We have been told this budget and the whole economic policy of the Government are based on a gamble. It was described with what must inevitably be called exaggeration by the Minister for Economic Planning and Development as the biggest gamble in the nation's history. It is right for those of us on these benches to question whether it is a good gamble, and whether the Government know if it is a good gamble. In doing so, we are not saying it is not appropriate for a Government in certain circumstances to take gambles. Nor are we saying it is inappropriate in all circumstances for a Government to borrow on the scale this Government are proposing to borrow.
The question we must ask now is: is the package of measures they are putting together at the moment to use the money they are borrowing a good and justifiable gamble? The Government's own lack of clarity as to the wisdom of their gamble was well illustrated when the Minister for Economic Planning and Development was interviewed shortly after the publication of his White Paper. He was asked what would happen if the gamble failed. His answer was very vague indeed. He suggested we would be a little worse off; we would not have money we would otherwise have. If as he said it was the biggest gamble in the nation's history surely he should have been able to answer with greater clarity, greater frankness and greater forthrightness what would happen it the gamble failed.
Although we have a Government who are allegedly committed to planning, to projections ahead about what will happen as a result of actions taken now, we have not been told about this gamble what the stakes are, what the odds are, or when the race will be over and we will know whether our horse has won or lost. Neither of those three questions has been answered. Any punter would insist on knowing the answer to those three questions before parting with his money.
The Government's gamble on this occasion is more like backing both horses in a two-horse race and the only person who is likely to win is the bookie. I say this because I believe the gamble, the economic policy on which the borrowing is based, is defective in a number of important respects. First, the programme of expenditure of the money is not thought out. Secondly, there are five basic weaknesses in the proposals put forward which I will identify. I can best illustrate the lack of clear thought and foresight in the Government's economic policy by quoting from the White Paper, paragraph 1.8, page 11:
The measures already carried through and the further action to be provided for in the 1978 budget will complete the first phase of implementing the Government's development programme. The second phase will build on the recovery set in train by these measures. During this phase the emphasis will gradually shift from existing policies to maintain progress at a high level towards a third phase. This third phase will involve new policies for structural changes in the Irish economy—thus setting the scene for sustained and long-term economic and social development.
By admitting that the third phase is the phase in which the structural changes will take place in our economy, the Government are admitting they are prepared to spend money now on an economy which they realise needs structural changes before making those structural changes. If a businessman were approaching the same problem, if he bought a firm which needed structural changes, would his approach be that of the Government's? Would it be the approach of borrowing first to spend money on the existing structure as it stood and of putting back to the third phase—which may be at some indefinite time in the future—the decision to make the necessary structural changes? Would he do what I believe the Government should do, namely, before borrowing to identify the structural changes that have to be made, to make them and then borrow to finance the expansion of a modernised and structurally improved economy? By their own admission the Government have got their priorities wrong. They are prepared to spend now and then make the changes necessary later. Quite clearly that is not the way a sensible person would go about his business.
There are five basic weaknesses in the economic strategy being adopted by the Government and I propose not just to identify the weaknesses but also to suggest alternative strategies to those being adopted. First, we have an illthought-out industrial policy. Secondly, we have a very critical misunderstanding of the nature of the task of job creation in an open competitive economy such as ours. Thirdly, we have an improvident and short-term taxation policy. Fourthly, we have the failure to provide adequate tools for economic planning and for proper control by Parliament of the implementation of the plan and its targets and of public spending. Fifthly, we have an uncertain policy in relation to agriculture, our major industry.
I can best illustrate the uncertainty and lack of clarity of the Government's industrial policy by quoting from their White Paper. Paragraph 4 (7) states:
Priority will be given to improving employment in those areas of the country which suffered relatively worse during the recession. Plans for physical location of industry in the period 1977-80 reflects both this priority and the Government's concern that industrial development strategy should provide for an even spread of development throughout the country.
It is quite impossible, logically and practically, to give priority to areas where the need is most felt and also at the same time to have an even spread. You cannot do both at once. Either you have an even spread or you give priority. Clearly the Government have not made up their mind what they will do and their statement in paragraph 4 regarding their industrial strategy is completely meaningless and reflects their lack of any thought on the matter.
It is up to the Government to make a decision where the priorities should be, and setting up a consortium which they are proposing to do—which is nothing more than a very large talking shop and which will involve taking the chief executives of the major industrial and State enterprise bodies away from their desks where they can make real decisions in order that they may get involved in long discussions on macro-economic ideas—will not solve this dilemma. It is the Government's job to decide if priority should be given on an even basis throughout the economy or whether it should be given to those areas of greatest unemployment. Clearly the Government have not, and apparently will not, make up their mind on that issue. I should like to make my position quite clear. I believe priority should be given to the areas of highest unemployment, to those groups upon whom unemployment bears most heavily at the moment. I challenge the Government to state their priorities equally clearly and to get away from this vague attempt to have it both ways, to back both horses in a two-horse race.
There is a basic misunderstanding on the part of the Government of the role of a Government in job creation in an open economy. In an economy like ours job creation on a real and lasting basis can take place only if it takes the form of producing goods and services that other countries are prepared to buy. The type of job we should try to create is one that will be self-sustaining, that will sustain itself by its own produce, by selling the goods or services it produces.
What kind of jobs are the Government creating? What is their policy on job creation? Is it one that can survive on a self-sustaining basis in an open economy, competing with other economies? It is not. The job creation programme of the Government in terms of the budget and what they have done already has consisted in creating 2,000 public service jobs, paid for by the taxpayer, that are not independently self-sustaining. They are creating 2,100 building jobs, again paid for by the taxpayer, which by their nature are temporary and certainly not self-sustaining. There are also 5,000 proposed jobs for youth which, again, are not self-sustaining and which must be paid for by the taxpayer. In many cases these latter jobs are merely glorified training courses.
I calculate that every such job created on a non-self-sustaining basis within the public service require the income tax paid by three people outside the public service in order to maintain it. I make this calculation on the basis that on average people pay about 25 per cent of their income in income tax and, assuming that the salaries of those in the public service are equal to those outside it and public servants pay a tax of 25 per cent themselves, this leaves 75 per cent of the salaries to be paid for by the Exchequer. For that amount to be paid requires the income tax of three people in outside employment is needed in order to sustain each public service job.
This policy which is being adopted by the Government under the guise of job creation is creating an undesirable shift in resources from the directly productive sector of the economy, from the sector that is exporting and that which has to face competition from outside, to the public sector whose contribution at best is indirect so far as production and exports are concerned. I am not saying that the public sector does not contribute. It does in many cases but apart from State companies such as Bord na Móna its contribution is indirect. We are taking from the directly productive sector in order to create jobs in the indirectly productive public sector.
I favour action in the public sector to create jobs but not the kind of action taken by the Government. I favour action on the part of the commercial companies in the public sector. I should much prefer to see an expansion of jobs in Bord na Móna, which must stand the full wind of competition and which can export their products, than creating 2,000 jobs in the public service.
There is wrong emphasis in the form of the job creation that is going on, one that is not appropriate to our economy. I know the theory on which it is based—I am sure the hand of the Minister for Economic Planning and Development is to be seen here—the traditional Keynesian view of economic problems, that if you have underemployed resources the way to solve the problem is to boost aggregate demand.
The theory is that by the Government spending more than they are taking in they will boost aggregate demand, thus increasing demand for goods and services and creating employment. That theory certainly applies on a world scale. If America, Britain and Germany get together and decide to boost aggregate demand that can have the effect of raising employment in the capitalist world. But it certainly does not apply within a small open economy for the simple reason that, if this Government spend more than they take in, the results of that spending will not necessarily be felt in terms of increased demand for Irish goods and services. It will probably be felt in increased demand for imports. The proper approach and the proper economic theory to the solution of our economic problems is not a macro-Keynesian approach, which is the approach adopted by the Government, but rather a micro-economic sectoral approach which looks at the particular problems in individual sectors to see where we are uncompetitive and lacking in productivity, where we can improve, and spend money not in a global way across the board, as the Government are doing, but in the particular sectors where need for Government help can be identified.
I propose now to identify where I believe the Government should spend money. There are two basic areas in which action should be taken and, hopefully, can still be taken. First is in the area of promoting new product ideas. We have a habit of getting foreign enterprises which have their own productive ideas already developed to come in here with their ideas and set up their factories here. Insufficient attention is paid to developing new product ideas from our own technology. Secondly, on a micro-economic basis, we have to look at the weakness, the lack of competitiveness and the lack of productivity in our economy and indeed in our own public sector. An inefficient public service can indirectly affect exports just as much as an inefficient industrial sector because it can and does raise costs for the sector directly involved in production.
To deal first with the idea of creating new product ideas, obviously new product ideas result initially from research. But research agencies are not able to put these ideas on the market. We do not see An Foras Talúntais or the Institute for Industrial Research and Standards setting up companies. What they do is rely on entrepreneurs who may be reading their publications, picking up ideas and prepared to implement them. Most entrepreneurs are not technologists and in many cases would probably not understand the kind of language used in research publications, and so there is therefore a gap between the development of new research ideas by technologists and their implementation in the private sector by entrepreneurs who want to make money. In Northern Ireland that gap has been effectively bridged by the establishment of the Agricultural Trust which takes over ideas and implements them on a commercial basis. Once they are established as going concerns the Agricultural Trust sells off the enterprises, the patents or the ideas to a private company prepared to continue the enterprise and give employment. We need something like that, not just for agriculture but for the whole range of agricultural processing and for industry also.
We also need more Government help in the form of research and development. It is much more difficult now for new small industries to develop new ideas because of the EEC proposal in regard to product liability. Under this proposal, if someone is injured by a product the person who markets the product will be absolutely liable, regardless of fault, to compensate for the consequences to that person of consuming the product. This gives big companies a much greater advantage over small companies because they are likely to have research and development departments and be able to afford to take the risk of marketing new products without being afraid of the consequences. Clearly there is a role for the Government in helping small firms to develop and we need a much more active approach on the part of the IIRS, on the part of the ACC and the Agricultural Institute in this area by helping small struggling firms with ideas to develop those ideas on a commercial basis.
In this context, we need special concentration on food processing. There is an unfortunate belief that, because we produce the goods, Ireland is the best place on economic grounds to process those goods. In actual fact the best place for processing a product may be in the country of consumption. It will not be sufficient for us, therefore, to sit back and hope that the natural evolution of economic forces will mean agricultural processing will take place here because we produce the food. If you want to produce tinned food products you have to import the tins at great expense, fill them up and reexport them. If we are to have effective food processing we must have our own canning plants. We must have our own plants to produce the various packages required for processed foods. This is not an agricultural industry. It is a heavy technological industry. It is in that area we should see action by the Government and not in the creation of 2,000 more jobs in the civil service, 2,000 more jobs in the construction industry, so many more nurses and consultants, and so on. The Government should be tackling the basic problems which, to my mind, the Government are avoiding and, on their own admission, avoiding because they have relegated this kind of problem to what is described as the third phase, the never-never phase in their economic policy.
We need a tax incentive where the entrepreneur who sets up a new manufacturing industry and thereby creates employment is concerned. The relief could be complete in some cases provided the manufacturer employs a sufficient number of people. We have to recognise the disincentive that exists for people with ideas to leave a permanent pensionable post in the public service or some large corporation and go out on their own to set up an industry and try to make money when they have no pension cover and, if they fail, they have no job. To induce that person to leave the public sector calls for some considerable attraction. Money in the private sector is not being made by the person engaged in manufacture. It is being made by those engaged in speculation on the property market or in import agencies. They are the people who get rich quick. We must create a greater incentive for the manufacturer. That is why I believe an indiscriminate tax cut across the board for everyone is wrong. The tax cut should be selective and it should be given to those who are prepared to contribute directly to the creation of employment. It should be a relief on the personal tax of a person setting up a new enterprise and producing some product which has not been produced before.
Perhaps it could be related to the use of a patent for the first time. Such a tax exemption would not conflict with EEC Regulations because it would not be confined to the manufactured products being exported. It would be available to everybody wishing to set up here. It is more justified to be giving entire tax free status to an entrepreneur who is engaged in manufacturing and creating jobs than giving tax-free status to artists. The person we need to encourage is the man who creates jobs. If we are to have tax-free people in this economy the manufacturer on his personal tax is the man who should be tax free and not the artist.
Thought should be given to giving a tax incentive to corporate diversification. The trouble is that many large companies who have resources of finance, accountants, analysts and so forth, which could be used in setting up new enterprises are far too comfortable producing their existing product. It is only when their market may decline, as in the case of a cigarette company, that they are forced to turn to other products to see if they can diversify and develop. We can get new product ideas going in our economy through existing manufacturing companies getting into new areas of endeavour. We should consider the possibility of some increment off tax on companies who adopt new lines of production to their existing ones as long as the new lines are things not previously produced in this economy. This should be done regardless of whether the products are for export.
The advantage of a tax cut of that sort is that it will not be availed of, no money will be spent at all, unless the production takes place. Unless the production takes place there will be no income. It is not like a grant that is paid out with a hope for the best. Under the scheme I suggest a payout only takes place if production and jobs ensue. For instance, there is tremendous scope in our fishing industry for large companies already established to get involved in buying boats and ensuring that fish are properly processed in a sort of vertically integrated enterprise. Such a company could ensure that the boats are at sea at the time by employing two crews rather than the present system of skipper-owned boats. Under that system only one crew is involved and the boat is only at sea for about one-third of the time. Under a corporately developed fishing industry there is a possibility of having two crews operating the boats which could be at sea for greater periods resulting in greater productivity on the capital investment involved.
Another way we get new product ideas to the fore in our economy is by earlier promotion of young executives and younger people in industry. Promotion should be based on performance rather than seniority necessarily. I do not believe the Government can, in any sense, intervene and force private companies to do this because they will do it if they think it is best for themselves, but the Government can and should set an example. In the public service we should abandon the present procedure whereby in most cases promotion is made on the basis of seniority and not on the basis of performance. If the public sector set an example in that area it is one that would be followed in the private sector. Younger executives with better ideas would be brought to the fore. We would then have a situation like they have in America where the president of a company is often a man in his mid-thirties. They are a more successful economy in many ways than we are and we should ask ourselves if this is one of the reasons why.
I also feel that there is a need to look at our tax code to see if it is giving adequate incentive to labour-incentive industry. There has been an amount of lip service and some practical service given in this area, but it still makes more sense under the present tax code for á man to invest in a machine than to invest in employing an extra man or woman. He can get IDA capital grants, the money straight into his fist, from the IDA if he invests in a machine but, more important, under corporation tax he can get entire free depreciation and the cost of plant or buildings can be written off right away for tax purposes. The day he buys a machine it can be written off for tax purposes even though the full benefit from it may not ensue for ten or 15 years. If, on the other hand, he invests in a job as against a machine he cannot write the full cost of the job off in the first year. He can only claim the salary paid to the man he has employed over the ten-year period, as and when he pays the salary. Instead of getting the full ten-year cost of a newly-created job in the first year, as he could with a machine, he will have to wait ten years and get it in terms of claims for his income tax in each of those ten years on the basis of the expenses involved in employing that extra man.
We have an employment incentive scheme involved which is supposed to help labour-intensive industries and was introduced by the previous Government but it is only a partial subsidy and it is probably considered by most people to be a temporary scheme. If a person is creating a new job he is not looking to what he will get this year in terms of this scheme, he is looking ten years ahead. If he employs a man, particularly with all the safeguards that now exist in relation to unfair dismissals and so on, he wants to be sure that he will have the money to pay him not just now but ten years hence. Our present tax code does not provide an adequate incentive for people to employ men rather than purchasing a machine. If a man is employed the employer must subtract income tax and social insurance from his salary but no income tax or social insurance has to be paid by a machine.
I should now like to deal with three areas where I feel the Government could do something to get rid of inefficiencies in our existing social and economic structure. I should like to identify the areas which need action now but which the Government have by their own admission, relegated to the third phase of their economic programme having spent the money first with which they could make the changes. Firstly, there is room for elimination of inefficiencies in the public sector and, secondly, for a proper analysis of the relative productivity of different industrial sectors in this economy by comparison with other economies and taking action to remedy that. Thirdly, a detailed analysis should be carried out of the employment register and job-creating action taken on the basis of identified areas of unemployment rather than on the global basis that is now being adopted by the Government. In relation to eliminating inefficiencies in the public sector, I have already mentioned the abandonment of seniority in favour of promotion on the basis of performance but there is room for competition between semi-State bodies who may be engaged in similar areas. As long as those bodies are engaged in directly productive activity there is no reason why they should not compete with one another. For instance, the Government's decision to say that SFADCo must be brought in under the IDA because SFADCo is competing in a similar area with the IDA is a bad one because we are likely to have better performance from SFADCo and the IDA if they are allowed to continue to compete and their relative performance is open to comparison. In that way if SFADCo does better than the IDA the finger can be pointed at the IDA. If, however, the IDA take over the functions of SFADCo there will be no basis on which the performance of the IDA can be compared.
There is room for competition within the public sector as long as it is pro-ductively related competition. I also believe that where the Government provide a service to the community there should be a much greater consumer choice on the part of the public in relation to the use of those services. Wherever possible there should be an avoidance of the creation of State monopolies because State monopolies in the production of services almost inevitably lead to inefficiencies.
