The mover of the motion has 20 minutes, the Minister participating has 20 minutes and other speakers 15 minutes. We had hoped to finish the debate on the motion at 5 p.m. which would have allowed one hour and a half. Does the mover of the motion feel that we should, by agreement, finish at 5 p.m. or does he wish to carry the debate over?
Report of the Joint Committee on the Secondary Legislation of the European Communities—Resources for Financing the Community Budget: Motion.
We may be able to close the debate by 5 p.m.
I am anxious to contribute to the discussion and I wonder if it would be appropriate to permit the debate to continue until 5.15 p.m.?
The House cannot sit after 5 p.m., in accordance with Standing Orders. It would be in order to carry the debate over to another day.
There are four speakers and we should conclude by 5 p.m.
I have been asked by the Joint Committee to move the following motion:
That Dáil Éireann pursuant to the Order of the Dáil of 17th October, 1979, takes note of the Report of the Joint Committee on the Secondary Legislation of the European Communities on Resources for financing the Community Budget, which was laid before the Dáil on 8th November, 1979 and which contains a request for a debate thereon.
This is the second occasion on which the Joint Committee have sought in the life time of this Dáil permission to have a debate on the floor of the House. On the previous occasion I also had the honour of moving the motion. There is no comparison between the importance and relevance of this particular item and the motion on cultural workers which was discussed previously. The issues are quite clear in relation to this matter. There has been a lot of official report on this matter and a lot of documentation has been made available to Deputies. I presume that all of the Members in the House are aware of the technical dimension to this complex issue.
The Joint Committee are concerned with the political implications of the budgetary crisis now facing the EEC. The Joint Committee published on 30 May of this year their 47th Report which reviewed the Commission's proposals for financing the activities of the Community into the eighties and beyond that. Some members of the Committee visited Brussels on 4 October. During that visit we saw a number of people. The President of the Commission, Mr. Jenkins, and the Commissioner for the Budget Mr. Tugendhat, sought out the members of the Joint Committee. We had a brief discussion with both of them. The last meeting of the day was with Commissioner Tugendhat. The second paragraph of our second report states:
The discussion with the Commissioner confirms for the Committee the views expressed in the 47th Report and in particular the recommendation it made that advantage be taken of Ireland's Presidency of the Council to seek an early decision on this matter; preliminary decisions which fall to be taken by the Commission in the first half of next year must depend on the resources available after 1981. The Committee, therefore, repeats and renews the views already expressed.
The Joint Committee, representing all parties, having regard to the shared view of the essentially political nature of the budgetary crisis confronting the Community, are asking that the Minister for Finance, in his capacity as President of the Council of Finance Ministers, take an initiative to try to resolve what we all recognise is a very difficult problem. We have no illusions about that, about its complexity or about the necessary gestation period that is required in order not only to get a proposal for financing agreed but also for that proposal to take effect. It is because of that time lag that action is urgently required. There is no better country in our view to take action than Ireland, who has a moral right to advocate action on behalf of all the members of the Community. There is a particular onus on the current President of the Commission and the President State, Ireland, to use that position to try to launch an initiative which will resolve this crisis.
The House is aware that the Community's finances will hit the ceiling of 1 per cent GDP sometime early in 1981. There are no proposals at the moment for increasing the height of that ceiling. There are no political initiatives apparent to us that appear to have the capacity to raise the level of that ceiling. Consequently, the impact on the budget for the members of the Community could be potentially disastrous.
The proposals which have as recently as today emanated from Commissioner Gundelach in relation to agriculture have some potentially horrendous implications for Ireland. If they are implemented in full or in part they could have the effect of virtually destroying the sugar industry here. I do not believe that any person who is aware of the dimensions of the problem has any illusions about the seriousness of the crisis.
The first meeting the members of the committee who went to Brussels on 4 October had was with a member of the Commission staff and was in relation to financial aids to dairying being suspended at the end of this year, which many of our members, particularly those from the dairying areas, felt would be a major negative factor in developing the dairying industry here. It was considered to be such an important issue that we sought for a discussion on it when we went to Brussels. We realised by 5.30 in the afternoon, having talked to the President and to Commissioner Tugendhat, that the entire CAP appeared to be, as part of the overall budget of the EEC and the Community set on a course of self destruction somewhere in 1981, that that would have horrendous implications for Ireland and that in contrast our concern with the cessation of financial aid for the dairying sector was a tiny part of a much bigger and deeper problem.
There has been a great degree of propaganda in Britain, parts of Germany and the Netherlands against the CAP and against the wastefulness of the EEC budget generally. I believe that the total EEC budget, as a percentage of money spent within the Community, represents about 3 per cent of the expenditure that central governments make within the Nine member states. It is a very small amount of money in relation to the overall finances of the member states. While it may be small in those terms, the Joint Committee have no illusions about its critical importance to Ireland. We are major beneficiaries in relation to receipts from the CAP. While we may have discussions about how that money might be applied by way of direct investment in the first instance and how best the benefits of that money might be internally redistributed by taxation and fiscal policies, that is essentially an internal domestic matter which we should be able to resolve here.
There is no disagreement by the Joint Committee or by this House about the essential importance of the net revenue receipts which we get through the CAP and through the EEC contribution in the regional and social funds as well. Ireland, in her capacity of holder of the Presidency during the second half of this year and having particular regard to her position as a peripheral state in the Community, has the political responsibility and the moral obligation to advocate mercilessly an increase in Community resources so that the objectives of the Community, which were eloquently and persuasively put forward to the country in 1971 and 1972 during the debates in this House and during the referendum campaign can become a reality. It is tragic that the facts in relation to the internal distribution of wealth within the Community, since our accession along with Denmark and Britain, do not tally with the aspirations so may pro advocates put forward at that time.
The Economist of 18 August, page 43 gives an index of GDP per head between 1970 and 1978. The clear pattern of that table of figures suggests in relation to the poorer countries—Britain, Italy and Ireland—instead of the gap closing between the rich and the poor centres it has actually been widened.
One can argue with a certain degree of accuracy that part of the reason for the gap is the high rate of inflation in the economies that I have mentioned and the subsequent effective devaluation of their currencies. That is as much a symptom of the problem as it is the cause of it. The Joint Committee now feel that the primary political task of the Tánaiste and his colleagues in Government is to reinforce the argument and the claim that the Community does aspire to increased wealth throughout the member states and to attempt to redistribute it in such a way that the gap closes. If a political solution is not found to increasing the resources of the EEC, the gap will not only widen dramatically but untold damage will be done to our economy in the interim period.
If the members of the Joint Committee came back from Brussels that evening with any kind of impression, the overriding impression was that we were facing a crisis the scale of which none of us had been fully aware of prior to that visit. Perhaps that is as much a condemnation of our capacity to keep ourselves informed as it is of the way in which the present Government have articulated the problem of Community finances. I hold the view, which is shared by some members of the Committee, that there has been too much concern with the precise nature and structure of the common agricultural policy to the detriment of the larger problem of the EEC budget and EEC financing.
In his report to the European Parliament, Commissioner Tugendhat was forced to make the observation that there was little or no co-ordination in the capitals of the Nine between the Ministers for Finance and the Ministers for Agriculture. The constant focusing on the price levels of agricultural products even to the detriment of structural investment, which is of more interest to us, has obscured the main problem of financing the Community and attempting to make a reality of all the grandiloquent phrases that emanate from meetings of the Council of Ministers.
There is no doubt that this topic will be on the agenda at the Dublin Summit. I speak on behalf of myself and the Labour Party when I say that I should like the Tánaiste, the Taoiseach and the other members of the Government to give the House an assurance that their resolve will not be weakened irrespective of whatever propaganda war is waged by the British Prime Minister and the other members of the Community for their own internal political reasons, such as the German Federal elections next Autumn, the problems in France in relation to the collapse of the Gaullist Centre Alliance and Prime Minister Thatcher's own problems in relation to cutting her public sector borrowing. We want an assurance that those internal political considerations, backed up by the impressive propaganda machine that all three countries can muster, will not weaken their resolve. We do not want to see a repetition of the unfortunate and inexcusable reluctant consent by the Minister for Economic Planning and Development to a reduction in the regional fund for this year.
We are aware of the politics of that meeting; we are aware of the pressures of that meeting. However, as Minister responsible inter alia for our regional development, the Minister for Economic Planning and Development should have been carried screaming from the halls of the council chamber refusing on any account to agree to a reduction in regional aid. To lamely stand behind the hope that the European Parliament would restore to the fund what the Council of Ministers had cut from it was a political abdication of responsibility and a particular abdication having regard to the fact that the Minister of State, Deputy MacSharry, was in the Chair at the time.
Unless we pound the table harder than the richer nations of the EEC we will not get what the EEC promised us in 1973. The reality at the end of the five-year transitional period for agricultural prices is that the honeymoon is over, irrespective of what form the common agricultural policy takes; and most of the professional farming organisations are aware of that fact. In terms of its contribution to this country, the regional fund is a joke. I am not suggesting that the Minister for Finance should reject it. In real terms it is not a serious fund. The way it is administered effectively buries it as an effective fund. The social fund has a higher profile and in its funding of many AnCO activities has had more direct incremental effect than any other.
Between now and Christmas we will be agreeing a motion of the Minister for Foreign Affairs to the Treaty of Accession of the Republic of Greece to the Community. Within the lifetime of this Dáil it is probable that we will also agree to similar treaties in relation to Spain and Portugal. The regional and social implications of the membership of those three countries upon the resources of the Community are enormous, so much so that when the Council took the decision to override the recommendation of the Commission on Greece's entry some years ago, our Foreign Minister at that time took out a reservation on that decision, attempting to ensure that the funds would be increased pro rata to accommodate the membership of Greece and the other two countries. In the view of the Joint Committee, the reality is that there will not be a pro rata increase in the funds, that there will be a net overall reduction. The inevitable internal capitalist logic of the EEC Community, stripped of the cotton wool wrapping which the Paris Summit gave to it in the early part of the decade, will be exposed for what it is: an open free-trade area in which there will be a continued movement of capital resources and resources from the periphery of poorer areas of the Community to the centre.
On behalf of the Joint Committee I should like to thank the House for taking this debate in a non-partisan spirit, the spirit in which I speak this afternoon on behalf of that Committee. The Committee are absolutely unanimous in their sense of horror at the crisis confronting us. I beseech the Minister, on their behalf, to ensure that a political solution is found to this problem by the exercise of Ireland's Presidency of the Council and our moral claim to some degree of internal redistribution of wealth from the rich to the poor within the EEC.
I should like to give notice that I propose to raise on the adjournment the matter of the present dispute in the banks which has resulted in many branches of banks closing early today because they have insufficient funds and to ask the Minister what arrangements have been made for the payment of wages tomorrow?
The Deputy is now 40 minutes late in raising a matter of that kind, and we have already a matter on the adjournment. I am sorry, Deputy.
Can I give notice, then?
The Deputy may give notice on Tuesday next. The Minister for Finance has 20 minutes.
First, I should like to thank the committee for focusing the attention of the House on a potentially serious difficulty facing the financing of the Community budget in future years. But, before proceeding on that, there are one or two matters arising out of what Deputy Quinn has said with which I should like to deal. Just for the record, let me point out that the Minister for Economic Planning and Development did not agree to a cut in the regional fund. I think what the Deputy had in mind was that he agreed to a smaller sum than the Commission had proposed. In fact it is an increase on the existing fund. Furthermore, I cannot accept the implied proposition put forward by Deputy Quinn that the best way to measure the approach of the Government to these matters, including the regional fund, is to have some way of measuring the decibels from pounding the desk. I do not think that is the way to measure it; the best way to measure it is by results. I can assure the Deputy that if he measures the performance in regard to results in relation to the regional fund, heretofore or indeed arising out of what is happening this year, he will find that we are getting better results than had been obtained in the past, not necessarily by pounding the desk. There may be a time for pounding the desk but it is better not to rely on that as the only weapon. A certain degree of political skill can be brought to bear on these things. I am sure the Deputy appreciates that we are dealing with eight other countries, each with its different line of approach, and there are occasions when perhaps a different kind of approach than pounding the desk will get better results.
I hope the Minister will excuse me; I must leave for domestic reasons.
Apart from a small amount of miscellaneous revenue, the Community budget is financed according to the own resources system. This was introduced under a Council decision taken in 1970 and was subsequently accepted by Ireland, the United Kingdom and Denmark in the Treaty of Accession. The term "own resources" signifies revenue of a fiscal nature belonging to the Community as of right, as distinct from funds for which they would be dependent on the goodwill of the member states each year. Own resources cover revenue from the Community's common customs tariff, from agricultural levies and from value-added tax, at a rate not exceeding 1 per cent, applied to a uniform assessment base. While the revenues are collected by the national administrations and in some cases, including Ireland, are channelled through the national exchequers, they are under the direction of the Commission's services and are subject to detailed inspection by the Community's Court of Auditors. They are paid over automatically each month to the Commission and are not subject to vote in the national parliaments. In effect, national administrations act as agents of the Community in the collection of own resources and are accountable to the Commission for the proper operation of the system. The Commission pays the national administrators a fee to cover the expenses of collection.
The difficulty regarding the financing of Community expenditure arises because of the finite limit on own resources laid down in the Council's 1970 decision. Of the own resources, the VAT element is the only part which effectively contains any flexibility and buoyancy. Revenue from customs duties and agricultural levies is falling in real terms as member states expand their trade within the tariff-free common market and the situation will be further adversely affected by the GATT changes coming into force in 1980. The Community is, therefore, approaching the 1 per cent ceiling on VAT; the VAT rate in the draft budget for 1980, established by the Council, is 0.76 per cent and is likely to be increased to some extent before the budget is finally adopted.
The difficulties in regard to the own resources limits are expected to come to a head in connection with the 1981 Budget when the Commission foresees total budgetary expenditure of some 19 billion EUA, compared with expected revenue from existing own resources, including VAT at the full 1 per cent rate, of about 18½ billion EUA. The Development of the Community is mirrored in the development of its budget and, unless the existing and new Community policies are to be curtailed, it seems essential that agreement be reached as soon as possible on additional financial resources.
The Commission discussion document, referred to in the Committee Report, represents the Commission's initial thinking on the question of additional financial resources. This is a delicate and sensitive issue, especially in the light of the pressures being exerted by certain member states in regard to the level of Community expenditure, particularly on the common agricultural policy. It should be borne in mind, however, that a decision to increase the own resources available to the Community would not, of itself, necessarily give rise to additional expenditure; expenditure decisions would still be made annually within the framework of the budgetary mechanism. The Commission, rightly in my view, decided to issue a discussion document in advance of its formal proposal on new own resources. I am glad to say that the discussion document accepts unequivocally that new revenues will be needed.
During the discussion of the document by a Joint Council of Foreign Affairs and Finance Ministers last April, certain member states expressed the view that the 1 per cent VAT ceiling should not be violated. Ireland's position was, of course, to support the Commission's line. The Community budget is still modest in size, especially from a macroeconomic point of view. It still represents only about 0.8 per cent of the Community GDP and approximately 2½ per cent of Community aggregate national expenditure. This modest size continues to restrain the effective contribution which the budget can make towards solving the Community's major structural problems, in particular the promotion of economic convergence. It is important, therefore, for the budget to be allowed to expand faster than the growth in existing own resources would permit. I am pleased to note that the Report of the Joint Committee essentially endorses that view.
I could not accept the attitude of certain member states that FEOGA expenditure, particularly the guarantee portion, is too high. The position is that guarantee expenditure, namely expenditure on market support, represents no more than about 1/2 per cent of Community gross domestic product. This is not a significant level of expenditure. Critics of the common agricultural policy should also bear in mind that a large proportion of the FEOGA allocation represents the transfer of agricultural expenditure, which otherwise would have to be borne by national exchequers, from the various member states to the Community level. Criticism of the CAP is exaggerated in the case of prices and surpluses: food prices have not risen out of line with other prices and producer prices in the Community are reasonably in line with those in other developed countries.
The common agricultural policy is the only fully operative policy of the Community and many of the problems associated with it are due to the failure by the Community to develop adequate regional, social and industrial policies. Had these been developed and had the expenditure on the guidance side of FEOGA been kept in reasonable relationship to the total of FEOGA expenditure, then the guarantee financing could have been seen in its proper perspective. The current Irish Presidency has stressed in the European Parliament that guarantee section expenditure is not governed by the budgetary authorisations but rather by the basic regulations and the market situation. Any changes in the basic regulations can only be made in accordance with the procedure in the Treaties, that is, by the Council following an opinion from the Parliament.
Apart from the pressure on own resources from existing expenditure policies, there will be additional demands arising from enlargement of the Community to include Greece, and later Spain and Portugal. Their accession will, among other things, require the Community to re-examine the functioning of the common agricultural policy with a view to strengthening market support for their agricultural products. This, in turn, could lead to a sizeable new area of expenditure. Progress in that area should not be at the expense of producers elsewhere in the Community. The Joint Committee's report refers to agreement in principle on the need for additional own resources in the context of enlargement. While the Council has agreed that, subject to the usual budgetary procedures, appropriate provision would be made for the needs of the enlarged Community, I am not aware of any commitment by the Council, even in principle, to providing additional own resources.
As regards how the additional own resources are to be secured, I would see considerable merit in accepting a further tranche of VAT. The Community VAT base is already harmonised and if the Council were to agree in principle to provide additional VAT own resources, there should be no undue delay in implementing that agreement. If the revenue were to come from one of the other sources referred to in the Commission's discussion document, namely, cigarette or alcohol duties, a corporation tax, energy tax or income tax, it is not unlikely that there would be a considerably delay in securing the necessary agreement on harmonising the tax base. In so far as member states took a stance in favour of additional own resources at last April's Council meeting, their preference was for an increase in the VAT ceiling.
I note that the Joint Committee also favour an increase on the VAT side, subject to due regard being built into the own resource system for the taxable capacity of member states. While there is a strong case to be made for taking account of member states' ability to pay, the indications are that such an approach would not be acceptable to all member states, notwithstanding the fact that this approach received support in a resolution passed in the European Parliament only last week.
As regards the formal arrangements necessary to secure additional own resources, the position is that under the Treaty provisions the right of initiative resides with the Commission. On a proposal from the Commission, the Council, after consulting the European Parliament, may recommend appropriate provisions to the member states. The unanimous decision of member states would be required and, in some cases, new domestic legislation would also be necessary. The current Irish Presidency has encouraged the Commission to bring forward their proposal as soon as possible. So far, however, the Commission have not done so.
While the question of the financing of the Community budget by an extension of own resources is not yet urgent, the reluctance of certain member states with regard to securing the additional finance is a cause of concern. However, there is still some time before the size of the Community budget is arbitrarily limited by the available revenues. We shall, of course, continue to encourage the Commission to bring forward its proposals as soon as possible. The future effectiveness of the Community's structural policies depends to a large degree on a positive decision on the resources question and we will certainly play our part to secure a positive decision.
It seems from this discussion that there are three separate though related problems facing the EEC from the point of view of finance. First, there is the prospect of the EEC going broke, if not next year certainly by 1981. Secondly, there is the current claim by the UK that their contribution from 1980 onwards will be excessive; and, thirdly, there are the attempts to reduce the size of the farm fund and the assaults on the basic principles of the common agricultural policy. These are all inter-related. Taking them in reverse order, it is clear that it is in our interests to resist any attempts to alter the basic provisions of the CAP. We paid the price of our entry into the EEC when we accepted the terms of free trade which resulted in the loss of something in the order of 75,000 industrial jobs. Fortunately, through the efforts of the IDA and successive Governments attempts were made to offset this loss. It is in that context that we must consider the corresponding benefits to us through the agricultural sector. In relation to the EEC every country will have its own balance sheet in relation to the advantages and disadvantages of entry. Some of these advantages may not be quanitifiable in monetary terms. For some country it might add to the umbrella of security provided by the EEC. Other factors will apply in other countries. The losses we sustained because of free trade will in many cases have been made up by other member states. For instance, Germany received huge benefits as a result of industrial free trade.
Irrespective of the motivation of each country it is not acceptable for the nations which have gained to attempt to have their cake and eat it. If they have gained from free trade it is not acceptable for them to point the finger at countries such as ours which are gaining from agriculture. We paid the price in industrial jobs in the expectation that we would enjoy the long term benefits which we would derive from an expansion of farm output on the basis of comparative advantage. That is a major factor to be taken into account in this situation. In relation to the position adopted by the UK, they are using the present Community problem to blackmail the other member states. They will effectively veto any necessary changes to permit the Community to be adequately financed unless they secure a reduction in their contribution. They had their opportunity of renegotiating in 1975 and it was bungled. The progress of the Community cannot be held up by the British at this stage. The rules of the game cannot be changed merely because it is their turn to feel the pinch. I do not accept that they are entitled to impose a veto or to blackmail the other nations, but they are entitled to make their point. An estimated net contribution in 1980 of over £1,000 million, as against Germany's estimated £730 million, seems to be somewhat unfair. Having said that, I do not accept their right, with the apparent connivance of the Germans and possibly the French, to veto the development of the entire Community in the matter of adequate overall financing.
That is the background to the issues which run concurrently with the overall question of Community financing. It is clear that the Community is facing a financial crisis. Quite apart from the attacks on the farm fund, there will not be adequate moneys to develop properly the regional and social funds. I have always taken the view that the spirit of the Treaty of Rome has not been implemented. Perhaps they stuck by the letter, but I believe the fundamental spirit of the Treaty of Rome, which suggested that remote areas such as ours should receive sufficient finances to bring up their standard of living, has not been implemented. We are now talking about Community financing virtually to maintain the existing levels of the regional fund. That is another major reason why we must be very concerned about the problem. Possibly to a lesser degree, the same thing arises in regard to the social fund.
We have to bear in mind that the 1981 estimates prepared in Brussels, apparently do not take into account the additional commitments which will arise from the Second Lomé Convention. They do not take into account the additional burdens which may arise in the context of the accession of Greece. There will be additional expenditures to be incurred which have not even been taken into account at this stage. On that basis Ireland's interest is very much at stake. We have had the Presidency of the European Council. While I accept that the process by which decisions are made in the European Community are labyrinthine, and that is the appropriate word, I suggest that being in the Chair must provide us with opportunities. This is one of the really basic problems upon which we should try to get some progress before we hand over the Chair.
Various means have been suggested as to how we might increase the independent own resources of the Community. In the original Commission document of November 1978 there was a discussion on the question of an automatic right to a share of the direct taxation of member states, cigárette and alcohol duties, or a tax on energy. It seems to me that all of these are not very feasible. I understand the latest thinking in Brussels is that, because of the fact that these are not harmonised throughout the Community, this is not the way in which the problem should be tackled.
The point made by the Minister is the one which must be followed. From 1980 onwards I understand the Community will be entitled to 1 per cent of all VAT revenue throughout the nine. The simplest, most direct and most effective measure would be to increase this percentage. I would say to the Minister—and I am not saying it in any political context—that there should be some corrective mechanism in regard to the VAT receipts. It is clear that the receipts from VAT are not an indication of taxable capacity. For instance, in 1979 it is estimated Ireland will have .68 per cent of community GDP, whereas it is estimated that the VAT figure will be .77 per cent. I have to confess that I am not clear on the reasoning behind this. It seems the greatest divergence is in the case of Ireland.
I suggest to the Minister that, if a large part of Community funding is to be based on VAT receipts, this must be borne in mind. The corrective mechanism could arise where the yield of a given VAT percentage is more or less than a certain percentage of GDP. That is a relatively small factor to be borne in mind. It is essential at this stage that action be taken, and be taken now. It is in the interest of the EEC, and it is certainly in the interest of Ireland, that a solution should be found. I would hope that with the imminence of the Dublin summit some progress will be made in this area.
The problems about getting a decision through have been mentioned by other speakers. There is the question of the involvement of the Commission, the opinion of the Parliament, the unanimous decision of the different member states and, in most if not all cases, ratification by the relevant national parliaments. Inevitably that process must be slow and would take at least 12 months, I would imagine. We can see therefore the seriousness of the problem. If a beginning is not made now, the process will not and cannot be completed before the flashpoint, the actual crisis, is upon us. That is one of the reasons for having this debate today.
I am here as spokesman on behalf of my own party, and as a member of the Joint Committee, not in any way to criticise the Government. We want to reinforce them in their determination to have something done about this problem and to highlight the real necessity to have urgent and immediate action taken in that area. They have the united support of this House in their efforts to have a solution initiated immediately. If this opportunity is missed, not only will the EEC as a whole suffer in the future, but in particular this nation will be a considerable loser.
As has been said already, the EEC is about to run out of money in 1981. It is almost as if the Community is in a car heading for a precipice with most of the people involved accelerating instead of putting on the brake. In two submissions which have been received from national Governments so far in relation to budgetary problems— from the Italian and the Irish Governments—to the best of my knowledge the main burden of the submissions was that their countries were not getting enough. This would imply not a reduction in the overall budget but an increase in it without any concomitant specific commitment to raising money to pay for what is being demanded.
I am disappointed that the Commission have not put forward any concrete proposals in the matter. All we have from the Commission is a set of options. We are all familiar with the technique of putting forward sets of options when you are in difficulty. It is not the Commission's jobs to put forward sets of options but to put forward specific proposals. To date the Commission have put forward no proposals to deal with the situation. They deserve strong criticism for their failure.
The Irish Government and the Joint Committee have indicated that they are in favour in principle of the idea of raising the 1 per cent limit on the amount of VAT raised in member countries which can be contributed to the EEC. That is the solution they see at least in the short term for raising more money. Presumably 2 per cent rather than 1 per cent of the VAT raised throughout the Community could be contributed to the EEC. I have serious reservations about that, speaking personally. Like all taxes on purchases, VAT is a regressive tax. In other words, the poorer you are, the more of your income you pay proportionately in VAT or in any other such purchase tax. That applies not only to individuals but to countries. Poorer people tend to have to spend more of their total income on their daily necessities, therefore paying more by way of VAT, whereas richer people can afford to put away some of their money and, consequently, not to have to pay VAT on it.
Therefore, using VAT as a solution to the problem will ensure that because of the very nature of this tax, the poorer one is, the more he will pay by way of taxation. That is not a system that is in our interest unless, as Deputy O'Keeffe suggested, there is a corrective mechanism; but to my knowledge no one has put forward any concrete suggestion in regard to any such mechanism. Have the Government worked out any specific proposals on this matter? I am aware that even as President of the Council of Ministers the Minister cannot put forward such proposals but it is open to our Government to put fairly concrete proposals to the Commission. This is something they should do immediately. They should put forward specific proposals as to how VAT could be modified, in the event of that being the only way forward, in order to ensure that the poorer people and the poorer countries do not pay proportionately more in terms of VAT.
The Minister said rather fatalistically that there is no work being done on harmonising the tax basis of other taxes apart from VAT and duty on cigarettes. Therefore, the prospects of introducing a share of corporation tax, income tax, energy tax, alcohol tax and so on as other means, apart from VAT, of raising money are not good. The Minister is now President of the Community Council and I should like to hear what he is doing this year to bring about a harmonisation in the other tax bases so that we may not have to rely in the longer term on VAT, regardless of how modified a form it may take in the future.
The point should be made also that this year the EEC ran out of funds for some of their contracted commitments in respect of the CAP and that Bord Báinne are now in considerable difficulties as a result. I understand that one of the reasons for this situation was that the supplementary estimate, which should have been approved by the Parliament to allow that money to be made available and to ensure that this financial cash crisis would not occur, was presented too late to be given approval in time to avoid this cash crisis. I understand that the responsibility for that rests between the Commission and the Council of Ministers, the Council over which Ireland presides.
We in Ireland must be prepared to be firm in our defence of the CAP, not only in terms of our own national interest but also because this policy makes sense in European terms also. If we are to have any possibility of having our case accepted, that case must be capable of being defended in European terms. Ireland will not get anywhere by going along to the Community whining and saying that we must be helped. We have a good case to make in Community terms.
I wish to indicate the grounds on which the CAP must be defended and, more important, must be paid for in terms of revenue raised by way of VAT or revenue raised by way of other taxes throughout the Community. First, we need a common food policy in order to ensure that Europe remains self sufficient, because if Europe is not self sufficient and if we must depend on food imported from the far regions of the world, we would have no guarantee in the event of war breaking out or in the event of the development of a difficult international situation that those trade routes over which the food would come would remain open and that we would continue to receive food. Not only, therefore, would such a situation pose a danger for the future but it would weaken our bargaining position in international relations in that, if other countries knew we were not self-sufficient in food, they would be able to turn the screws on us in a way that would not be possible if we remain self-sufficient by reason of having a common food policy.
What surprises me more than anything else is that Mrs. Thatcher, who is the leader of a Government who are supposed to be the most anti-Soviet Government in Europe, is the person who is crying out for the dismantling of the CAP, that very policy that is giving her country self-sufficiency. I wonder if she realises that putting Europe in the position of depending on food imported from New Zealand and Australia, and over the longest and most vulnerable trade routes in the world, is to put Europe in a position of vulnerability vis-à-vis the Soviet Union or any other country which might wish to encircle Europe. Clearly part of the global strategy of other powers is to close up the trade routes, to control the Persian Gulf and other trading routes.
The point must be made in favour of the CAP that it is in effect a regional policy because the poorer countries tend to be the ones which depend most on agriculture and a common agricultural policy, if it is operated properly, means more for the poorer countries. The present CAP has that effect, though there are areas in it which require some reform and which I shall deal with later.
Further, if we scrap the CAP and revert to a national food policy, national governments will be required immediately to raise more taxes to pay for commodities that are now being paid for in Brussels. Such a change will increase tax immediately in the national countries and would render far more difficult the prospect of economic and monetary union with the result that we would never be able to bring about the strong Europe that we want. Therefore, those people in Germany and Britain who are criticising the CAP should take account of all these factors.
We are told that there are immense surpluses of food in Europe but I should like to point out that even in relation to milk, which is the most surplus commodity of all, we have only a 60-day surplus supply in the Communities and food is essential to survival. Yet the same Community are saying that we should have a 100-days surplus supply of oil. Do we not need food more than we need oil?
I should like to analyse where the surpluses are coming from. Admittedly, 27 per cent of the budget has gone towards supporting the milk market, but Ireland is not causing the milk surplus or the butter mountain. In the first place, Irish production alone is not even equal to the amount of milk products being imported by Britain from New Zealand. Indeed, the entire Irish production is less than the quantity of imports to Britain from New Zealand and these New Zealand imports, these imports from outside the Community, must be supported in the same way as our milk products are supported.
In addition, the vast increase in milk production in overall terms of quantity has been in recent years in Germany and Holland and such countries. In 1976, for instance, the latest date for which figures are available, 73 per cent of the Community's butter stocks were held in Germany and that was a significant increase on the 66 per cent of the Community's butter stocks which had been held in Germany in the previous year. Germany and Holland are producing milk that is based on imported supplies of feed in concentrate form and which is costing the Community money in terms of balance of payments, whereas Ireland is producing milk which is based on grass and, consequently, not costing the Community anything.
In the event of the trade routes to the world being cut off—and this is the basic rationale for a common agricultural policy—the German and the Dutch systems of milk production would collapse overnight because they would not be able to get soya from America to keep it going whereas Irish production of milk could continue because of its dependence only on native resources. The reason Germany and Holland are able to produce so much milk and to make so many demands on the budget they are now seeking to reduce—I am speaking now particularly of Germany—is that they are able to import soya from the United States through Rotterdam and other ports in northern Europe at a far lower price than we can import it and at a lower price than other similar foods could be imported from outside the Community. Soya was allowed into the EEC without the imposition of a variable levy even though wheat has to bear such a levy. When GATT was negotiated soya was not a significant item of trade and they forgot to do anything about it. As a result of this anomaly America is able to send large quantities of soya into the EEC and indirectly, this is causing the milk mountain that exists in Europe. If soya from America were treated on the same basis as wheat and other products that are covered by the CAP, we would not have the difficulties we are having with the surplus of milk because the production in Germany and Holland, which is based on imported feedstuffs of this type, would continue no longer.
The Government must do three things. First, they must press to get rid of the artificial advantages which the Germans and the Dutch have in the production of milk and which are causing budgetary problems. Secondly, they must insist that we get an increase in own resources so that the Community can continue to progress. Thirdly, they must seek other means as a long-term measure of raising this money for the Community apart from VAT because in the long run VAT is a regressive tax.
The Government hold the Presidency of the EEC. They have a great opportunity and a great task ahead of them. I hope the Minister and his colleagues will be able to live up to their responsibilities in the coming months.
Question put and agreed to.