another statement in the leading article in The Irish Times on the matter.
The proposals that we have made in this budget are designed, as the Minister said, to provide incentives and we have endeavoured to strike the right balance. The extent to which the public service has grown in recent years has been shown by the figures I have quoted and indeed the pay bill has grown by about 170 per cent between 1972-73 and last year. On this I think it is worth noting that it is not due to disproportionate increases in the rates of pay of public servants, which have more or less kept in line with increases outside the public service. It is due in part to an increase in the numbers in the service, to the transfer from the rates of a large pay element and the practice of counting as public service pay certain fees and welfare contributions which have risen very rapidly since 1972-73.
The rise in the cost of debt service is of course a serious feature of public expenditure in recent years. Without the increased borrowing that was undertaken by the Government the maintenance of employment would not have been possible and, as was said by the Minister in his budget speech yesterday and emphasised in a number of comments made recently by members of the Government, the circumstances and justification for that policy in times of recession no longer exist when conditions have improved. Some of the extra cost has been met by receipts from borrowed money. Many of the loans go directly to finance capital works which are capable of providing an addition to the assets of the country. But, no matter how we look at this, we cannot ignore the rate at which debt service is increasing. This year it will be about £100 million more than last year. Those who advocate increased borrowing must look closely at these figures. It means that a total of almost £450 million, more than 25 per cent of the total yield of all taxes, is preempted for debt service, including a significant proportion for payment outside the country and, as the Minister remarked yesterday, this does not have the advantage of payment internally of a tax rebate. I need not emphasise the dangers of a public expenditure programme in which large elements are determined by factors over which the Government have little or no control. We have increased expenditure substantially in past years to offset the recession, to prevent unemployment and a more serious fall in standards than that which has been experienced. What was justified in a recession cannot be continued when circumstances improve.
One of the main aims of this budget has been—it has been characteristic of the Minister's approach in economic and financial policy over the last four years—to get a more equitable system of taxation. I think it is good when Deputies criticise the capital taxation system which time and again is referred to here. The fact is that this Government repealed the estate duty provision and the amount at present being obtained from all capital taxes introduced is less than half what was being got from the old estate duty provision. The purpose of that change was to provide a more equitable system and end the haphazard system and the serious problems which the old estate duty caused for so many families. There were always cases where, because of circumstances, individuals either had adequate legal advice and could offset the effects, or the circumstances of the death of an individual enabled serious effects to be offset, but this only applied in a very limited number of cases. The old system was unfair and inequitable and caused immense problems for many people. As a result of the decisions which we took a fairer system has been introduced. Part of that has involved bringing into the net a number of persons outside the income tax code and associated with that is the question of taxation of farming income.
It has been our consistent policy to encourage the development of agriculture. We recognise that any system which would impose excessive taxation on farmers would be counterproductive for the economy as a whole. On the other hand, both here and in the capital taxation field we must have a system that is equitable. That must be a paramount consideration.
Since 1970 when it became clear that we were likely to join the European Economic Community, and last year, there was an increase of about 232 per cent in family farm income per head—admittedly from a very low base. This compares with an increase of almost 194 per cent in average earnings in industry in the same period. At the beginning of this period of rapid change family farm income per head was only about 80 per cent of the average industrial earnings. Last year it had risen to about 92 per cent and it will probably be more this year. Against that background the Government recognise the need for a change in the position whereby only a little over 10,000 farmers paid tax on their farming profits whereas about 690,000 employees paid income tax on salary or earnings. Put another way, only about 1 per cent of profits was paid by farmers in income tax while employees paid about 20 per cent of their earnings. This situation attracted criticism especially in the light of the fact that within the last four months the Government secured devaluation of the Irish green £ which will have the effect of adding an estimated £125 million to the returns from sales of farm produce. The bulk of this will accrue to farmers; some, naturally, will be offset by having to pay increased costs of fertilisers, feeding stuffs and other inputs but the amount remaining, even after increased costs are taken into account, is likely to be substantially more than the £35 million which it is expected to get from farm taxation this year.
Of the increase of £125 million it is estimated that about £40 million will accrue from sales on the home market. This would have fallen in full on the consumers but for the Government's food subsidies. We do not always favour food subsidies or subsidies of any kind which very often distort markets and could be a wasteful way of providing assistance but in the exceptional circumstances now obtaining we need these subsidies and the Government recognises the need for the special measures which were introduced in the supplementary budget of 1975 and which have been continued since.
In making the changes which the Minister announced yesterday, taking into account all the points made in the discussions both with the social partners and other organisations which made representations, I think it is correct to say that a fair and equitable balance has been struck between the need to exploit and develop fully the potential of farming and at the same time to avoid killing initiative and incentive and looking after the needs of those affected by price changes. The revised system affords a measure of preferential treatment and the principal incentive which applies also in respect of business is that it is better to encourage human drive and initiative to better one's lot and one's family.
It is well to remember—this was mentioned by Deputy Brennan—that the State for many years has been the essential support of agriculture. It has played an indispensable role in increasing output and income in a variety of ways, through research, educational services, disease eradication, breeding improvements, land restructuring and aid for modern buildings and equipment and a variety of other measures.
There are some misconceptions about the decision yesterday to abolish the £50 threshold as applied to sole traders. That applies to sole traders only and the position of part-time farmers who are employees remains unchanged. If the valuation is between £20 and £75 they will get 50 per cent of the usual personal allowances and if it is below £20 they get full allowances. Abolition of the threshold applies only to those who have a trade or profession.
One of the measures which was introduced in this budget is the rates relief. It is no harm to restate the Fianna Fáil policy on this matter. In December, 1972, they published a White Paper, even though it had a blue cover—
Your Green Paper was white.
The print was green.
In this White Paper a specific reference to the rating system was made. It is well to recall the date—December, 1972. When this White Paper was published no decision had been taken to call an election. This is what the White Paper said on page 10:
The Government have come to the conclusion that only the local rates satisfy the criteria referred to above and that the real issue is not the abolition of the rating system with all the consequences this would involve for local financial independence and indeed for the taxpayer but the reform of the system so as to eliminate its undoubted effects.
That was a clear statement of printed policy.
When the National Coalition announced our proposals for the transfer of rates in respect of housing and health charges from the local authority to the national Exchequer, Fianna Fáil had second thoughts. A few day before polling they announced their proposals to abolish rates. If ever there was a case of an election promise on the eve of an election that was one. The Government gave a specific commitment that rates would continue to remain the main part of revenue in this regard. We have looked at this first in the light of the undertaking given and implemented. As the Minister for Finance remarked yesterday, the local authorities took advantage of that and went to town on expenditure in other areas. The fact is that increases occurred because local authorities, once they got this opportunity to shelve their responsibility as a result of our commitment to take housing and health charges off the rates, increased expenditure in other areas. We announced our proposals and they provide a reasonable approach to rationalise the burden of taxation so far as rates on houses are concerned.
It has been said that we pay our taxes in sorrow and our rates in anger. Under the present system a limited number of ratepayers pay for services enjoyed by the entire population. The system, which has developed over the years, is a convenient administrative method of collecting money, but it lacks equity. In proposing the changes in the system we are keenly aware that a simple proposal to abolish all rates on dwelling houses raises issues of a fundamental character, as the White Paper recognised. It would mean that revenue for local authorities would be provided by the central Exchequer. It would involve all the defects, and more, of the existing health authorities. Deputies opposite know about that because they were responsible for introducing them. There would be representation without the responsibility for raising the money involved. That would change the whole concept of local government and involve substantial increased taxes. This point has never been adverted to by the Opposition. Increases in income tax up by 14p in the £, more taxes on beer, spirits, tobacco, petrol and every item would be necessary to provide money to do this. We looked at this situation and decided that the fairest method of giving relief was to give it to every taxpayer this year. Because of the time factor involved it was decided that the simple way to do it was to give a reduction of 25 per cent——
You are taking credit for a revenue buoyancy of £60 million.
——and it was easier to do it by allowing that to apply to the second moiety.
The remarkable feature of the Opposition's proposals is the fact that on this, as on a number of other matters, they face two ways at the same time. They expressed criticism of the increases in the Post Office charges. Those who loaned money for the development of the telephone service have expressed concern that the service was continuing to run at a loss. We could do what the Opposition did. Before the last election in a number of cases they installed telephones but had no exchanges to run them. This meant that people had telephones in their houses but could not use them.
Since then there has been a massive public expenditure by the Department of Posts and Telegraphs and a much improved telephone service is now under way. This year not merely will the number of subscribers be increased but adequate technical exchange facilities will be made available so that people can use the telephone.
As has been said, the measures put forward in this budget are designed to do what we set out to do. I do not normally quote Press articles but it is significant that the leading article of The Irish Times today said:
Mr. Ryan's Budget will be popular. It will very likely help the Coalition to win a general election sometime this year. But is it the right Budget for our present economic circumstances?
With some qualifications, the answer to that question is a strong affirmative....
... The main point, however, is that on this occasion policy, both directly and indirectly, tends firmly towards a reduction in inflation.
This budget is designed to reduce inflation, provide employment, give tax concessions, look after the needy and introduce a more equitable system of taxation. Recently the Opposition were talking about their different plans. As I said earlier, they are good at promising jobs when they are in Opposition but they do not provide them when they are in Government. At one time they were advocating less borrowing and more expenditure and at another time less taxation and more expenditure. It is not possible to provide more expenditure without getting revenue. We have made that clear.
You just borrow.
The fact is that revenue buoyancy this year will be up. It is well to recall that six months ago, when the Opposition were criticising the Government on the adjournment debate, they went to town one morning because I had failed to quote an ESRI report that forecast a much lower growth rate. At that time I preferred to quote the forecasts of the Central Statistics Office and the Department of Finance. We now see whose forecast was right.
As a result of measures taken the Government have provided a package that will enable this country to avail of the opportunities that exist as a result of membership of the Common Market provided, and this is important, the national wage agreement is accepted. It is not possible to ensure that our competitiveness will remain as it should unless we have a reasonable moderation of incomes.
This budget provides reliefs for individuals from the high rates of taxation which apply here at levels which are comparatively low by European standards. Nobody would benefit from punitive or excessively high taxation over a long period. We recognise that effort must be rewarded. Wealth will not be created unless effort is rewarded adequately. Otherwise initiative dies and with it any hope of worth-while or sustained growth, not only for those on higher tax rates but for everybody.
The budget changes in the corporate taxation system are designed to encourage investment and growth. They are designed to reward enterprise and to help counteract the effects of the recession on some firms. But, more important, the changes are an indication of the willingness on the part of the Government to grant more freedom and flexibility to firms and individuals in disposing of their money. As a result of this budget nobody will be poorer. We should leave aside the shibboleth that one group benefiting will impoverish another. It is always possible to compare groups and sections. This is one of the dangers of pressure groups. One group is watching another but the Government must watch the nation as a whole.
A basic purpose of the budget is to protect the standards of those who depend on the State for their welfare, but the ability to do this depends on the capacity of the economy to fund the necessary expenditure. In turn, this depends on the taxation system which must be designed to distribute burdens equitably and to encourage initiative. Regardless of how necessary is public enterprise in large sections of the economy, progress depends on the initiative and drive of individuals. The budget is designed to create that situation.
It is easy for the Opposition to face both ways. That party have always acted in this way, depending on the audience. We need look no further back than the past week or so when they have been engaged in an effort to resuscitate a politician who is dead and to kill one who is alive. The budget is designed to expand the economy, to provide increased employment, to reduce inflation and to look after the sick, the needy and all who are unable to look after themselves. It is designed to provide a more equitable form of taxation.
And to win the election.
Deputies opposite are very concerned about an election but they can hardly be blamed for this when one recalls their fate in recent by-elections. Nobody knows this better than Deputy Haughey who, having put a lot of effort into the Dublin South-West by-election, got nothing out of it.
The Taoiseach had similar experiences in his time.
For many years, indeed, for most of my life, I have had those experiences. But, then, I did not inherit a large party; rather, I inherited a party that had practically no one in it, but we built it up and that is why we are here.
Deputies
Hear, hear.
We built it up with the votes and the support of the people and not with money from the Tacateers. It is on that record we will go to the country and I believe we will be returned in the knowledge that this Government is the best available.
When is the election?
Listening to the Taoiseach I was reminded of a television programme last night when we saw the Minister for Foreign Affairs on a visit to a public house in his constituency and when we heard him explain to one of his constituents that because of the budget this man would be better off to the tune of £1.54p per week on a salary of approximately £3,000 per year. It was a pity, though, that the gentleman concerned did not think of asking the Minister the extent to which he would benefit because such a question could have elicited the information that the Minister would benefit to the extent of about £21 per week extra.
It is obvious that the Government have decided now to adopt Fianna Fáil's policy in regard to the rates. They have told us that it is their intention to abolish rates ultimately in respect of private dwellings. The Taoiseach referred to statements made by this party in regard to this issue prior to the last general election but he ignored the document issued recently in which we stated that the buoyancy from revenue that would be created in the first year after our return to office by way of increased employment would be more than adequate to offset the cost of removing rates from private dwellings. The net cost of this exercise would be between £56 million and £57 million. The revenue buoyancy provided for in the budget is £60 million. This is in addition to the buoyancy taken into account already in the published estimates.
In his budget statement the Minister said in relation to the relief of rates that there is but a small part of the road to travel now before giving full relief of rates on domestic dwellings. It is heartening to know that the Coalition have come to realise the problem of rates on domestic dwellings and that they realise that this system can be abolished without the necessity of increasing taxes, which is what was suggested by our spokesman subsequent to the publication of the White Paper on the relief of taxes.
The Taoiseach gave some time to the enumeration of increases in social welfare benefits, but there are some figures of which I should like to remind him. These figures were made available in June, 1976, and are as follows: in respect of the old age contributory pension there was an increase in the four years between 1968 and 1972 of 71 per cent. In the four years from 1972 to 1976, during which time the Coalition were in office, the figure was a 99 per cent increase but, allowing for inflation, the net increase for the period 1968 to 1972 was 26 per cent whereas the corresponding figure for the years 1972 to 1976 was 11 per cent.
In relation to the non-contributory old age pension there was an increase between 1968 and 1972 of 58 per cent and of 96 per cent between 1972 and 1976. But, again, taking inflation into consideration, the net increase in this pension under Fianna Fáil was 19 per cent for the period mentioned while the comparable figure during the four years of office of the Coalition was 9 per cent.
There are many other figures I could quote to illustrate my point. For instance, in respect of unemployment benefit the increase between 1968 and 1972 was 71 per cent or 26 per cent net, while during the 1972 to 1976 period there was an increase of 96 per cent or a net increase of 9.9 per cent. Unemployment assistance for the 1968-72 period increased by 71 per cent, which represented a net increase of 26 per cent, while the comparable figures for 1972-76 were 105 per cent and 14 per cent respectively. Again, the widows' contributory pension increased between 1968 and 1972 by 67 per cent.
The widow's pension increased from 1972 to 1976 by 102 per cent, a net increase of 12 per cent, as against the Fianna Fáil net increase of 22 per cent in their four years. The widow's non-contributory pension was increased by Fianna Fáil from 1968 to 1972 by 62 per cent, a net increase of 19 per cent as against the Coalition's increase of 99 per cent which, after inflation, was worth 11 per cent. These are some of the facts. The inflation rate from May, 1968, to 1972 was 36 per cent.
Can the Deputy give any reference for the statistics he is quoting?
Yes. This is a document prepared by the Fianna Fáil research group. I am satisfied the figures are accurate. They have been checked. To give some idea of the way in which people are being misled by the Government, I will give some more examples. These figures are from the Dublin Corporation. They relate to higher education grants. The income set in 1972 was £1,600 minimum. Allowing for inflation, that figure at the end of March, 1976, should have been increased to £2,770, an increase of 57.7 per cent. The figure has not been increased since this Government took office. Where larger families are involved a person in receipt of £3,490 in 1972 would need to be in receipt of an income of £5,666 at the end of March, 1976. The percentage increase required would be 61 per cent and, allowing for inflation in the last year, the figure should be even higher. The Minister took great pleasure in announcing an increase in these grants from £300 to £350. Allowing for the fact that inflation increased 20.6 per cent during the whole of 1976, by the time the academic year commences next autumn, further inflation will have occurred and yet there is an increase of only £50 on £300, or 15 per cent, not at all in line with inflation and of absolutely no value.
Comments have been made on this budget by people who have not yet had time to study it properly. The word "illusory" has been used. People are expected to comment within a few hours of the introduction of the budget, sometimes within minutes of its introduction but it is only after careful study the full impact emerges. Last night when I was preparing my speech I worked out the difference between a single person's allowance and that of a married person with two children. With an income of £5,000 I found the difference between that married man and the single person was £104.40. The tax free allowance of the single person has been increased by £153 and that of the married man by £135.60. Taking into account the additional 45p increase in children's allowances, the married man with two children has an allowance amounting to £212.
For people in the Labour Party this must be a great budget and the Minister for Labour, a single man, will increase his income under this budget by £24 per week as a result of tax reliefs as compared with the derisory 50p given for the second and subsequent children in children's allowances. Anyone with any number of young children knows the increases that have taken place over the last few years in the cost of food, clothing and footwear and the other items of expenditure associated with the rearing of a young family. These alleged increases are valueless and, had Fianna Fáil produced this budget, I imagine the Labour Party would really have gone to town on it. They would have been justified in describing it as a rich man's budget for that is what it is.
The Taoiseach, when referring to the increased allowances, noted with satisfaction that those at the lowest end of the scale would get the biggest increases. A married man with two children earning £1,600 a year gets an increase of 86.1 per cent. How many are actually in receipt of that income? Not very many. I intend to put down a question asking the Minister for Finance the actual cost to the Exchequer of these increases. I am certain the lowest increases will occur in the £1,600 income bracket. It would be interesting to know what the £1,600 a year man will cost the Exchequer as against the £20,000 and £15,000 a year man. I dare say there are more of these than there are of the £1,600 a year man with two children.
What about the man outside the tax net who pays no income tax because of a mortgage on his home and his overdraft interest in the bank by means of which he is trying to keep himself afloat? He gets a welcome rates relief. There is no mistake about that because anything is welcome when one is struggling. But the people outside the tax net are those who have been hardest hit and I do not know how any Labour Deputy will defend this kind of expenditure.
The Minister announced suddenly out of the blue that the recession was over and all was well. To use his own expression, I can only assume he is whistling passing the graveyard. I intend to keep last night's Evening Herald the front page of which shows Richie, Minister for Finance, holding out a carrot and I intend to produce this cartoon at budget time next year. In the last few years in which Fianna Fáil were in Government Members came in here wanting money for various services. They wanted more relief given to flat dwellers, and so on, or they were interested in children's rights and various other items. Since the Coalition took office there have become very familiar faces around this House. I used to wonder: “Where did I see that man before?” Then I realised they used to come on deputations to us. Their silence has been bought by the Coalition.
They will not buy the people of this country who have suffered too much over the past few years to be taken in by what is being termed as an election budget. People who need assistance most are not getting it. Deputy Brennan may well have been right when he said we will have a general election sometime between April and September. The people will have had a chance to examine this budget in which the Labour Party have agreed to the rich man getting something on condition that the farmers are hit. I believe that is the bargain which was struck. In exchange for Fine Gael agreement to tax the farmers more, the Labour Party have agreed to allow the wealthier people to have the biggest increases.
Is the Deputy saying farmers should not be taxed?
I am saying certain farmers should not be taxed, such as development farmers. I will be interested to see what happens. There are many people in this House who can speak up for the farmers. Agriculture is a very important industry, if not our most important industry. There are farmers who are able to pay tax and quite happy to pay it. Many others are trying to keep their little farms going by earning what they can outside and subsidising their farms from other sources.
They will not be taxed.
Other people will be able to make a case for farmers better than I. I am not against taxing farmers per se. The farmers themselves are not against it, if it is done on an equitable basis. I feel a great sympathy for the small farmer who is the backbone of this country and has always been.
The Taoiseach referred to the increase in expenditure by local authorities since they removed the housing and health subsidies from the rates. Deputy Luke Belton is in the House. We went through this in Dublin Corporation and we know the biggest part of any increase in expenditure was caused by inflation, by the increases in wages and the cost of materials, and so on, but wages and salaries in particular. Deputy Belton is also aware that the number of people employed by the corporation on maintenance, and so on, is no more in 1977 than it was in 1973 or 1972.
It is not less either.
It may not be less but it is not more. The Minister implied that the local authorities went on a wild spending spree. Any spending spree they went on was to pay the wages freely negotiated in national wage agreements. The local authorities had no alternative but to pay those wages, and they were quite right in paying them. The extra expenditure referred to by the Minister was caused by Government ineptitude.
That is only some of it.
We know that. Suddenly the recession is over and we are flaithiúlach, we have plenty of money. What about the census? What about the £1½ million which is needed to take a census of the population to enable future planning to be carried out, and the employment the taking of that census would give? There is no mention of that. There is a tendency to under-estimate people's intelligence. That is a bad mistake. The Coalition made it before and they are making it again.
Fianna Fáil found that out to their grief.
No; 16 years is a long time to be in office.
Too long.
When people said to me we were in office too long I said: "You do not know why we have been in so long. Obviously you have forgotten. Do not worry. If we have another Coalition you will know quickly enough, and you will be able to explain to a whole new generation why we will be in for so long again."
Fianna Fáil will be out of office for just as long now.
I will be quite happy to meet the electorate when the election is called. Much as politicians dislike elections, I would be quite happy. I am like the man who has lived a good life and is ready to meet his Maker. I am ready to meet my makers.
The Deputy is not like other men.
My party have no fears of meeting the electorate. The income tax reliefs given are put forward as great incentives. Income tax reliefs have not kept pace with inflation. A number of people who were outside the tax net a number of years ago have found themselves inside it. The Minister did not state how many people will be outside the income tax net. The great socialist Government who increased maximum tax to 77 per cent have now seen fit to reduce it to 60 per cent. The man with a salary of £20,000 a year will get an increase of 15 per cent, so our Taoiseach should be a very happy man. His increase works out at something like £38 a week. I wish him well. When he is enjoying it, perhaps he will think of the £1 a week increase he is giving to some old age pensioners.
The other trick-o'-the-loopery which the Minister is up to obviously is in relation to his attempts, I would say almost, to fiddle the figures on the unemployment register for 1977. He announced that the retirement age will be brought down from 67 years to 66 years. I am quite sure many men who are fit and able will be very worried about the prospect of being put on the shelf and retired at 66 years, in view of the huge drop they will have to take in from what they are earning at present to what they will get as contributory pensioners. The 15,000 people who it is expected will retire as a result of this new measure naturally will not be on the unemployment register, but will make way for younger people, and that is to be welcomed. I feel for many of these people who will not want to retire because of the way inflation has been raging.
We are led to believe inflation will not be as high as it was last year. This is a reasonably fair assumption when one recognises that, by their direct action, the Government increased inflation by 5 per cent in the last budget. They have added to inflation by increasing the price of the social welfare stamp. One of the points in our policy which they did not take up, and which they should have, is to reduce the price of the social welfare stamp rather than to increase it by 69p which I believe is the figure. This will involve huge overheads. This increase of 42p for the employer and 27p for the employee will have a big impact on companies like CIE and the ESB, the Departments of Posts and Telegraphs and Transport and Power and other such agencies will also have to pay that increase, which again will fall on the Exchequer.
I was shocked, as many people were, to hear our own spokesman, Deputy Colley, say last night on television that our National Debt was coming up for repayment at £800 a minute, and at his reference yesterday to the fact that within the next five years huge amounts of borrowing will fall due for repayment and have to be paid back in the currencies of the countries from which we borrowed them. If the pound continues to fall, this will place a huge burden on our people.
This budget is different from the usual kind of budget in that it is only a budget in prospect. It is a budget which, as the Minister for Finance has said, is entirely dependent on the national wage agreement being ratified. If it is not ratified, all these various increases will not be forthcoming. Therefore, this is really putting it up to the Irish Congress of Trade Unions, the federation of industries and so on.
The increase in telephone charges will have a big effect on many companies that depend a great deal on the telephone to conduct their business. The newspapers who had hoped that VAT would be abolished or reduced for them must feel aggrieved that, before they have got used to the fact that they are in possession of greatly increased tax reliefs, they will find suddenly that the cost of running their business, which is done by telephone and telex to a large extent, will increase considerably, another increase they will have to pass on.
If the Minister's attempt to save money on the capital front was deliberate, it was done at the expense of people losing their jobs or not getting jobs they might have got, of increasing employment, thus reducing our deficit and the huge amounts that must be paid out in social welfare, just to keep it for what can be termed an election budget. Again, this is something which will be examined more closely as people have time to look into it.
In relation to youth employment schemes, the Minister states:
Provision will also be made for the employment of young people in desirable community works that would not be undertaken in the normal course.
This, of course, has been going on in 1976 and 50 per cent of this money is recovered from the EEC regional fund. I am glad to see that at least it has been maintained, but the Minister does not say how much is being made available. I would like to have seen this specified, because there are many useful community works that need to be carried out but cannot be done because the voluntary youth organisations do not have the money to build them, and building improvements and reconstruction work will not be carried out in the normal way, because these community works only take place where the trade unions are satisfied that they would not take place in the ordinary way and thereby deprive people of their normal work.
There will obviously be a cutting back in services. The Minister has stated that extra money will be given for the building of schools, hospitals and so forth, but also under this budget there will be a cutting back of existing services. Looking at the figures and taking into account last year's inflation, we realise that there is to be a tightening up. The Minister in his statement even regretted that there were some schemes he could not cut out altogether and although he implied they had served their usefulness he could not cut back on them because they had been started and were going on. He did not refer to any particular service, but I would think he was hitting particularly at the community services given by the various health boards. These are very necessary services. From Dublin Corporation local health boards we have experience of the cutbacks on this front of community care and know that the priorities of the Eastern Health Board have taken a severe pounding because of the non-availability of money. The suffering of the people in this regard, is in my view, due to a cynical attempt by the Minister to have something extra to give out. His forecasting in the budget last year was so disastrous and inaccurate that if it had been a Fianna Fáil Minister he would have been ridiculed beyond belief.
I do not think the Government have done enough in this budget to increase perceptibly the number of people taken into employment. I think they are hoping that the vacuum left in October possibly by the earlier retirements will help to lower those figures, but I do not believe they are taking enough action to stimulate employment or to restore that confidence which the people need and which only a new Government can give them. The people will be looking for leadership from Fianna Fáil. They are so used now to the trick-o'-the-loopery, as Deputy Colley describes the antics of the Minister for Finance, that they will not be taken in by any of these proposals.
I agree with the Minister's statement which was to the effect:
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.
Thank God we can still criticise the Government; thanks to the Minister for Finance, for nothing. We all appreciate and know the value of free speech. That is the only statement in the Minister's speech I can agree with. The Minister referred to the rapid progress made in tackling the problems in 1976 and the improvements made compared with the previous year. We have told the Minister on many occasions that the country went back in 1975. When the Minister talks about improvement on the position in 1975 he is telling us about a recovery to the position we were in prior to that year. As the Minister admitted, this was due to the position of sterling. This is not the way the economy of a country should be run because ultimately as our currency devalues our standard of living will be affected.
I was not so aware of the down-on-the-heel appearance of this country until I attended a planning conference in Nottingham in September. It was my first visit for some time to the UK and I was amazed to see the difference in the way citizens in the UK dress. The obvious shabbiness came through. We have always tended to compare our life-styles with those of the people in the UK but in spite of all their troubles people looked better, food and clothes were cheaper and wages, in most instances, were higher. It was then I realised how far we had slipped back. We still have a record number of people unemployed although the Minister has told us that the position over the last two months has improved. That is not so. It is true to say that, according to the latest figures issued, there was a drop of a couple of hundred in the number of people unemployed compared with the previous month but that figure is still 1,000 more than the number unemployed in January, 1976.
The Minister told us that the external demand prospects were reasonably good though not quite as favourable as in 1976 which was a disastrous year for us in relation to inflation and the way our people were struggling to keep their heads above water. From what the Minister has said in relation to our external demand prospects, I can see real trouble ahead for us this year and this is possibly one of the reasons why this election budget was introduced. The Minister told us last year that the three vital requirements of economic policy were to cut the rate of inflation, safeguard employment and limit the growth of public expenditure. He told us yesterday that we had made progress in fulfilling those requirements. I hope Deputy Halligan will tell us what progress has been made because we still have 1,000 more people unemployed this year than we had last year and the cost of living is higher than it was in 1976.
Last year I pointed out that the Minister had allocated money to bodies that had not spent their allocation for the previous year. The same is the position this year. Those bodies which did not spend the full amount allocated to them got an increase this year but those that spent the allocation got nothing. The Minister told us that £15 million was left over in the Exchequer and was carried forward to this year but he did not tell us which Departments did not spend this money. We all know the amount of time we must devote to meeting people who are seeking employment. Our main problem has always been the provision of houses for people in our constituencies but now we are being asked more often to find jobs for our constituents. Those people genuinely want to work. It is very discouraging for school leavers who obtained good marks in the leaving certificate not to be able to find suitable employment. The parents of such children must feel depressed when they see their children wasting away intellectually. It is unfortunate that the only thing for them is the emigrant ship. Those who obtained good marks in the leaving certificate will find it easier to get good jobs in the UK than at home. The sacrifices made by the parents of such children to give them a good education must also be considered.
Revenue buoyancy is a phrase which when used by the Government makes me suspicious because if it does not work out they will blame outside factors. When they took the health and housing subsidy charges off the rates they had then taken them off business. We established this before. Businesses claimed for rates on their overheads. When we proposed a scheme for the abolition of rates on private dwellings this excluded businesses who could claim for their rates as an overhead. The Government have obviously seen the light in this regard. I do not know to what extent they will introduce changes and I am not advocating that they should. I should imagine that they will be taking something back in this regard.
In the public capital programme the Minister referred to the fact that there was a drop in the number of firms looking for financial assistance. It would be interesting to know how many firms did look for assistance. How many firms went into bankruptcy? How many firms who had entered into negotiations with the IDA cancelled out? I have a question down to the Minister for Finance as to how much the IDA spent on promoting industry in the United States in 1976 and how much damage was done to this promotion by the statements of the Minister for Posts and Telegraphs on his visit there in discouraging American industrialists from coming to this country because of fear of wholesale civil war. One wonders how much money was wasted there which could have been invested here in the building and construction industry. This is what the Fianna Fáil Party asked that the Minister should do. If the £12¼ million increase in the provision for industrial investment is not taken up, will the Minister make that available to be spent on the building of schools, hospitals and office buildings? Perhaps this amount will be held over to next year? It is very important that these facts are spelled out so that people will know if there is a chance that they will get work this year. There is nothing worse than saying that the recession is over and raising false hopes. I should like to know how the Minister answers his constituents when they ask him about job possibilities.
I spoke earlier about the higher education grants. The increase of £50 in the grant for students whose normal family residence is outside a university town will not make up for increased costs. People of the lower income groups may not be able to avail of the opportunity to send their children to university because of the paucity of the higher education grant. It is laughable. For the year up to September the increase in costs may well be 30 per cent. The increase of £20 up to £140 is also useless. The students are actually far worse off.
I was appalled to see that the building societies lent £95 million for the purchase of 12,000 houses. It is frightening to see the cost of houses today and I do not know how young people can manage. The Government have not made things easier. The income limits for loans are still low, too low to be availed of, so therefore the Government are pulling back money there. The grants have not been increased in line with inflation.
The basic essentials of life are food and housing. Basic food items such as cheese and bread cost an enormous amount. The Minister has promised an extra £9 million in subsidies but this is to stop prices from rising still further and will not reduce them. Food prices will continue to rise this year.
I referred to the cost of servicing our debts. This will be a real headache in the years ahead. I have dealt with increased telephone charges and the effect this will have on old people living on their own. Sometimes members of their families pay for the telephones, but many old people will be feeling the pinch on this.
The cost of living increases were initiated and caused by the Coalition by the increases in VAT. Anyone who knows the difference between the cost of a car in Northern Ireland or the United Kingdom and the cost of a similar car here must be aware of how the motorist here has been milked. The Minister obviously realised that he could not touch motoring items again, though he may be keeping them in reserve.
The savage increases in the cost of coal are no help at all to the older people. Nothing has been done by the Department of Social Welfare to replace the turf voucher scheme. People should be able to collect a voucher at a post office which could be exchanged for the type of fuel they prefer.
In relation to bringing farmers into the tax net, the Minister said that delay or default in payment will be subject to the usual interest charges. A farmer may appeal against his assessment and if the inspector is satisfied that he has been overtaxed the excess will promptly be refunded. However, the farmer must be aware that if he loses his appeal he will be expected to pay the interest on the tax he owes. That should be spelled out clearly.
The Deputy has approximately four minutes left.
Thank you. I have really covered most of the items which this budget takes into account.
No matter how small and inadequate they are, we are all glad to see social welfare payments increased. In this regard the Minister states:
The Government have given sympathetic consideration to the position of these widows——
he is referring to public service widows
——in the light of numerous representations on their behalf.
They have now raised the level of ex gratia payments from one-half to two-thirds but, allowing for inflation, they are only giving back to these people what they already had before this inflationary Government took charge.
This is a lengthy budget statement and it requires a good deal of time to study it. Normally, it is two or three weeks before the real impact is understood. That is why there is very often reluctance by some people to jump in at the deep end when they have not had time to study a budget carefully. This is a typical Minister for Finance Deputy Richie Ryan type of budget in so far as it is full of tricks.
The people who will benefit are the wealthy in our society. There is no question about that. I shall be interested to hear Deputy Halligan who, no doubt, will be answering questions on radio and television when he is asked about this, how this fits in with the socialist image of the Labour Party to help the worse off sections, when the people with the £20,000 salaries and more get huge increases while people in the middle income group, from £3,000 to £5,000, have got an average increase of 12 per cent across the board. This is against 15 per cent for people with between £15,000 and £20,000. This sort of thing is not conducive to peace and understanding among the hard-working middle income group who have been paying taxes literally above their means. These are the people who depend on the good-heartedness of the bank manager.
Notwithstanding Deputy Briscoe's brilliant and comprehensive dissection of the budget, I may be forgiven for feeling that the contribution at this stage is something rather like the morning after the night before. It is reminiscent of coming downstairs to the stench of stale tobacco and debris of empty bottles, ashtrays and dirty glasses. Perhaps it is not an inspiring occasion but one for sober analysis. Listening to Deputy Briscoe, I was again struck by the thought that the most important thing to do is to put the budget into its proper context because if that is not done there can be many misinterpretations and many misrepresentations of it.
The budget is not just a house-keeping exercise by the Government although institutionally that is how it is designed. Administratively, that is how we handle it here and that is how it is dealt with in Standing Orders which govern our procedure. But in modern economic terms the budget is first an important instrument of economic policy and then of social policy. In modern times those two aspects completely dominate the third. We handle the budget in a 19th century fashion but it is designed to deal with the 20th century problems. Primarily, it is an instrument of economic and social policy and that is how I wish to judge it. First, I should like to concentrate on the economic aspects so that the budget can be put in proper economic context.
I think it is essential to say that it comes in the last stages of the worst economic depression since the 1930s. It is a depression where we can identify a single and unique cause as being responsible for the situation, an overnight decision by oil producers with catastrophic effects, taken at the end of 1973, effects which are only now being recognised, not just by the rest of the world but, in fact, by themselves. One can take some heart from the restraint with which the OPEC producers did not impose on the rest of the world an increase of more than 10 per cent on oil and, in fact, the major producers, Saudi Arabia, are pursuing a policy of smaller price increases simply because, as they see it, a greater increase would have a traumatic effect on the rest of the world and, therefore, on themselves. It was a depression which nobody could foresee unless somebody was very prescient about Arab politics and most of us were not. It did not happen gradually over a period of time; it came suddenly overnight and not as an instrument of economic policy but primarily as an instrument of international political policy. This fourfold increase in the price of oil came without warning.
The important thing about it is that it plunged all economies simultaneously into the worst depression since the 1930s and from which they have not yet fully recovered—not a single one of them. The presidential address by Professor Nicholas Kaldor which was given last July to the Royal Economic Society and which is reprinted in the current edition of The Economic Journal puts it in proper perspective when I quote him as being a reasonably objective and neutral outside commentator. Commenting on world unemployment and depression he makes the point that for the quarter century prior to the oil crisis the world had experienced, with the exception of the Korean war period, an unprecedented era of growth but the oil crisis plunged the world into a complete reversal, into a depression which really began to bite in 1975 when both world production and world trade fell catastrophically and plunged downward bringing every economy with them.
If we take yesterday's Irish Times as a point of reference—not as a bible—in regard to this we find on page 4 a headline: “Callaghan offers little hope as jobless figures near 1½ million,” a slightly different picture from that painted of the UK by Deputy Briscoe in his recent contribution. The Prime Minister told the House of Commons that he could not promise a substantial fall in unemployment no matter what palliatives were introduced. That is the situation in the UK, our largest trading partner and nearest economic neighbour, now suffering from the worst unemployment figures in January in 30 years. On the same page this question was asked: “What country in Europe has a huge budget deficit, a severly strained social security system, more than a million unemployed, a lack of will to invest in industry ... and has recently put up spirit and tobacco taxes to raise more funds?” Most of us would probably get the wrong answer. The question is part of an article dealing with the fortunes of Chancellor Schmidt and the phenomenon of his falling popularity and the possibility of his replacement as German Chancellor.
This is a reference to the "miracle economy" of Germany, huge budget deficit, severely strained social security system—and they have just had a huge volume of social security increases to keep in line with inflation —more than one million unemployed —which leaves out of account the hundreds of thousands who had to leave that economy and go back to their homes, the so-called guest workers—and a lack of will to invest in industry. This is in Germany—a lack of will to invest in industry. On the opposite page, page 6, there is a headline: "Carter amends his economic programme," nothing that President Carter whose original economic programme was widely criticised for not doing enough to stimulate the American economy has now had to increase tax credits and State investment substantially.
Those three quotations are from a newspaper on the day the budget was introduced, giving us an idea of the situation in the economic world with which we must live and which has such a direct impact and influence on our own economic performance, the economies of the United Kingdom, Germany, the most powerful economy in the EEC, and the United States, the most powerful in the world. I recall a recent statement by the new Secretary of the Treasury who said that unless the American economy improved substantially in this year there could be the possibility of riots in American cities on the question of unemployment, not on the question of race or some other political issue but on the question of employment. This brings to mind a quotation attributed to Chancellor Healey that if he had not taken certain measures in respect of the £ last October, it would have led to rioting in British streets because of the impact it would have had on the United Kingdom inflation.
This is the background against which the budget was introduced yesterday. There are those who ignore it and others who are ignorant of the situation. Fianna Fáil, both yesterday, prior to the introduction of the budget and so far during this debate, have ignored the existence of the world economic crisis except for the odd fleeting reference, and I must be honest about that. For example, in opening the debate for the Opposition on 2nd November last, the Leader of the Opposition, Deputy Lynch, in columns 806-807 of the Official Report had this to say about the world depression:
I will not suggest, nor have I ever suggested, that all our economic ills are of the Coalition's making; and I will not suggest that there has not been an economic recession which has had its effect throughout the world.
Not having suggested that there had not been an economic recession which had its effect throughout the world, he then proceeded, as do all Opposition spokesmen, to ignore completely the very existence of the world depression which he had not suggested had not existed.
Fianna Fáil admit that there is an economic emergency but it is one they regard as being solely of the Government's making, domestic in origin and solely attributable to mismanagement by the Government, a mismanagement which they would not have repeated had they been in office. Deputy Briscoe's contribution was par for the course in regard to that type of attitude.
There is a world economic depression, the most serious since the thirties and one which puts the viability of the modern industrial system in some doubt. It is only now beginning to resolve itself. I must confess that I foresee it continuing during the coming year and into the next. I said in the early part of 1974 that I believed the decision taken by the oil producers was such as would have an effect for at least five years on the world economy.
The most grievous impact of the world depression has of course been seen in the devastating increase in unemployment. I quoted the figures from the United Kingdom and I do not believe that there have been any domestic policy mistakes responsible for the increase in our unemployment which, when we came into office, was standing in the region of 78,000. I do not think anybody can argue that other countries have not suffered as badly as we have. Nobody can argue that there was some specific policy or set of policies which was responsible for our increased unemployment. The true measure of the impact of the world depression on our rate of unemployment is of the order of about 35,000. The crisis was not indigenous in its origins; there was no policy mistake made by this Government which put an extra 35,000 people on the unemployment register; it was the same crisis which has induced unemployment of 1,500,000 people in the United Kingdom, over 1 million in the miracle economy of Germany and has reached crisis proportions in the United States.
The question confronting the Government was how to deal with a situation which could not be avoided, how to handle effects which were inevitable. In that regard the budget was central in framing an answer. At the heart of this Government's policy response was the introduction of heavy budget deficits on current account. One must remember that with the single exception of the last budget introduced by Deputy Colley as Minister for Finance, no Fianna Fáil Government prior to that time had ever introduced a budget with a current deficit. The concepts of deficits were opposed by Fianna Fáil. As late as last year Deputy Colley commenting on the budget introduced by the Minister had this to say on the 28th January, volume 287, column 688 of the Official Report:
...a start must be made now in cutting back the deficit on current account.
In the same column he said:
We have the simplistic view propagated from those benches that the more you spend the greater the growth in the economy and the greater the expansion you get.
That was a view he was not to find so simplistic later in the year and one he was to propagate himself. At column 690 he enjoined the Government "to prune Government expenditure or apply taxation where appropriate to reduce this deficit to manageable proportions." That was his contribution last year on the policy innovation in this debate.
I believe the introduction of current budget deficits was not just essential from the point of view of continuing some sort of stability in the economy but possibly was absolutely essential for the type of society we have at present. Had the Government not reacted as they did, I believe it would have put the democratic system under intolerable strain in our unique circumstances. Therefore I regard it as one of the most important policy decisions by a modern Irish Government. It is a decision which has come into effect since 1973 but was mostly unappreciated because it was not completely understood by the public or by the media. Without it we could not have sustained services at their current levels nor could we have prevented unemployment from rising to completely unmanageable proportions.
Again, I hear in my mind the echo of what Chancellor Healy and the new Secretary for the Treasury had to say about the possible social impact of such situation. In my view the policy of current deficits has been successful in getting us through this crisis. What we need now are policies not just for the management of the crisis as it rages in its worst fury, but policies for growth and development as the crisis begins to abate and as we see world recovery beginning. It is against this perspective that the budget must be judged. The key economic variables we must look at are the current deficit and the public capital programme. Against that perspective, the current deficit of £218 million is of the right order of magnitude.
At one time, I must confess, I feared a more precipitate phasing down of the deficit but I think the pace the Minister introduced yesterday is the correct one, and that 4 per cent of GNP for a current budget is not unduly high. It is lower than the outturn of last year of 4.6 per cent and substantially below that which was estimated at this time last year.
It is surprising that no commentator, so far as I know, has remarked on how reflationary is the deficit. Indeed, there is hardly any reference in the economic sense to this aspect of the budget. I ask the House to imagine what would have been the economic and social effects, what would have been public reaction, if the current deficits had been eliminated completely, eliminated, for example, by cutting services to the extent of £218 million or by increasing taxation to that extent. We recall the public reaction that followed an increase in taxation last year of £107 million. It does not require too much imagination to conjure up a scenario of what public reaction would have been if the £218 million deficit had been eliminated by the process of a combination of increased taxation and the cutting back of services to that extent.
Those who are seriously interested in economic matters should have greater regard in relation to this budget, (a), to the existence of the deficit on current account and, (b), to its size. The deficit is still much higher than that which was sought by the trade union movement as a policy response to the crisis in 1975. By contrast the Fianna Fáil programme—I should hesitate to call it a plan—published last year would have put the deficit up to £400 million at 1976 prices which would have been the equivalent of a figure in the region of £450 million and £470 million this year at 1977 prices. That policy document was irresponsible financially. It was impossible and, in the new situation, it was irrelevant. It indicated fairyland type planning. It underestimated completely the growth in the economy and the buoyancy which was evident at the time of the document's publication. It was a pathetic attempt at what I can only call undergraduate economics but it showed that Fianna Fáil, at a time when the economy was beginning to recover and when it was necessary for it to poise itself for development, had the timing all wrong.
At the beginning of the year when we needed a hefty deficit Deputy Colley was calling on the Government to reduce the deficit but by September or October he was asking them to increase it so as to put it in the region of £450 million for this year compared with the Minister's figure of £218 million. Those interested enough in such matters will contrast what Deputy Colley wanted with what the Minister has produced. The other variable, the public capital programme, which is up by 21 per cent and which brings the total borrowing requirement within the region of 11 per cent of GNP, is also of the right order of magnitude, having regard to the great extent of public borrowing and also to the size of the national debt.
I would say particularly to those in the Labour movement who are interested in job creation that it would be very unwise to ignore this boost to investment, not least the extra £56 million which was added yesterday, or to discard it at this time. We all wish it could have been more. We can all lay on the table various plans and projects that we would wish to see financed by the Government. I have not been particularly silent in the rooms of my party in pushing forward such projects but I must accept the Minister's argument as enunciated yesterday regarding the difficulties of servicing, not least in a situation of high interest rates, but in circumstances in which we are tied to a currency that has suffered from such massive devaluation and which is likely to continue to suffer in that respect in the future.
It was significant that neither in the Minister's statement nor in any subsequent comment in relation to the public capital programme and to public borrowing generally, was there raised the question of the very high level of interest to which we are subjected. I wonder what is the reason for the absence of any such comment. In a situation in which interest rates are in the region of 12 to 15 per cent, one must be very circumspect in regard to increasing borrowing but why should the rate of interest, particularly for borrowings in respect of Government programmes, be of that order? It is indefensible that the banks should charge the Government just less than the market rate for capital which the Government require for social and economic purposes. There should be a two-tier system of interest with the banks giving a substantial differential in respect of Government borrowings. I would suggest that the banks make no profit on advances for capital projects. In certain circumstances they should be prepared to accept a loss as part of their social obligation to society. After all, credit and capital are a social creation. The banks' obligations are not discharged by what I regard primarily as a public relations exercise of advancing another £20 million this year for housing. In the absence of a situation where there would be a two-tier interest system, the public capital programme is about right. In considering yesterday's budget, we must contrast this increase in the public capital programme with the Fianna Fáil proposal to hold that programme, to leave it static after an initial investment for job creation. Their idea was to hold in constant and real terms the public capital programme for this year and up to 1980 at £476 million at 1976 prices and at the same time to effect increases in employment of an order which has never been experienced by this country. This was merely another excursion into the world of Alice in Wonderland economics.
In respect of economic policy the most important aspect of this budget is, as one commentator put it, to look at the overall level of expenditure and its structure as well as to consider the size of the deficit. On that basis the budget can be judged as being positively expansionary and much more expansionary than some other commentators have been prepared to admit, having regard to the size of the current deficit, to the increase in public expenditure, to the increase in the public capital programme, to the tax cuts and to the cuts in rates on domestic dwellings as well as to the increase in food subsidies.
When considering a budget I have regard, first, to how the four main variables are balanced. These are current deficit, the public capital programme, the level of current services and changes in taxation. On the basis of this test I believe the Government to have got it right because a deficit of about £218 million is of the right order. The public capital programme is expansionary. Current services are maintained and in some cases they are expanded, for example, in relation to the health services. There are no increases in indirect taxes but, on the other hand, there are cuts in indirect taxation except in relation to farmers and there are the anti-inflationary measures of increases in food subsidies.
If one takes the tax concessions, it can be said with justification that they are staggeringly large when compared with any previous budget. Seventy-two million pounds in a full year is an enormous concession when viewed against past precedents and, may I also say, current expectations. It is a false representation to say that the concessions are weighted in favour of the better off. That is not true either absolutely or in percentage terms in respect of the distribution of that £72 million. The largest cut in percentages, according to the Minister's memorandum circulated yesterday, was that for a married couple on £1,100 per annum, £20 a week, not an enormous amount of money on which to live. That showed a 100 per cent relief.
We should have regard to the distribution of tax reliefs by income group because I believe the greatest proportion who will benefit are those under £5,000 per annum. I have the latest report of the Revenue Commissioners, the 52nd annual report for the nine month period ending 31st December, 1974. I am assured by the Library this is the latest report available. Unfortunately it does not give a breakdown of the numbers paying income tax at various income levels so that one could see the statistical distribution and from that divine with any accuracy just what percentage of the reliefs was given to those under £5,000 a year. I know Deputy Briscoe intends to table some questions to elicit that information from the Minister but, in the absence of it, I am quite prepared to stick my neck out and say that the substantial proportion of the tax concessions given yesterday goes to those in the region of £2,500 to £5,000 per annum, in other words, the huge bulk of taxpayers.
The tax concessions are proportionate. They are right across the board. It is quite inevitable then that those paying most will get back most. Someone with £10,000 and two children will get back £368.40, 9.71 per cent relief, whereas someone on £5,000 will get back £118.10, which is 12.24 per cent, a higher percentage relief but lower in absolute terms. It is only when one gets above the level of £10,000 per annum that reliefs become really large but, as we all well know, only a tiny number are involved at this level. That is the price we have to pay for growth and I, for one, am prepared to pay. I make no apology for that to anyone. I speak as a socialist. If we are operating a private enterprise system requiring incentives and we and the trade unions want jobs, then we must pay the price. If we had a different system, a socialist system, I would be only too glad, but we do not have it. We have a private enterprise system. That is the way it works and I only hope it will work in this case.
In passing, there is one statistic that should be written into the record and I hope the Minister will write it in again when he comes to reply. If my memory serves me correctly, when Fianna Fáil came into office one worker in four was not paying income tax. When they left office 16 years later three workers in four were. Now the current capital programme increase and the income tax concessions must be seen in the context of the tripartite talks and the employer-labour negotiations. The capital programme increases and tax concessions make up a most attractive combination and I trust that that combination will continue. Account should also be taken of the fact that the Government have widened the tax net and increased food subsidies by £9.5 million bringing the total to £48 million and keeping down the consumer price index by an estimated 2½ per cent. I want to say to our trade union colleagues that this comes at a time when a Labour Government in the United Kingdom are phasing out food subsidies. We are increasing them. That is a very important point that should be kept in mind by our trade union colleagues.
The tax net has been widened by bringing in 6,500 farmers whose PLV is between £75 and £100. That means that only 15,500 farmers are now liable for tax out of a total of 170,000. One-tenth of farmers are being taxed but what we really mean is that one farmer in ten is now liable for tax; nine out of ten are not liable at all. Eighty per cent of farmers are below £50 PLV. The tax net, even if it is widened further by subsequent Governments, is not likely to get much larger than one farmer in five. That is the extent of the tax net. The actuality is that one farmer in ten is now liable for tax. That shows the spuriousness of some of the reaction yesterday and today on this.
A problem of public finance has always been the tiny size of the tax base, a situation which is now being remedied by bringing in farmers and thereby enlarging the tax base. It was unconscionable that rich farmers with 1,000 acres of land could drive a coach and four through the taxation laws and pay no tax while the old age pensioner with a second pension had to pay tax on his combined pensions. I have no quarrel with the IFA but I think their case is discredited by the company they have been keeping in recent days and looking at the actual number of farmers affected by yesterday's budget. What we need is the greatest amount possible of national consensus on economic policy, not confrontation. I have no quarrel with the farmers and I regret greatly that the IFA should now be keeping company with the CIF and the chambers of commerce, joining with them in the publication of a policy document which could have been drawn up by Keith Joseph or Enoch Powell.
It is to the credit of Fianna Fáil that they have not sided with this most regrettable document and it says much for the consensus within this house that that temptation was resisted. The CIF stand somewhere to the right of a combination of Enoch Powell and Keith Joseph. In this year agriculture will get £123 million in current expenditure compared with £60 million for industry. Yet, here is a document which calls for a cutback in public expenditure. The farming community will get £41 million in rates relief. As far as I am aware, 50 per cent of farmers pay no rates at all or they pick up only one-third of the actual rate bill. Apparently some —not all, I know—have become disciples of a rugged individualism. This is a dangerous gospel especially if it is argued that drops in productivity will have to be met by drops in employment.
Agricultural output fell last year by 8 per cent. I am not asking for cutbacks in agricultural incomes of that order, or for people to be made unemployed. If one is a rugged individualist, why look for incentives? Why look for the sort of incentives which involve Government expenditure on fertiliser subsidies, on agricultural services? Why do these rugged individualists not get on and do the job such as disease eradication by themselves rather than depending upon Government assistance? The primary reason is that we know many of these problems cannot be solved without social action engineered and promoted by the Government.
My belief is that we need more public expenditure on agriculture, not less. We do not need cutbacks in public expenditure. We need more co-operation between industry and agriculture, not less. It is time now for a greater consensus, not less. As part of that process, it is time to bring the agricultural interests into the determination of short-term economic objectives. I agree with Mr. Lane in one respect in his comments last evening on television. They have a right to be annoyed when they are left out of the primary decisions. Naturally, they are not involved in the Employer-Labour Conference and are only brought in to the tripartite talks, whereas they should be brought in directly and immediately at all levels and covering all aspects of the short term economic variables.
Notwithstanding what I anticipate as the success of the negotiations at the Employer-Labour Conference, supplemented by the tripartite talks, we should scrap that concept and replace it by what I have called for before in this House, a national economic conference, which would give rise to a national economic agreement published prior to the budget, and which would incorporate agricultural incomes as well as other incomes, pay, taxation, profits, and therefore, investment, employment, social expenditure and prices. One cannot possibly leave the agricultural interests outside the door when talking about prices. Therefore, at the moment the process which we have is inefficient. It takes too long and on occasion it is not particularly edifying to see this minuet between the Employer-Labour Conference and the tripartite talks.
There is a legitimate ground for grievance on the part of agricultural organisations and, as part of the process of exacting the maximum amount of national consensus, we should go to the unions, the employers and the farmers and say as the Government:
"We wish to set up this completely new institution not as a prelude to or a substitute for what we have, but as an integral part of a planning mechanism, so that we can deal with all these short-term economic problems out of which the budget would emerge as a consequence." There is nothing more ridiculous than to have a budget which is conditional on the national pay agreement and a national pay agreement which is virtually conditional on the budget—the two things conditional on each other.
I know that is not exactly the situation because Congress have advised member unions to accept the current national pay agreement. If that acceptance is registered by the special conference of congress, the budget concessions will be riveted into the Finance Bill. The danger is still there that one is continually made conditional on the other and we get involved in what on occasion becomes a dangerous game of economic bluff almost like a poker game. I do not think we can afford to sustain these dangers at this time.
One important consequence of a national economic agreement which would give rise to greater consensus conceivably would be this. We perpetually get calls for moderation in income expectations and wage increases. We know the higher the level of savings, the higher the level of investment. We also know that, in a democratic society, savings really arise as a residual from personal consumption. In a command economy in the Eastern European economies, you can get savings simply by central diktat and fiat. We cannot and do not want to do so in a democracy. It must be done by persuasion, or by other means.
It is very difficult to get people to accept moderation, particularly the trade unions, when there is no guarantee that such moderation will be translated automatically into increased investment and, therefore, into increased jobs. Pleas for moderation are meaningless unless there is some new institutional arrangement to make such a translation automatic.
It was interesting to note yesterday that a representative of the German trade unions, Dr. Heinz Markmann, speaking to the CII made this precise point with regard to the German economic experience and the attitude of the German trade unions. He said the German trade unions——
...were still of the opinion that adequate profits are necessary as the main source of incentive to invest and that investment is the best way to ameliorate the poor labour market situation. But these increases in profits must be channelled into the purchase of new productive assets rather than invested in bonds or shares. In other words, if workers had, by their moderation, permitted profits to rise then they should be in a position to exercise some control over their use.
Indeed, they should. I do not think there is any other way to get long term stability in terms of moderation. Given the pretty frightening job requirements which we now confront, what we need is long term stability and a huge increase in the rate of saving, something of the order of double our existing level of capital formation.
In passing, I would say the publication of yesterday's Bullock commission report in the United Kingdom will give added intellectual impetus to this very concept. The editorial in last Sunday's Observer places that report in its proper historic context and, in turn, casts a new light on the 1969 policy document of the Labour Party on worker participation which was so heavily criticised by Fianna Fáil at that time, but which is now being borne out by history as having been exactly in tune with the times and with economic requirements.
I have said on a number of previous occasions that, if we are to get the economic growth we require, there must be a new commitment to planning, and there must be the inauguration of a proper plan. Planning is mainly about investment. I suggest there is a need for a new relationship between private enterprise and the State. We live in a mixed economy. That is the expressed democratic will of the Irish people which I do not contest. I may disagree with their conclusions, but I do not contest their wishes as expressed in the ballot box. I am not against private enterprise. I am in favour of more enterprise, greater investment, and more jobs.
Therefore, I am not against—in fact, I positively welcome—yesterday's reform of corporation profits tax and a reduction in certain cases for manufacturing industry which was described by the director of the CII as imaginative, for those cases where firms show an increase in output and employment. Taken in conjunction with income tax reliefs in the top bracket, there is little for industry to complain about. They have been given a new environment for incentive. I would hope we will hear no more about the lack of incentive from industrial pressure groups; and that we will hear no more a repetition of the language in the McKinsey Report about the lack of incentive.
They have every incentive now, not least in the premium employment programme, the increased investment for the construction industry, the reform of CPT, and income tax reliefs at the top level. The question really becomes: have private enterprise the ability to accept all these new incentives and to provide the Irish economy with the employment it requires in the future?
Debate adjourned.