asked the Minister for Finance the measures he intends to implement to bring Ireland's rate of inflation into line with that of our EMS partners.
Ceisteanna—Questions. Oral Answers. - Inflation Rate.
3.
The level of the inflation rate in Ireland, relative to that in other EMS member countries, will depend on the comparative contributions to inflation in the various countries by external and internal factors. Holding our exchange rate stable within the EMS, which the Government are determined to do, will tend to bring the external contribution to inflation in Ireland in line with that in other EMS member countries. On the internal contribution, the Government are determined, as I said in my Budget speech, on the disciplined pursuit of sound economic policies. The development of incomes is clearly critical to the success of efforts to reduce the internal contribution to inflation, and the co-operation of the social partners in this area is vital.
Accepting the Minister's own definition of an internal contribution, would the Minister agree that it is not unfair to characterise the recent budget as one which has contributed to our rate of inflation, some commentators say by as much as 4 per cent? In these circumstances would the Minister please indicate to the House what measures he proposes to take during the year to wind down inflation?
I have already taken measures in the budget in which those various indirect increases were announced to ensure that, in terms of real income, both by way of the new income tax allowances and the significant improvement in social welfare benefits, this will be a very real net benefit in terms of spending power. As far as the actual impact on the consumer price index is concerned—which as the Deputy will be aware is not related to consumption; if consumption falls in respect of any of the items of discretionary expenditure on which taxes were raised in the budget, the consumer price index continues to go up—it is of the order, as I said yesterday in the House to the Leader of the Labour Party, of 3.8 per cent.
Would the Minister agree that the Irish inflation rate this year, left to itself—giving us, say, an annualised rate of 20 per cent—means that the Irish pound will be very isolated indeed by the autumn of this year in the EMS, and that our exchange rate maintenance will be very difficult if our rate of inflation is at the figure suggested by comparison with that of other countries?
The Deputy will be aware that, first of all, the Irish £ has been performing very well within the EMS. Secondly, inflation rates are even higher among our partners——
Some of them.
I would be the last to suggest that this very open economy which is so energy dependent is not influenced by these external factors and that internal factors, over which we have exclusive control, become all the more important.
The Minister indicated in this House yesterday and today that he has contributed directly to the rate of inflation 3.8 per cent. What steps has he in mind that might reduce it by the same amount before the year is out?
The Deputy can put that interpretation on what I said if he likes. I asked that the budget statement be seen in its totality and the Deputy is not doing that. The totality of the budget statement was geared towards a very clear and consistent line relating to our balance of payments, borrowing requirements, budget deficits and a consistent economic and social policy. It is unreasonable to pick out one element and say that that is a measure of the Government's statement——
If the Minister accepts that there is a valid contribution to be made at home for keeping our inflation rate within bounds, how does he visualise the reaction of the trade union leaders in the forthcoming talks?
We are getting outside the scope of the question. The budget is at present being debated in the House and we cannot duplicate it at Question Time.
The Minister said there was an internal contribution to the rate of inflation. How does he envisage the trade union leaders will respond when the increase in the inflation rate has been contributed to by him and the Government in the recent budget? The trade unions will have to seek compensation.
I am satisfied that the net impact of the budget will be to considerably increase the purchasing power in real terms of all people, including the social partners and the trade unions and I hope the response of the trade unions will take note of that. After that, it is a matter for negotiation in the national understanding.