: Increases in the price of imported raw materials are not the only input increases which our manufacturing industry have had to bear in recent years. Many of them are of our own making. Wages and salaries in particular have shown a considerable increase in recent years. During the past two years alone wage increases awarded under the terms of the relevant national wage agreements have added more than 30 per cent to wage bills. This was a large increase but the figure does not tell the full story. The latest figures available show that in the period from June 1976 to March 1979, while the wage increases provided for under the national wage agreements totalled 28.1 per cent, the increase in actual earnings recorded by the Central Statistics Office was 49.7 per cent.
It is clear that with cost increases of this magnitude price control must be operated in such a way as to allow firms to remain viable and competitive. We cannot get way from the economic facts. If we need oil to fuel the economy we must pay the higher prices being charged for it. If we continue to pay ourselves higher wages and salaries we must pay the resultant higher prices for our goods and services.
The consequences would be predictable if all applications for price increases were to be rejected out of hand while cost increases continued to occur. Company bankruptcies and redundancies would follow within a short period. In many cases supplies of goods to the Irish market would cease altogether. Given the increased costs of imported materials and the size of increases in money incomes which have occurred in recent years, increased costs can nowadays only very rarely be met from profits or fully offset by improvements in productivity and efficiency. If price control were to be applied in this way it would soon become irrelevant. No products would be available at the controlled prices and the social costs inflicted on the community would soon become intolerable.
It is necessary in the operation of an effective price control system to hold a balance between the competing needs and demands and pressures of the consumer and those of the industrialist who is trying to produce goods at a reasonable price, trying to keep his workers in employment and in many cases trying to expand employment at times of considerable economic difficulty.
As I have said, it appears that our price control system, as it has been strengthened in recent years, is the most stringent and most difficult to comply with, of all the price control systems operated in the EEC. This is a source of continuing concern to some extent from the industrial point of view because of the pressures which are put on firms here more than in other countries. This pressure is evidenced by the number of complaints the Department receive from industrialists. A number of complaints about prices being too high or price control not being operated strictly enough are received. The complaints we get in that regard are, however, a mere fraction of the complaints from industrialists subject to price control.
Both the Minister and myself continually meet deputations from the business community who come to talk to us about the difficulties which they experience in complying with our stringent price control procedure about how unfair they think it is and how strenuously it has been applied over the past two years.
The task of balancing the interests of the consumer with those of the industrialists and his employees is a delicate one which requires the constant attention of the Government. Unlike the previous administration where the Minister displayed not the slightest interest in prices, this Government have a Cabinet Minister who has the active responsibility for price control, and this means that the competing needs of the various sections of the community are given the fullest possible recognition.
The budget, which we are at present debating, was framed in such a way as to ensure that the impact on the necessities of life is minimised. The way in which indirect taxes have been levied is such as to concentrate them in so far as is possible on discretionary expenditure. The spreading of the income tax burden in response to the justifiable demands of the PAYE sector of the community, the significant improvements in social welfare allowances, will serve to increase the purchasing power of the various sectors of the community. These improvements and increases have to be financed by way of taxation, and the method of the Minister for Finance in obtaining the largest proportion possible by way of taxation on discretionary items helps to ensure that the most bearable impact falls on households and individuals whose means and commitments are such as to allow of only limited discretionary expenditure.
The price increases announced by the Minister for Industry, Commerce and Tourism as a consequence of the budget, and other cost increases, attracted a good deal of attention in the media. We were treated to the usual banner headlines predicting doomsday just around the corner. Indeed while I am on the subject I would like to refer again to the continuous flow of consumer information on price matters which my Department provide to the newspapers for publication. It is not always published. The practice of some newspapers in simply predicting huge price increases is irresponsible and can be extremely harmful, particularly at times when wage negotiations are at the formative stage.
The price increase of 77p per standard cylinder on bottled gas attracted a good deal of media attention. This price increase provided for an increase of 22p per standard cylinder, and pro-rata for other size cylinders, to take account of the 5p per gallon imposed on butane and propane in the budget; an increase of 50p per standard cylinder, and pro-rata for other size cylinders, to take account of a recommendation of the National Prices Commission for compensation for Calor Gas (Ireland) Ltd. and Ergas Ltd. for the higher cost of purchases of butane and propane on the world spot market.
The companies involved here had applied to the National Prices Commission for permission to increase their prices by amounts sufficient to cover the increased cost of purchasing their raw material—in one case, this amounted to over £4½ million. The increase looked for was 63p per standard cylinder. The National Prices Commission undertook a detailed examination of the proposal and recommended to the Minister for Industry, Commerce and Tourism that the companies be allowed to increase their prices by 59p per standard cylinder. Following his own examination of the proposal, the Minister decided that the price increase should be 50p per standard cylinder. The original application was therefore cut back by 13p or more than 20 per cent.
The price increase of 77p also included an increase of 5p per standard cylinder, and pro-rata for other size cylinders, in retailers' cash margins which had been recommended by the National Prices Commission to compensate these traders for cost increases. The retailers involved had applied for increases of 12p and 25½p. Following detailed examination the price increase approved was 5p per standard cylinder. It is interesting to note, therefore, that an increase which could have amounted to 110.5p was cut back to 77p.
My Department were criticised to a considerable degree following the budget in regard to the price increases on petroleum products. In his budget speech, the Minister for Finance announced an increase in the price of all grades of motor spirits and of auto-diesel of 20p per gallon, VAT inclusive, at wholesale level, effective from 28 February 1980.
On 28 February the Minister for Industry, Commerce and Tourism made an order, the Maximum Prices (Petroleum Products) (No. 2) Order, 1980, providing, inter alia, for an increase of 22p per gallon, VAT inclusive on the retail price of petrol and auto-diesel, with effect from 3 March 1980. The purpose of the time-lag between the increase at wholesale level and at retail level was to allow for the disposal of petrol stocks bought at the old price. I am sure that every fair-minded person will agree that an occasion such as the budget should not be used by holders of large stocks of petrol to make an unjust profit at the expense of the motorist.
In this context, I would refer to occasions in recent years when the Minister found it necessary to reduce the maximum retail price of petrol. On those occasions it was very evident that some petrol retailers were less than prompt in reducing their prices. Were it not for the action of the prices inspectorate of my Department on those occasions, many motorists would have been unfairly penalised.
The same situation could have arisen in relation to the latest increase had not the order made provision for the clearing of old stock. Between Thursday, 28 February, and the following Monday, 140 complaints were received from around the country about petrol retailers increasing prices before the permitted date. All of the complaints were investigated and most of the retailers involved agreed to make refunds to the complainants. However, in cases where petrol retailers refused to refund overcharges and where evidence of overcharging was available to the Department, legal proceedings were instituated immediately. There were, of course, those retailers who because of the rush on petrol after the Minister's announcement had to purchase new stocks at the new wholesale price. These retailers had to close until they were legally entitled to pass on the increase.
The budget also provided for increases in the tax on beers and spirits. As Minister of State at the Department of Industry, Commerce and Tourism, I am particularly concerned at the level of prices being charged for alcoholic drink in bars and lounges throughout the country. I am concerned both because of the effect on the consumer and because of the effect of alcoholic drink prices on the consumer price index. The price of alcoholic drink has a very high weighting in the consumer price index. Drink prices are controlled by maximum prices order. While the constitutionality of this order is currently the subject of a Supreme Court action by the publicans, my Department's inspectors continue to enforce its provisions as rigidly as possible. Evidence has been obtained of widespread overcharging by publicans throughout the country.
At the present time there are in the pipeline more than 4,500 prosecutions of publicans for overcharging; evidence of overcharging by publicans gathered by the inspectors are coming into the Department at the rate of about 300 to 350 per week and the prices inspectors will continue to investigate drink prices throughout the country to ensure that no publican is allowed to overcharge with impunity.
Government action in areas such as price control can provide only part of the response needed to problems such as these. Success or failure in dealing with these problems depends upon many factors, not least the level of wage increases. In the present economic climate wage increases not matched by real improvements in productivity and efficiency spell problems for maintaining a reasonable level of prices. This is true not only in relation to the price of goods on the home market but also to the prices of our export products. An exporting country such as ours, where two out of every three jobs depend on exports, with a large deficit in the balance of payments, cannot afford, as the Minister for Finance pointed out in his budget speech, to lose competitiveness internationally through such increased costs. The price control system which we operate allows companies to be compensated only for unavoidable cost increases which they have incurred.
In relation to wage costs, this means wage increases awarded under national wage agreements or awarded in accordance with the terms of such agreements. Increased wages and salaries not matched by real increased productivity simply have the effect of pushing up the prices of those commodities which we buy and therefore, in the final analysis, are of no real benefit to the people who obtain them. The inflation rate is simply driven up further and a greater burden is placed on the more deprived members of the community. It is estimated that payments due under the second phase of the current national understanding will come to about 10 per cent of average industrial earnings. This, coupled with the 9 per cent under the first phase, leaves us with a very high rate of increase by international standards and the effect is seen on price levels. As the Minister for Finance has pointed out, there would not appear from a strictly economic viewpoint to be scope for any further pay increases this year. While the increases in oil prices which I referred to earlier have had a considerable effect and have accelerated the rise in price levels, we must face the economic fact that it would be foolhardy to compensate ourselves for this extra burden by simply awarding ourselves increases in income.
It cannot be stressed too often that price increases are the symptoms of inflation and not its causes. I have tried to emphasise this point by the remarks I have made in relation to oil price increases and wage cost increases. The external causes of inflation—increases in import and export prices—lie beyond the control of the Government. It is only possible to take action to limit their effects on Irish price levels. The actions which the Government have taken in relation to the procedures under which the National Prices Commission operate have been designed to meet this end. The job of the commission is to consider each application and recommend what price increase is justified within the commission's terms of reference, by the cost increases that the applicant has incurred, taking all relevant circumstances into account.
When considering price increase proposals, the commission usually allow incurred increases in raw material costs where these are verified by documentary evidence. In the case of labour costs, the commission must have regard to specific Government guidelines and, generally speaking, only increases in line with the national wage agreements are allowed. In regard to overhead costs, firms are expected to document increases claimed where possible, and where this is not possible the commission have regard to their own available data or to indices published by the Central Statistics Office. The commission are not obliged to recommend full compensation for increased costs and often less than full compensation for increased costs and often less than full compensation is recommended to encourage productivity and efficiency.
Since applications referred to the National Prices Commission are applications for price increases, the commission tend to be identified only with price increases. Attention is invariably focused on the price increases which are recommended because they are regarded as newsworthy and not on that part of the price increase sought that was prevented from occurring. It is interesting to look at the number of price increase applications processed by the commission and the way in which they have been dealt with.
In 1978, the National Prices Commission dealt with 350 price applications. The commission recommended in eight of these cases that no price increase be granted at all. In 162 of the applications, the commission cut back the price increases applied for significantly and recommended that only part of the increase sought should be allowed. Of the total of 350 applications for price increases, only 163 were recommended for approval in full. The remaining 17 cases were price reductions recommended by the commission.
In 1979, the commission dealt with 507 applications for price increases. Of these, they recommended that in four cases no price increase at all be granted. Applications recommended for approval in part only amounted to 298. Of the total of 507 applications, only 205 were recommended for approval in full.
As I have already said, in that period also the Minister for Industry, Commerce and Tourism refused or cut back commission recommendations in a further 34 cases. The Minister's responsibility for and interest in price matters has served to help and support the commission in their arduous task—unlike his predecessor who did not bestir himself on one single occasion to question or comment on any recommendation of the National Prices Commission during his term of office.
Since the commission were established by Fianna Fáil in October 1971 until the end of January 1980, they have dealt with 4,765 applications for price increases. Of these, 104 applications—or 2.2 per cent—were recommended for refusal. There were two main reasons for those refusals: the cost increases that were claimed were not adequately supported by documentary evidence or were insignificant when compared to the applicant's total costs or current profits.
Of the 4,765 applications considered, 2,298—or 48.2 per cent—were recommended for approval in part only. The main reasons why these firms were not granted the full increases sought were: the increases sought in materials and other costs were not fully supported by satisfactory documentary evidence; the firms involved sought price increases to cover increases in pay costs over and above the Government guidelines; the applicants could reasonably be expected to offset a part of the costs increases by improvements in efficiency.
There were three main reasons why 2,339 applications—or 49.1 per cent of the total—were recommended for approval in full. First, the applicants were—and had been—making losses or very moderate profits and any attempt to restrict the increases sought could have endangered employment and the applicant company's existence. Secondly, the price increases sought were based solely on increases in the cost of materials. In the short run, the scope for economising on the use of materials or switching over to alternative and cheaper materials is limited. Thirdly, the applicant company proposed to absorb a significant part of the increases incurred in costs and consequently the increase allowed in full did not recover all their cost increases.
In 24 cases, since their establishment the commission have recommended reductions in selling prices following examination of applicants' cost and price structures, on the grounds that the selling price levels then existing were overcompensating the firms concerned, due mainly to favourable changes in their costs.
The Commission are consistently guided by the need to maintain efficiency in the production of goods and services. The Government's view is that the consumer should not have to pay for inefficiency in industry and consequently, the commission continue to take account of the scope for productivity and efficiency improvements in the various firms and industry sectors who apply for price increases.
The Commission are also aware of the implications of proposed price increases for employment and employment generation. There is a need for companies to generate profits for investment and, accordingly, price increase proposals based on investment plans are examined on an ad hoc basis by the commission. Price increases to improve profitability for investment are limited to companies whose prices are competitive, who have proved themselves by their record of investment in the past and who have viable investment plans for the future. It is particularly important that such investments will generate new jobs or at least maintain existing jobs which would clearly otherwise be lost, and it is desirable, also, that the capital invested be spent in this country, as far as possible.
In the twelve-month period, from February 1979 to January 1980, the commission considered price increase proposals from 541 applicants, totalling £441.9 million on an annualised basis. Of this total, £360.5 million was actually allowed. This means that as a result of the proper operation of price control procedures, the prices of the products and services covered by these 541 applications rose by about 22 per cent less than they would have risen if the applicants had not been subject to detailed price control and the consumers had to pay nearly £80 million less than they would otherwise have had to pay.
This figure under-estimates the saving to consumers. Nearly all the commission's recommendations relate to ex-factory prices and retail prices are generally fixed by adding a percentage margin to the prices at which the retailers buy. If the average retail margin on cost were, say, 25 per cent, then the savings to consumers would reach almost £100 million. That is, in the period February 1979 January 1980, the operation by Fianna Fáil of the National Prices Commission set up by Fianna Fáil and the strict control and monitoring of their recommendations and the strict decisions taken by the Minister for Industry, Commerce and Tourism saved Irish consumers nearly £100 million.
Under Government guidelines, the National Prices Commission cannot allow price increases to compensate for wage and salary increases in excess of limits laid down. If rigorous price control had not existed, increases in pay costs above the limits would in many cases have been recouped from higher prices.
The £360.5 million actually allowed as increased costs for the purposes of price increases in 1979-80, when broken down into its constitutional parts, reveals some interesting facts. Of the total figure, £232.37 million was in respect of raw material costs, £72.1 million in respect of pay costs and £56.06 million in respect of overhead costs.
One thing is abundantly clear from these figures and that is that increases in material costs were of paramount importance as causes of price increases. Over 64 per cent of the total costs allowed was in respect of raw material cost increases. As I have said already, the vast majority of raw material inputs have to be purchased on world markets, the prices of which are influenced by external factors totally outside the control of the Government. For example, in the case of primary energy goods in particular, it has been a case of paying the going prices on world markets to ensure continuity of supply to this country, thus maintaining the provision of essential goods and services. The consequences of not allowing price compensation in such circumstances would be declining production levels, reduced employment and the substitution of home-manufactured goods by imported products, in many cases not subject to price control, accompanied by a worsening of our balance of payments situation.
I have tried in my remarks to the House today to inform Deputies, and the public at large, of the operation of our price control system and the problems which it encounters. These problems will continue to arise but this Administration have the will, energy and expertise to overcome them as they arise. The sound principles on which this budget is based, and on which our price control policies have been based over the last two-and-a-half years, will ensure that our efforts will continue to be successful.
