Balance of Payments: Statements.

The Taoiseach

I wish to explain for this House and for the country the facts of the revisions to the balance of payment figures for the years from 1979 to 1983 announced by the Central Statistics Office last Monday as they have been given to me by the Central Statistics Office, the Department of Finance, the Central Bank and the Office of the Revenue Commissioners.

I do so to put on record that, first, there is no "missing" £500 million; secondly, a flow of money from this country which was thought in 1981-82 to be capital has now been identified using aggregate exchange control information as (1) repatriated profits and royalties; (2) payments to international consultants; (3) trade with Northern Ireland; and there remains a still unidentified amount, equal to about one quarter of the original unidentified total, a residual which is at a level normal even for countries such as the UK and the USA with much more highly developed statistical sources than Ireland.

I want to make it clear that the practice of estimating the balance of payments did not change, until this week, under any Government and no Government sought to interfere in the CSO carrying out revisions. I want to record in the House that the Government have established an independent statistical council to advise them on how to strengthen and improve the process of compiling accurate statistics. The new information now available does not alter our economic situation and prospects except to the extent that the worrying possibility that capital was being taken abroad has been excluded. Further, the substantial improvement in the balance of payments position since 1981 has been confirmed, thereby showing the balance of budgetary policy was right.

The Government have been confirmed in their existing determination to increase the number of firms locating all corporate functions here, especially R & D and marketing, and to improve the supply of Irish goods and services to foreign firms in Ireland. Finally, the Government wish to underline the success of foreign firms in this country and to emphasise that there will be no departure from the continuity of industrial policy towards such firms, in particular the Government will not attempt in any way to restrict these companies from repatriating profits.

Having set out the principal points I want to make, I will return now to state briefly the background to the estimation of the balance of payment statistics. Available data on the different types of current payments between Ireland and the rest of the world — merchandise trade, tourism and other services, is collected from a variety of sources and aggregated to obtain the best estimate of gross current outflows and gross current inflows. The difference between these two is the estimated current account deficit. So far as capital flows, such as foreign borrowing and lending, and international banking transactions, are concerned, available data is also collected under various headings.

The true current account deficit, if there is one, must, of course, equal the true capital account surplus, but exact data for many of the components is never available in any country, so there is always a residual balancing item in any balance of payments statement. In the Irish balance of payments it has been the practice throughout the decades to incorporate this residual balancing item in the item entitled Other Private Capital. This is known to everyone familiar with our balance of payments data, and no proposal has ever been made by any Government that it should be treated otherwise.

What has now happened is quite simply that more accurate information on certain current items, most notably the repatriation of royalties and profits abroad by certain multinational firms here, has become available. At the same time, some provision has been made for the estimated amount of payments to international consultants and of imports smuggled into the country from Northern Ireland. This has meant that the unidentified residual item on the capital side has now been reduced. Moreover, the CSO have taken the decision to show this residual henceforth specifically as a separate item, instead of incorporating it, as was traditionally the case, with other private capital transactions.

In the last couple of years, as a result of the successful work of the IDA, there has been a very large increase in the outflow of profits and royalties from this country, possibly because of a combination of an inflow of new high-technology firms which have very high profit margins, and also partly perhaps because, during the period of the recession, foreign firms had less opportunities for profitable investment in this country.

From several points of view this revision to the figures is encouraging. The scale of the apparent outflow of capital, that has been suggested by the rapidly growing size of the residual item contained under the heading Other Private Capital in the unrevised balance of payments figures, had been a cause of some concern, as well as puzzlement. Concern, because an outflow of capital of this magnitude could be represented as indicating some lack of confidence in our economy, puzzlement because especially since this Government took office, there have been no grounds for such a lack of confidence.

The fact that this figure has now been greatly reduced to a level that will give no cause for concern, and that the scale of profits being achieved by new firms attracted here by the IDA is greater than had been thought, must be seen as encouraging factors, which should help to create an even more favourable climate for the attraction of new industrial investment in this country. It is indeed with a certain sense of relief that anyone concerned with the economic health of this country will have observed this rectification in the balance of payment figures, involving the substitution of a more realistic and higher profit figure for the level of apparent capital outflow which had previously been included.

That this should be represented by the Opposition in the kind of adverse light in which they have attempted to portray it, is a measure either of their lack of understanding of these basic realities, or more probably, of their determination to twist any material at their disposal for party political purposes, regardless of any consideration of the national interest.

Dr. Woods

For the companies who are investing abroad where the money is going.

(Interruptions.)

The Taoiseach

Following some years of informal consultation, and an attempt to obtain a clearer picture of the residual item Other Private Capital which, as I have just mentioned, was large and growing, an expert group was set up in September 1982. This group comprised representatives of the CSO, which by tradition operates free of any political control and influence, the Central Bank and the Department of Finance and was set up to review the data sources, methodology and presentation of the balance of payments statistics.

This group of officials were concerned with what were at first regarded as relatively technical issues relating to the capital account. At this stage, there was no indication that extensive revisions to the current account of the balance of payments would be the outcome of the group's study.

During 1983 CSO and this group considered how the new indicators emerging from the exchange control administration could be used in estimating the balance of payments. Some information from this source had already been available, but as the data were compiled for control rather than statistical purposes, it was necessary to establish a procedure for cross-checking information from exchange control returns against the traditional CSO data sources.

This process which took place during 1983 and in the first months of 1984 established the reliability of the exchange control data. It became clear then that revisions would have to be made to the existing balance of payments figures. Reference to the review and to the likelihood of revisions was made in Economic Background to the Budget 1984.

The necessary revisions were confirmed and agreed by the experts earlier this month. Essentially these revisions set out for 1983 newly identified items which reduce the residual which on the earlier basis would have emerged for 1983. The revisions show, for 1983, the following significant changes as well as other minor offsetting ones:

(1) repatriation of royalties and profits of some £700 million by highly profitable multinational firms and not £200 million as previously believed;

(2) increased payments abroad for services such as international consultants of some £150 million partly offset by similar increased inflows;

(3) imports smuggled from Northern Ireland of some £75 million;

(4) a still unidentified residual item of just under £300 million, which at 2 per cent of our total exports and imports is lower than the figures of over 9 per cent reached in the US and over 3 per cent in the UK in the period 1979-83 covered by the revisions published by the CSO this week.

It should be added that, contrary to some suggestions that have been made, the publication of these revised figures does not derive from the discovery of undisclosed profits, details of which had been concealed from the Revenue Commissioners. On the contrary, the whole of the revision in respect of profits, consultants' fees etc. derives from the data available to the Revenue Commissioners and the Central Bank by way of returns made by companies—data which had not previously been fully utilised for the purpose of making these balance of payments calculations. The only new figure relating to transactions not disclosed in the normal way is the estimate of £75 million for goods smuggled from Northern Ireland.

I want to assure the House that the revisions which have been announced bring the accuracy and reliability of our balance of payments to a very high order. The availability of, and the use now being made of, the new source of information in exchange control returns ensures that a repetition of the errors which had crept in is not likely. In the course of the review of balance of payment statistics which has been carried out several other methodological refinements have also been introduced, apart from the use of exchange control data, and I believe that we can be satisfied with the resulting information, subject always to the necessarily conjectural character of the magnitude of net effect of cross-Border smuggling which must be subject to further revision if and when additional data comes to hand that could provide a basis for such a revision.

I have requested that the revisions be carried back in time to the beginning of the seventies so that a correct historical picture of the evolution of the balance of payments will be available to assist in our understanding of the economy, an understanding of which is essential for policy making. I myself have for over 30 years recognised the fundamental importance of our economic and financial statistics. I have, for some time past been reflecting on the need, as I see it, to provide the CSO with additional backing and assistance in a manner that would not merely ensure, but, if possible, even strengthen their independent role, which is so vital to their task. I have accordingly decided that it would be timely now to implement the provision of the 1926 Statistics Act for the establishment of a Statistical Council, and the Government have, as announced last night, agreed with my proposal, of which I gave informal notice in advance to the Leader of the Opposition some days ago.

The members of this council are all persons of academic distinction and particular expertise in the various areas relevent to the work of the CSO. I will be asking them for advice on how improvement can be achieved in the reliability, timeliness and accessibility of statistical information concerning the economy and society generally. In particular, I will ask the council for their advice on how best to arrange for the co-ordination of diverse sources of statistical information within the public service and how necessary statistics can be obtained without placing an undue burden on businesses in completing statistical returns.

To correct any possible understanding about the purpose of the council, I should like to state that it is not, as one paper today suggested, a committee of inquiry into the balance of payments revisions. This is not and was never intended to be their function.

I want to turn now to some of the policy issues which arise as a result of these major revisions. The Minister for Finance will elaborate in more detail on these points in his contribution to the debate, but I want to highlight a few key issues right away.

First, on industrial policy, I think it is clear that the new figures throw light on the changing structure of Irish industry in a way that had not been fully anticipated. We now see how highly profitable the high technology companies and companies producing sophisticated products established in recent years actually are. These companies are in many cases providing job opportunities of a high skill level to Irish workers, and their benefit to the country does not depend on their reinvesting profits earned here. Of course, as the Telesis Report advised us, it would be even better if we could induce the headquarters operations of such firms and their research and development divisions to locate here, and if we could achieve higher levels of supply from Irish firms to them, and I know that the industrial promotion agencies have that as one of their prime objectives.

One thing we should be quite clear about is that there is no question of the Government reacting to the increased estimate of profit repatriation by reviewing the tax concessions which have been guaranteed until the years 1990 and 2000, nor is there any question of impeding the repatriation of profits and royalties by these firms, although we will of course remain concerned to ensure that conditions are favourable to the retention of the maximum possible value added within the economy. We will continue to seek ways of encouraging firms to locate new plants in Ireland, both existing firms and newcomers from abroad.

We will, moreover, have to treat with particular caution indicators of industrial success such as productivity growth rates and expansion of export sales abroad, disaggregating them to take into account the degree to which movements in these measures are attributable to the profit component in the case of foreign-owned companies.

We will continue to have the attraction of foreign firms as a major plank in our industrial policy while stressing the importance of the need to develop strong indigenous companies.

Certain issues arise also in connection with incomes policy. Some may feel that in certain sectors and firms where wage costs form a small portion of value added, and large profits are being earned and repatriated, employers can afford a high wage settlement. But there are two problems here. First, as the Government have already remarked in their background paper on employment of some weeks ago, such settlements in high profit companies may set headlines for industries where many firms are on the margins of solvency, and would undoubtedly lead to job losses in the weaker sectors. Furthermore, even if these firms are earning high profits, their choice is often not between earning high profits and earning lower profits but between earning high profits here and earning high profits in some other country. High wage settlements in such companies may simply cause them to move away, and would certainly seriously reduce the attraction of Ireland for prospective new firms choosing a location.

Turning finally to the Government's broad economic strategy, I would like to stress that the new figures in no way alter the fact that our policies have been dramatically successful in reducing the balance of payments deficit.

Mr. Reynolds

Putting them all on the ship and sending them away is the only answer.

That means the country was left in even worse shape than we thought at the time. In order to keep the external reserves at an adequate level, we had to borrow more abroad than would have been expected for that level of current account deficit. This was then interpreted as being due to an outflow of investment funds by Irish residents. As it now transpires, an under-recording of royalties and profit repatriation, rather than large capital outflows, was the cause.

In short, the Fianna Fáil Government's reckless policies had left us with an even larger current account balance of international payments deficit than we knew at the time, namely, 15½ per cent of GNP as we now know rather than 13½ per cent. The need for the restrictive policies which we then initiated was greater even than we then realised. Since then our corrective policies have been strikingly effective in bringing down this deficit, from 15½ per cent of GNP in 1981 to 11 per cent in 1982 and to 6½ per cent in 1983.

The success of our policy in reducing the balance of payments deficit is, therefore, confirmed by the new figures. The Opposition's suggestions to the contrary are malicious, untrue and damaging to the national interest.

Mr. Wilson

Is it not the case that a ruling was given that the word "malicious" was not a parliamentary word?

An Ceann Comhairle

I had that word withdrawn yesterday and I ask the Taoiseach now to withdraw it.

The Taoiseach

Certainly. The Opposition's suggestions to the contrary are unfounded, incorrect and damaging to the national interest.

Dr. Woods

Will the Taoiseach have the word withdrawn from the document he has circulated?

An Ceann Comhairle

The Deputy will resume his seat at once.

Mr. E. Collins

Fianna Fáil had four budgets wrong.

Dr. Woods

The Government have no interest in the ordinary working man and everyone knows that. I am only saying what everyone outside this House is saying.

The Taoiseach

Those budgets introduced by Fianna Fáil are now seen to have been disastrous, not because of any differences between the balance of payments figures upon which they were working and those now revealed, but because they led the country on a course of disaster from which it will take many years to recover. This fundamental truth will not be obscured by the kind of nonsense that the party in Opposition — and rightly in Opposition — have been producing on the subject of the revision of the balance of payments figures.

Mr. Reynolds

We will see what happens in Laois-Offaly.

Mr. Haughey

People from outside this country are often intrigued by the words we use to describe particular situations. The best example, I suppose, is our description of the period of the Second World War as the "Emergency". I think, however, that this Government and this Minister for Finance have added a new euphemism to the list when he called the more than doubling of the balance of payments deficit in 1983 "revisions." Incidentally, are Deputies opposite not going to stay and take their medicine? Are they all running away as usual?

Mr. E. Collins

We can get comedians on television.

Mr. Haughey

These "revisions" are a disclosure of the greatest single blunder in the management of the finances of this State. It is not just that a wrong figure was published. What has happened is that the very basis of the annual budget was false and the consequences arising from this basic mistake are unprecedented.

The size of the balance of payments deficit is a key element in determining budget strategy. Very often the entire budget strategy is decided by the size of the balance of payments deficit. If this key element, as has happened on this occasion, has been miscalculated, then the whole strategy of the budget becomes meaningless. That is the reality which not just this Government but the country must face.

The size of the balance of payments deficit also affects the figure for GNP. This Government have taken to using GNP percentages as their measuring rod for economic and financial policy. If the measurement of GNP has been seriously miscalculated because the wrong figure was entered for the balance of payments deficit, then all their calculations become equally useless.

On the question of the balance of payments deficit and its importance with regard to budgetary policy, let me remind the House of one famous occasion in 1956. Because the balance of payments deficit disclosed a particular situation, the then Coalition — I recall Dr. Whitaker was the new Secretary of the Department of Finance — brought in special import levies which caused absolute and total disaster to the economy. Those special levies were brought in because a certain balance of payments deficit had been disclosed. The Taoiseach, the Minister for Finance or any other person should not try to tell us that the balance of payments deficit is not one of the principal features in the formation of budgetary strategy.

This Government and this Minister for Finance set financial rectitude and the balancing of the books as the principal objective of their economic and fiscal policy. Everything else was subordinate to that precious objective. It now appears they cannot even get the sums right. They have made a blunder in their basic calculations of monumental and disastrous proportions and no amount of waffling by the Taoiseach or the Minister for Finance can disguise that fact from the nation.

This Minister for Finance has caused a great deal of frustration and impatience on all sides of the House by the manner in which he has dealt with the various items of business for which he is responsible in this House. We have all had to endure the experience of having convincing arguments met by a completely wooden response; a refusal to listen; a boring repetition of the official brief. He has established for himself a reputation as the complete technocrat, someone on whom the Department of Finance could depend totally never to depart one syllable from their neatly prepared briefs. There were some who were even prepared to see him as a competent technocrat and gave him credit for that. He has now, however, demonstrated that while technocrat he may be, competent he is not. He has got the figures wrong to the point of absurdity. His budget is a nonsense. The whole economic and financial outlook has been thrown into doubt and uncertainty.

The Taoiseach must now dispense with the services of this discredited Minister and arrange that a new Minister for Finance will bring in a recast set of figures which will reflect the reality of the situation. This mistake is too big and too serious for this Minister ever again to put forward any financial measure, least of all a budget with any semblance of credibility.

Lest there be any doubt about the claims made by the Minister for Finance in regard to the size of the balance of payments deficit for 1983, let me quote from his 1984 budget statement.

While inflation has come down significantly and the balance of payments problem has been greatly alleviated, consumption has declined, investment has fallen, unemployment has risen, and growth has been stifled.

The Minister went on in his description of the economic situation to claim that in 1983.

the balance of payments deficit was reduced from over 8½ per cent of GNP in 1982 to about 2½ per cent in 1983.

This was one of the pillars on which the so-called ‘neutral' budget strategy was based.

The Taoiseach is now claiming credit on the basis of a new set of figures and a new set of percentages. Has there ever been such audacity in the economic history of the country? On 2 February 1984 in a speech in Cork the Minister for Finance said:

It is only by sound management of the nation's finances that the basis for sustainable and adequate growth in the economy can be firmly established. Our policies are clearly working in that direction. They have succeeded dramatically in reducing the deficit for our balance of payments from 13 per cent of our national output in 1981 to less than 3 per cent in 1983.

That is the figure the Minister is using to claim a dramatic reduction in the balance of payments. The Minister for Finance went on to say:

In this way, we have considerably eased the external constraint on the domestic economy.

This is all based on the dramatic reduction to 3 per cent which is not there any more. The Government and the Minister misled the country by bringing in a bogus budget on the basis of those figures. Now the very foundation of the Government's budget strategy has collapsed, everybody in the country knows it and they should now admit it. The achievement claimed has turned out to be non-existent. The balance of payments is not £340 million or 2½ per cent of GNP, but £863 million and 6½ per cent of GNP. There was a miscalculation of at least £500 million. Those figures will not go away and they are catastrophic from the point of view of the Government.

As soon as Dr. Antoin Murphy did his brilliant piece of research we in Fianna Fáil realised the significance of his thesis. I raised the issue in the Dáil in my speech on the budget and Deputy Michael O'Kennedy also raised it. I said:

The latest figures published by the Central Bank make it clear that the out-flow of money from this country in 1983 reached alarming proportions. Dr. Antoin Murphy dealt with this phenomenon in a very interesting article in The Sunday Tribune last Sunday. In 1983 there were unrecorded outflows of £837 million. There are two possible explanations for this, both of which are likely to be true in some measure. The first is that the balance of payments deficit is considerably higher than official figures would suggest.

An Ceann Comhairle

Would the Deputy please give the reference from which he is quoting?

Mr. Haughey

It is Volume 347, No. 7, column 1422.

If account is taken of cross-Border smuggling and other unrecorded transactions, then the balance of payments deficit last year is most certainly higher than the official figure, for which the Government like to take credit, and could be of the order of £500 million, £600 million, £700 million or more. The other explanation, if most of the £837 million is on the capital side, is that investors do not have confidence in the way that the economy is being run by this Government. If they did not have confidence last year they will have even less confidence after the Minister's budget and "bond-washing" debacle. Whether we have a much larger balance of payments deficit than the Government have claimed or whether we have a loss of investor confidence, there is a situation that is a cause for concern and one which the Minister for Finance must deal with when he is replying to this debate.

The Minister for Finance did not pay any attention at that time and I now want to ask why. Were the Government unaware of the problem? No Government have had so many economists inside and outside the Cabinet to advise them, yet no Government have got their sums so wrong so often. It is hardly credible that the Taoiseach and the Minister for Finance were unaware of the true situation and there must be strong suspicion that they deliberately withheld information from the public to conceal the full extent of their mismanagement of the economy in 1983. There is, in fact, some evidence pointing clearly in that direction. It should now be recalled that on page 8 of the Economic Background to the Budget, the document published before the budget, it is stated:

The coverage of the statistics for the international balance of payments is being reviewed and the results, which may be available later this year, could require the Estimates of the current account deficit for recent years to be revised. However, the revisions are unlikely to alter significantly the improvement in the trend in the period under review.

In Dr. Murphy's famous black hole article in The Sunday Tribune and in subsequent discussion, the question was raised whether the gap was on the current or the capital side. But the Government knew before the budget that it was on the current side. If they knew that they must also have had some idea of the extent of the discrepancy when they were bringing in their budget. There must be a very deep suspicion that they did. I consider this withholding of vital information and basing his budget on information he must have known to be incorrect, constitutes valid grounds for demanding the resignation of the Minister for Finance.

If these same economists are going to be trotted out on occasions like this they have to take what is coming to them. In my view this man has dishonestly attempted to suggest that the Government were relieved to discover that the mistake was on the current side and not on the capital side. But the Government indicated at budget time that they knew that any discrepancy that existed was on the current side. This incredible blunder — while the biggest and most clearly identifiable one in the history of the State — is one only of a chapter of mistakes in the handling of our finances by this Minister.

At budget time we had the bond washing episode which brought the Stock Exchange to a halt and shook financial confidence at that time. The effects of that piece of mishandling of a major change can be seen in the latest Central Bank Report. I should like Deputies to study this carefully. These figures now published by the Central Bank show an unprecedented level of foreign borrowing in the first three months of 1984. Between January and March of this year the Government borrowed £677 million abroad, or 85 per cent of the total level of foreign borrowing in 1983. That unprecedented level of foreign borrowing was the direct consequence of the Minister's action and his subsequent inability to raise funds on the domestic market.

Mr. Dukes

Nothing of the kind.

Mr. Haughey

One of the principal objectives of his budgetary strategy announced was to reduce foreign borrowing. Yet, by his own action, he forced himself to do more foreign borrowing than ever before.

This Minister has had no regard to the impact of his measures in that area. He has at various times spoken of the need to cut current Government expenditure. However, he has completely failed to do this. Instead he has increased indirect taxation to the point where it is the highest in Europe and direct taxation to a level which acts as a total disincentive to work and effort. He has also cut investment, which has reduced employment in the construction industry by a third.

I would never regard saying a person had political associations as an allegation or an accusation. Everybody should have political associations of one kind or another.

The Minister should stick to his finance brief. I want to conclude by saying this is a major blunder, the greatest single blunder ever committed in the financial management of our affairs since the State was founded. It throws into doubt and uncertainty the entire budgetary process and strategy undertaken by the Minister for Finance. It means that we will have to bring in, if not a new budget, at least re-cast figures so that the country will know exactly where it stands. The 1984 budget no longer has any credibility. A Minister for Finance who made such a major mistake in economic and financial planning does not deserve the confidence of this House and should in all honour resign today.

Mr. De Rossa

The debate so far has been concerned with the question of who is most to blame for not recognising the extent of what has now become known as the black hole. It is fairly common knowledge that the so-called black hole has existed for some considerable time. What is astonishing is the extent of the repatriation of profits and the export of capital by various companies and individuals from this State. The fact that the extent of that export of profits is only now being quantified in any realistic way is a damning indictment not only of this Government but of previous Governments who were in power while this was going on.

It has to be said also that the profits which are being exported are estimated at £500 million, and I stress that it is still only an estimate. So far as we can ascertain there is no clear picture yet. The Taoiseach indicated that there is still something like £300 million which they cannot earmark, or say from where it is coming and to where it is going. This Government and previous Governments were responsible for allowing the export of that kind of wealth which was created by the efforts of the working class, at a time when we have massive unemployment, when we are told workers must take real cuts in their take-home pay, when education cuts and health cuts are rampant, and when we are told it is not possible to reduce or spread more equitably the tax and PRSI burdens which the PAYE sector carry almost alone.

This aspect of the debate has to be highlighted. It is all very fine for the Leader of the Fianna Fáil Party to accuse the Government of a massive blunder. There is no doubt that blundering is involved, but he must accept his share of the responsibility for previous administrations. There is also some sleight of hand involved. This Government and previous Governments embarked on a policy of inviting foreign multi-nationals to come here. The sales pitch of the IDA in the USA is that multi-nationals establishing here can make up to twice the profits they could make in any other EEC country and, in some instances, they can make up to three times the profits they could make in some EEC countries. The sales pitch also includes references to the fact that they can repatriate 100 per cent of the profits made.

It is not realistic or acceptable for people in this House who have been involved in promoting that kind of policy to throw up their hands in horror when they discover that the multi-nationals are doing precisely what they were told they could do. It has to be brought home that there is a need not only to establish an adequate system of having correct statistics about what is going on in our economy but that some attempt has to be made to ensure that the wealth created here is invested here. I find it astonishing that the Taoiseach in his statement this morning said:

nor is there any question of impeding the repartriation of profits and royalties by these firms, although we will of course remain concerned to ensure that conditions are favourable to the retention of the maximum possible value added within the economy.

I realise that I may be rubbing it in a little to Deputy O'Kennedy, who has been deprived of the bone he has been eagerly expecting to gnaw for the last few months. I am afraid he will have to contain his soul in patience because the juice is not in the bone that he thought was there.

In making statements in the House here today, one of the Government's objectives was by discussing the revisions and their possible implications in the House to bring about an improved public understanding of the issues. We had hoped that this would have helped to avoid ill-advised responses which would have damaged international confidence in the economy.

The term "black hole" which has been used to describe the residual item in the previous accounts is unfortunate and misleading. Its implication was that something was missing. The reality is that nothing has been found to be missing, and I cannot repeat that too often. The revisions do not change the scale of outflows from the economy. The bottom line, which is the level of the external reserves, that is our holdings of foreign currencies, has not changed. The revisions should, therefore, not affect our standing with the international financial community. They are a re-allocation to the current account of the flows which were previously assigned as unrecorded outflows of private capital, and they arise mainly from a marked revision in the estimates of profits, dividends, royalties and other payments remitted abroad by foreign-controlled manufacturing enterprises. I intend in a few moments to go into the reasons why those remittances take place.

Apart from the profit outflow, the overall profit figures have also been looked at by the CSO and this has resulted in an upward revision in gross domestic product. However, as a consequence of the greater than originally estimated outflow of profits, the estimates of GNP are little changed and GNP growth rates were largely unaffected. I would like to recall for the Deputy the changes that have been brought about in the estimates of GNP growth rates as a result of these changes in the figures. For the period 1979-80 the growth rate was reduced by 0.3 per cent. For the period 1980-81 it was increased by 0.4 per cent and for 1981-82 the revision of the figures makes no change to the estimate in growth of GNP.

The revisions reflect the strong performance of certain sectors of the economy and should result in greater confidence in the economy. This is underlined by the very encouraging performance on the merchandise trade account. Moreover, the fact that it has been made clear that the former balancing item did not represent a substantial capital outflow confirms that Government policies have engendered confidence. The challenge for us is to make the economy sufficiently competitive so that a greater proportion of these profits will be reinvested here and the inflow of investment capital can be increased.

One commentator in the media has attached some significance to the fact that not all of the previous residual has been attributed to the current account. In language which was surprising for an academic economist, because of its inexactitude, he stated that the CSO:

... has been able to trace just over £500m. of the funds gone missing through the ‘Black Hole' in the balance of payments in 1983.

That quotation is from an article by Dr. Antoin Murphy in the Irish Independent of last Tuesday, 29 May. The first comment I would make on that statement is, of course, that no funds have gone missing. Secondly, if we examine the tables included in the CSO release it is clear that the net residual item — to which presumably this commentator was referring — has varied considerably over the five-year period covered by the revisions both in sign and in magnitude. It was a credit item in 1980 and 1981 and has been a debit item for the other three years. This is precisely the sort of pattern one would expect from a balancing or residual item.

There are two other aspects to the item which are reassuring. Firstly, as the CSO statement explains, it is not out of line with international experience. Some examples are given in the CSO statement of what the experience in other countries has been. I would like to elaborate on that a little because this puts our debate in perspective. In Ireland it has varied from +1 in 1981 to -2.1 in 1983. In the UK it has varied from -0.3 in 1980 to -3.5 in 1982. In the US it has varied from +6.1 in 1980 to +9.1 in 1982. It is clear, and it is in the nature of an item of that kind, that it would vary in different directions from one year to the next. Secondly, changes in the residual, both in sign and magnitude, can be explained in large part by the impact of changes inthe merchandise trade deficit on the pattern of trade credits. This aspect is a technical one and I do not propose to dwell on it at this point.

The Opposition were reported on Tuesday morning as having said and repeated again today that the revision had revealed that the improvement in the balance of payments deficit was non-existent and that this negated the sole achievement for which the Government had previously claimed credit. I am amazed at the naiveté of that statement. The figures show that the current external deficit has in nominal terms almost been halved from the high point of almost £1.6 billion in 1981 to £863 million at the end of last year. Deputy Haughey said this morning that a figure of 6.5 per cent of GNP was catastrophic for the end of last year. What adjective, if any, would he have applied to a figure of 15.3 per cent of GNP at the end of 1981? In percentage GNP terms the fall in the period I have mentioned, from 1981 to the end of last year, is nine points. As a consequence of that we have reduced Exchequer foreign borrowing from £1,255 million in 1981 to £828 million in 1983. The deficit at the end of 1983 was, even in nominal terms before allowance was made for inflation, the lowest recorded over the five-year period covered by the revisions. The assertion that the revisions put a question mark over the Government's policy stance is groundless. The contrary is the case. The upward revisions to the current external deficit underline the justification for the fiscal policies which have been pursued by this Government. The very significant improvement in the deficit from the high levels of the 1979 to 1981 period demonstrate that the Government's policies have been effective and fully justified.

The budgetary strategy being pursued by the Government in 1984 is not in any way invalidated by the balance of payments figures. The policies implemented in 1983 brought a substantial improvement in both the budgetary position and the balance of payments position. Those improvements gave us room for manoeuvre this year and allowed us to seek a further modest reduction in Government borrowing as a percentage of GNP while avoiding action which would have had a major deflationary impact on the economy, action which would have impaired our economy's ability to benefit from the slowly developing upturn in world economic activity.

The revisions to the balance of payments and national accounts figures have no significant implications for the 1984 budgetary figures. To pretend otherwise is totally nonsensical and can be done only out of ignorance or a frustrated desire to find something in these figures on which to capitalise. They do not affect Government expenditure and could have only a marginal effect, if any, on the forecast of Government revenue. The changes in the national accounts aggregates, particularly on personal consumer expenditure and profits, are being examined to see whether they imply any alteration in tax elasticities and relationships.

Remittances abroad by industrial enterprises located here have made the main contribution to the upward revision of the current external deficit. Understandably, this had lead to a great deal of comment. There have been calls for a review of industrial policy. There have been assertions that this disclosure puts a question mark over the industrial policies pursued in this country for the past 25 years or so.

The more extravagant statements can be ascribed to the need for instant comment to which newspaper editorial writers and Opposition politicians are both victims. I would hope today's statements will result in a more sober and informed assessment of the implications of the new data.

The first point is that industrial policy is already being reviewed. The Government are about to publish a White Paper on Industrial Policy. One of the main objectives of this review will be to increase the value added in Irish industry. The new data do not affect this policy thrust in any fundamental way.

I cannot emphasise too highly that the data are not bringing to light any unexpected change in the behaviour patterns of foreign companies located here. We have known for some time that these companies located here have generally been profitable. This is something which we should applaud. It enhances the appeal of Ireland as an attractive location for industrial investment.

The IDA for some years past, under this and previous Governments, have laid considerable emphasis on this fact in their promotional activities. Data produced by the US Department of Commerce on the profitability of American investment in this country has been freely available. Factors which lead overseas companies to locate in Ireland include the taxation and incentive package which enables them to earn high surpluses and the fact that these surpluses could be repatriated easily.

I have used the word "surplus" rather than "profit" deliberately. The remittances involve not just repatriation of profits but also in some cases royalty and interest payments arising from external borrowings by overseas companies and purchases of technology and know-how. Even the profit element in the funds remitted abroad does not consist solely of profits in the sense that the term that is normally understood — that is, the margin that is left to the individual and the company when all the costs incurred have been met.

Most of the companies which have located here in recent years have been in the high technology sectors, mainly electronics and chemicals. This is illustrated by the phenomenal average annual growth rate of over 38 per cent in our electronics and chemicals exports over the past five years and the fact that these sectors are now estimated to account for approximately one fifth of Irish industrial output as opposed to only 12 per cent in 1979. The substantial research and development and marketing costs which are a feature of these industries for the main part have not been incurred in this country. The parent companies need the surplus from the production phase to remunerate these costs. Therefore, part of the remittances are nothing more than the cost of securing the technology and access to markets which was necessary in order to achieve the massive growth in exports and out put of recent years.

Irrespective of how we choose to pursue our industrialisation programme we have to purchase foreign technology and gain access to foreign markets. Both are expensive. International interdependence has reached the stage when no country, even the US and Japan, is technological self-sufficient. As a small country our indigenous technological capacity is naturally limited. We need foreign technology and we must pay for it.

If the assertion that the level of remittances signifies a policy failure were true it would mean that the industrial strategy has failed to yield significant benefits to the country. This is patently untrue as just a few facts will illustrate:

The industrial strategy has yielded a massive increase in industrial exports over the past five years. The contribution made by the manufacturing sector has lead to a major improvement in our merchandise trade balance. This was in deficit to the sum of £1,698 million in 1981. It has steadily improved and indeed for last month showed a surplus.

Eighty thousand people are employed in foreign-owned manufacturing companies. Their wages and salaries amount to at least £800 million annually.

The IDA estimate that the value of domestic purchases of raw materials and services made by these companies is of the order of £1,000 million per annum.

Industrial development strategy does not remain static. Policy has evolved gradually over the years in response to the needs of the domestic economy, changing technologies and the dynamics of the international market-place. It should be a source of considerable gratification to us that overseas companies attracted here during an earlier phase in the industrialisation process should have succeeded as well as they have. Many of these companies have undertaken or are contemplating further projects involving a deepening of their commitment to and involvement with the Irish economy. The IDA have engaged in active dialogue with these companies to encourage re-investment. Indeed, the Authority's best estimate is that as much as 45 per cent of the profits generated by overseas manufacturing companies are reinvested in Ireland.

Recognising the enormous potential gains to this country from capturing as much as possible of the value added now being created by overseas companies, the Government are at present in the process of finalising an industrial policy for the eighties which will set out strategies targeted at the creation of a high domestic added-value manufacturing sector. These will be detailed in the White Paper on Industrial Policy which will be published in the immediate future.

Any suggestions that we should prevent remittances being made by foreign firms located here can be regarded as irresponsible. As I have explained, these remittances are a normal part of the operations of international companies. Such companies have set up here on the understanding that they could remit their profits freely and that they would be in a position to pay royalties and to make contributions to the investment costs of their parent firms once their manufacturing operations had got off the ground here. Suggestions that we should interfere with that process should not lightly be made. They could have a very damaging effect on the rest of the benefits from those companies which I have illustrated — total wage and salary bills in the region of £800 million a year and total purchases of goods and services in this economy of more than £1,000 million a year.

There are two main policy lessons we can draw from the new statistics. The first is that they underline the need to deepen the involvement of overseas companies in our industrial sector. This means increasing their purchases of Irish goods and services and the range of functions that they carry out here — particularly the high added value "headquarters" functions of R & D, and marketing. The other priority is to upgrade the capacity of the indigenous industrial sector. Industrial policy is already directed towards these objectives; the forthcoming Industrial Policy White Paper will address them in detail.

It is evident, without going into details about policies and programmes that an essential requirement, both for the short and medium term, will be to improve the competitiveness of Irish industry. The current external deficit for 1983 was of the order of 6.5 per cent of GNP compared to 15.5 per cent of GDP in 1981. Even though we have made a very substantial improvement in the level, it is clear we cannot indefinitely finance a deficit of that level. In order to bring it down to a sustainable level we will have to increase output, particularly exports, and increase the inflow of inward investment including reinvested profits in Irish industry. This means creating and maintaining a favourable climate for investment. To achieve this the Irish economy will need to become more competitive both in regard to costs and the other aspects of competitiveness. This requirement applies both in the short and medium term. These revisions of the balance of payments statistics from that point of view constitute an additional justification for the stance taken by the Government this year in relation to pay policy.

The changes in the estimates for the outflow of remittances and the upward adjustment of corporate profits do not justify any departure from the Government's pay guidelines since only by adhering to the guidelines will industry improve its competitiveness and secure the resultant benefits in terms of output and employment.

The changes in the structure of Irish industry and exports indicate that the upward revision in the profits figure relates to a limited number of firms in a rather special position, that is, foreign firms in high-technology industries. The revisions do not, therefore, mean that there exists in industry generally a vastly higher level of profits which would justify claims for higher wages and salaries. The profitability of firms in particular sectors should not lead to high pay settlements which would set headlines for industries where many firms are in a weak financial position. Apart from putting existing jobs in vulnerable areas at risk, high wage settlements even in the high technology sectors would seriously impair our ability to attract new overseas investment and to expand employment. The objective should be to get firms in the stronger sectors to reinvest their resources to help create more jobs. A responsible approach to pay demands and determined efforts to improve the competitive base of the economy generally would help considerably in promoting this objective.

The revisions to the balance of payments statistics have necessitated consequential changes in the national accounts estimates for recent years. For the most part the alterations in the national accounts data have been confined mainly to the nominal levels of some of the individual aggregates, notably profits. They have not materially affected the estimates for growth in domestic output. Indeed, the revised national accounts show that, while real GDP grew marginally slower in 1980 than was previously thought, it grew at a faster rate in both 1981 and 1982. Estimates for growth in real GNP, which measured the resources available to the community after, for example, profits are paid abroad, show hardly any change at all in these years.

For 1983 we have not yet got the preliminary estimates of the national accounts from the Central Statistics Office. These will be published as usual in my Department's Economic Review and Outlook later in the year. However, at this stage I see no necessity to alter our view that real GDP showed little or no change last year.

For 1984 the prospect of some revival in economic activity, with real GDP growing by about 2 per cent, is not affected. The information we have on growth in manufacturing output and in exports so far this year is very encouraging in this regard. Growth in the output and exports of the high technology industrial sectors is still likely to dominate the outlook. As a result, we have no reason to expect a cessation of those profit outflows in 1984.

The broad policy conclusion deriving from our assessment of the revisions is that they underline the need for the priority which the Government have attached to restoring balance to the public finances and thus reducing over-spending in the economy and to the need for improving the competitiveness of the economy.

During the course of his remarks earlier Deputy Haughey referred to a passage in the Economic Background to the Budget which pointed out that coverage of statistics for the international balance of payments was being reviewed and that the results, which may be available later this year, could require the estimates of the current account deficit in recent years to be revised. He made quite a meal of that. He suggested that the Government and I were deliberately withholding information from the House and the public. I reject that. I signalled in that publication, as I have since in debates in the House, that the allegations made by the Opposition that this infamous "black hole" means that large amounts of capital were flowing out of the country were simply not true.

I pointed out to Deputy O'Kennedy on a number of occasions — he did not take up the invitation, more is the pity — that there were a great many other possible explanations for the variation in this residual item. It has all been there in front of him for quite a long time. To suggest that means we withheld information from the House or the public is nothing short of contemptible. I will not publish information of any kind until I am sure of the figures. I may know in advance what the explanation is likely to be. Anyone with half a head on his shoulders who knew what was going on in the review since 1982 would have seen that coming. Since I did not have the figures I would not publish them. I will not speculate nor will I accept any accusation of having withheld information from the House when Deputies opposite know it is not true.

——is based on complete ignorance of what the revision of these estimates means.

Mr. O'Kennedy

Our approach to this has been that the Government and the Minister, because of the collective responsibility of Government, have chosen to ignore what was evident at the time the budget was presented. There is a common assumption now that suddenly what is being called an outflow, "black hole" or whatever has been revealed within the last week with the publication of the CSO bulletin and that the Government have suddenly had to examine something that was not there to be examined before last week.

I pointed on that occasion also to the composition of that outflow and to the reasons for it. I said, as reported at column 1818 of the Official Report:

....the unrecorded trade with Northern Ireland, which everyone is very much aware of, the repatriation of profits by multinationals because of the bad investment climate here....

There followed an interjection by the Ceann Comhairle and I continued:

and money being transferred illegally out of the country because of the hopeless investment climate.

These are the three very elements that are being recognised now but the Minister's reply, as reported at column 1819 was:

I do not accept that the level of this residual indicates uniquely or unambiguously any of the things to which the Deputy has referred.

I do not follow the Deputy's argument.

Acting Chairman (Mr. Barrett,

Dublin North-West): Deputy O'Kennedy to continue without interruption.

Mr. Dukes

I should like to understand the point he is trying to make.

Mr. O'Kennedy

The attempt made by way of the economists associated with the Government was dealt with this morning. People who read such matters assume that economists attached to the Department of the Taoiseach are to be taken as representing the views of the Taoiseach. One hears nonsense of the kind that we have heard from Dr. Honohan, "a lot to be cheerful about in these new figures" and, worse still, "as an economist, I am cheered by the fact that they (meaning the policies) are not working better than expected". What in the name of Heavens is meant by that?

Of course, as the Central Statistics Office bulletin brings out, it has always been not just the practice but necessary about mid-year after the end of the preceding year to bring out revised estimates for balance of payments and other statistical data, based on the availability of data that were not available up to that point. I have acknowledged that, not just today but previously. It is clear that in each of the years referred to, 1979, 1980, 1981 and subsequently, there were revised estimates. I want to put these on the record. The difference between the revised estimate and the previous estimate in any of these cases was of little or no consequence by comparison with what we find now. For instance, in 1980 the Minister questioned me in the course of a discussion on this issue in the House when I was Minister for Finance, concerning the figure for 1980. The actual estimate was £882 million and the revised figure was £1,038 million, just about a £150 million difference, not a very precise figure but, nonetheless, tolerable having regard to the patterns over the years. Similarly, the 1981 figure was revised from £1,389 million to £1,595 million. We have never at any time found a revision of this present order which is a result of the distortion caused by Government policies.

I wish to refer back to the debate of 7 February 1984. On that occasion when I, at column 1819, referred particularly to the fact that it was not the revision which was new but the extent of the revision which was causing the problem, the Minister said:

Did the Deputy give any consideration to the reason why the residual here, for example, doubled between 1979 and 1980?

Mr. Dukes

They referred to the fact that they would shortly be published.

Mr. O'Kennedy

It must have been known by then. Six months ago in the House I mentioned conservatively a figure of £800 million. Here we have the Central Bank within days of this announcement not specifying precisely——

(Interruptions.)

Mr. B. Desmond

I find particularly reprehensible the suggestion that there would be any effort on the part of Government to delay publication or to put a particular gloss on the publication of this data. There was no effort whatsoever. It was discussed at Government in the normal way when a report is presented and permission sought for publication. I was surprised at Deputy Haughey's implication that the Government would endeavour to circumvent the public interest. The data have been published without delay and the information is available for all other Government Departments, the banking community and the public at large.

That being said, I confess that I was somewhat staggered by the size of the revision. The Taoiseach has given a clear exposition as to how the problem arose and how it was resolved. He has put the matter into correct perspective. He has not indulged in the rhetoric of the Leader of the Opposition who cannot resist the temptation——

Mr. R. Burke

The Minister will justify his Labour conscience somewhere.

Mr. B. Desmond

I am very upset by the reference made by the Leader of the Opposition to Mr. Brendan Walsh. I know the paranoia the Leader of the Opposition has towards academics, particularly those with economic qualifications, but he should not descend to that level. I do not know many of those who have agreed in the public interest to serve on the Statistical Council but those I know are persons whose integrity and independence of view has always been respected by individual politicians. I regret that the Leader of the Opposition should have descended to this level in his usual flurry of rhetoric, so magnificently delivered. Our statistical services have been heavily burdened in recent years with a variety of new requirements imposed by our obligations in the EEC and this has led to some delay in the publication of statistics. While it is not true to say that outdated data are of no use, very often the usefulness of data declines dramatically with age. In the Department of Health and in the Department of Social Welfare, where we spend 40 per cent of the total national budget, the effective use of computerisation has led to the elimination of a number of problems that had become apparent in the compilation of official data.

Mr. R. Burke

It will be much easier to compile figures in the Department of Health when one considers the number of units the Minister has closed.

Mr. B. Desmond

This is supposed to be a deliberative assembly. The new council will be of considerable assistance in giving advice and guidance. I hope to see more effective use of computerisation in the compilation of official statistics and also in the regular consultations regarding data. Computerised data banks have been increasing and at official level there must be greater development in this area. Therefore, I hope that co-ordination between the different producers of statistics in the public sector will extend to these developments as well as to the collection and preparation of data.

Reference has been made to the fact that this revision has been suggested that for some reason the Government or the CSO have been trying to conceal the data. To my knowledge there is no question of that. The essential point is that the CSO have discovered — I use that word in a broad sense — profits by industrial firms, mainly foreign-based, that had not been recorded by the CSO. In the health area I have seen at first hand the phenomenal growth of pharmaceutical and chemical companies as well as companies dealing with medical technology and I have seen the extent of their exports and the employment they give. As the Minister for Finance pointed out, some 80,000 persons are employed by foreign-owned companies who pay £800 million a year in wages and salaries and they purchase £1,000 million of domestic goods and services. It is of critical importance that the CSO should have access to all of those companies, particularly the major ones, to ensure that the data is up-to-date.

I have always been surprised at the extent to which American investment analysts have indicated the profitability of the Irish industrial base. The evidence before us of the repatriation of royalties and profits underlines that statement. Since repartriation of profits is treated as a current item in the balance of payments, rather like an invisible export, the discovery here means that the estimated balance of payments and current account deficit as revised are much higher than was anticipated.

I am glad the Deputy notes that we have a conscience.

Mr. R. Burke

Deputy Desmond said he was amazed that there was any questioning of the statistics on the international balance of payments. However, Deputy Haughey referred to the Economic Background to the Budget which was printed prior to the budget which said:

We all know how accurate that statement is. Deputy Desmond, in a typical conscience clearing statement, said that he had a doubt as to the particular industrial strategy in referring to the industrial policy that has been followed over the years by successive administrations, that is the right of foreign manufacturers to repatriate funds. Surely that is sabotage of a Government and national sabotage when the Taoiseach said earlier this morning that there is no question of changing that incentive which has been available through successive administrations? Deputy Desmond cannot have it both ways but, in typical fashion, he tries to.

The Minister for Health also referred to the critical importance of the independence of the CSO and suggested that Deputy Haughey's contribution in some way damaged that independence. What were the Government doing last night if they were not attempting to damage the independence of the CSO by giving out the clear message that they were setting up a watchdog? There was a clear impression given by the Government spokesmen and handlers that it was in some way a reprimand to the CSO. I quote from The Irish Press for today:

The Government last night delivered a rebuke to the Central Statistics Office over the £500m. error in the country's balance of payments by appointing a seven-member council to examine the way statistics are gathered.

It might suit the Taoiseach, the Minister for Finance and the Minister for Health to say that they are not criticising the CSO in any way or setting up a political watchdog body but, in another way, it suits them for the handlers to give a message through the media that the CSO are to blame and that it has nothing to do with the Government who are operating on the basis of the information available to them. They cannot have it both ways despite the fact that they are like two asses pulling in different directions at all times. The Government have been trying to mislead the Irish people and have got away with it for a while, but their message is no longer being heeded.

He should use it in a proper way.

Mr. R. Burke

One of the pillars of the strategy which the Minister used for his budget which was to change the direction of this economy for 12 months has been seen to be rooted in quicksand. The strategy was wrong. The budget was wrong. We said so at the time. We are now calling for the resignation of the Minister.

Mr. O'Malley

In the few minutes available to me I should like to refer briefly to some of the matters I would have wished to discuss in this debate if I had more time. I should like to thank my friend Deputy Burke for allowing me the five minutes I have.

Many questions were raised by what has been disclosed in the past few days which have not been answered. I do not know whether the Taoiseach or the Minister for Finance will reply to this debate, but whichever of them it is might reply to some of the questions which I will raise. It has fascinated me for some time that, although we have regular monthly trade figures, we never had regular balance of payments figures so far as I can see. It is interesting to notice that yesterday morning in London the British Government were able to publish their balance of ments as opposed to their balance of trade situation for the month of April. We never get these monthly figures. I doubt that we even get annual figures. We get estimates made in June or July of the following year of what the balance of payments for the previous calender or fiscal year was. If the British can produce them on a monthly basis with a much more complicated internationalised economy than ours, I fail to see why we cannot do it. If these figures had been given to us regularly, we would not be facing the very disturbing situation we face today.

We and the country are entitled to ask why apparently there has been no co-ordination over the past four years between the Central Bank and the Central Statistics Office. The position with regard to exchange controls which were introduced early in 1979 is that permission, even for small payments, has to be given by the Central Bank. Under the regulations made in 1979 they are expected to report both outgoing and incoming receipts as low as £50,000. If that was passed on in the normal way into all the various organs of Government, why is it that the Central Statistics Office did not get it or, if they did get it, why did they not take it into account?

Obviously political responsibility for this mess has to finish up with the Government and individual members of the Government, but it is a bit facile to say certain organs of the public service have served the country well if they have neglected to take account of the quite different situation which has existed here since exchange controls were introduced on the present basis in 1979. I note that a great deal of agitation has been stirred up within the past couple of days by the Government's original explanation that this extra £700 million represented transferred or remitted profits.

When we look at it more carefully, we see that money does not represent profits at all. To my mind, the reality of it is a transfer out of this country of positive cash flow as opposed to profits properly speaking. It is perfectly understandable that that would take place. For many of these companies their only activity here is in manufacturing. The debate takes no account of the fact that multinational corporations are very well geared for the fixing of what are called transfer prices. Because of the tax regime here it suits such corporations — and we should expect that and regard it as perfectly normal — to seek to maximise their paper profits in a regime which from the point of view of corporate tax is particularly favourable, as this one is. I wonder why it is that in deciding on these matters over the last number of years that those whose job it is to do that did not take into account, for example, the figures extrapolated by the IDA from the Department of Commerce returns in Washington which showed that the profits made in Ireland were only repatriated to the United States to the extent of about one third. Unfortunately, there is a lot more I would wish to say but I do not have an opportunity to do so.

The Taoiseach

I regret that Deputy O'Malley had not a chance to develop his points more fully but I am not in a position to concede him time as I have only ten minutes myself. I would have been happy to do so if I had a little more leeway. When Deputy Haughey was speaking he suggested that the size of the balance of payments deficit was the essential determinant of budgetary policy. As a former Minister for Finance I believe he knows that is not in fact the case. That is most simplistic approach. The direction in which the balance of payments is moving is at least as important — I think fundamentally more important — as the actual size. The fact is that in the period in question the balance of payments deficit as a share of GNP has now been shown by the revised figures to have fallen by nine percentage points which is only fractionally less than what we thought was previously the case and the figures that have now been revised. The Government's policy therefore has been shown by these figures to have achieved almost identical results in terms of the correction of the balance of payments deficit with that which we had thought was being done on the basis of the old figures. That is really the fundamental point rather than the question of size.

As I have pointed out in my remarks, Deputy Haughey's suggestion that our budgetary policy was in some way totally incorrect because it was based on wrong figures is, first of all, wrong in itself and, secondly, would if it were true be a condemnation of his party's budgets of 1979, 1980, January 1981 and March 1982, all of which were based on the previously unrevised figures with differences of several hundred million pounds in each case. I do not think he pursued that argument much further having walked into that trap himself. When he was talking about the difference he alleged the knowledge of these figures would, or should, or could have made to budgetary policy he seemed to imply that it might have justified a less restrictive budgetary policy and one more likely to generate growth. The logic of that defeats me because if the difference in the size of the current balance of payments were to have any influence on budgetary policy then the discovery that it is larger rather than smaller would require more restrictive policies. I do not see that this is the case in the present instance. Looking back at the budget of that time I think I can say that had I known that the figure for the balance of payments was as we now know it to be it would not have changed my view, or the Government's view as far as I can judge, as to the budget. I do not believe it would have made it more restrictive or that we would have changed our minds about it.

The thing that really staggered me about Deputy Haughey was when he said that there was no essential difference between an outflow of capital and an outflow of profits. I find it very hard to believe that anybody who has had public responsibility should speak in those terms. Of course they are totally different. Profits have to be earned and normally, as in our case, only part are repatriated. The IDA figures would suggest that the total profits of foreign firms are almost double those repatriated and that, therefore, a substantial amount was added to income kept here. An outflow of capital on the other hand, could be a serious matter. It could suggest a lack of confidence in the management of our economy. The fact that this suggestion implicit in the earlier figures has been eliminated is basically a cause of great reassurance where some doubts were being cast upon the policies being pursued. There was suggestion that money was leaving the country but we now know that that in fact was not the case. I cannot imagine two things more different than the situation when we discovered that the activities carried on in the country have been more profitable than one thought on the one hand and, therefore, enterprise was more successful and we are in a position to attract more capital into the country and, on the other hand, an implication that there is an outflow of capital from the country due to a lack of confidence. The two are directly opposite to each other. How Deputy Haughey could suggest that there was no essential difference between them really defeats me and would suggest that in his case in dealing with this matter there was a total lack of seriousness. I believe that ran right through his speech.

Deputy Haughey stated that Fianna Fáil realised the significance of the residualising of the balance of payments and that he had raised it in the budget debate. He went on to quote from his own speech a passage which revealed that while he was aware, because we had drawn attention to the fact, that a revision was due in the document we published at that time that he knew some more than we did of what the magnitude of it was and what its significance would be. His own quotation makes nonsense of what he purported to be putting forward here. He suggested that the Government got their sums wrong. What we have done is to get the sums right. For the first time in a very considerable number of years we know that we have balance of payments figures which are much more nearly exact than the ones we have had to live with for a long time. We are the Government who got the figures right and have published them when available. We have made them available so that people would know the true position. To suggest that we got the sums wrong does not seem to make a lot of sense in these circumstances.

There is a suggestion coming from the other side of the House that in some way we are trying to blame the CSO. We are not blaming the CSO but the figures we are dealing with are ones that were prepared by the CSO in consultation with other agencies. They have revised and corrected them. That is the matter we are here to discuss, the significance of that revision. We have not cast any particular blame on the CSO or any other agency. The fact is that the data required in order to establish the scale and nature of these payments became available only with the introduction of exchange control following the EMS. It took a good deal of time, firstly, before this data could be organised into a shape and form where it was useful and, secondly, before it could be then translated into actual figures. That work has been going on for some time. Indeed, the preliminary consultations go back to 1981. It was in 1982 when the Opposition were then in office that the work on this project started leading to the result we now have.

The Leader of the Opposition, and Deputy O'Kennedy, seemed to be suggesting that the establishment of the new Statistical Council is to oversee the CSO and that in appointing it we are in some way introducing a political element. I find that allegation detestable. Professor Brendan Walsh is one of the most eminent economists in this country. I think he has published more academic work of distinction than any other economist and it is highly regarded. There are very few economists who are as highly regarded. That the Leader of the Opposition should make such a contemptible remark and to suggest that the appointment of an economist of his distinction was in any way politicising the CSO goes beyond any normal behaviour in the House. Point scoring of that kind is undesirable. Anything that casts doubts on the independence of the CSO is undesirable. In establishing a council of the most eminent people available in a particular field of statistics, whether demographic, agricultural, social, mathematical or econometric, we have endeavoured to ensure that the CSO will have the maximum assistance with its work from the most distinguished people available. I hope the Leader of the Opposition will reconsider what he said and have the good manners and decency to withdraw it.

In his speech Deputy Haughey referred to the measurement of the GNP being seriously miscalculated. He said that if the measurement of GNP had been seriously miscalculated because the wrong figure was entered for the balance of payments deficit then all the calculations became equally useless. The fact is, as the Deputy would know if he had the document, that the GNP figures have not been significantly affected. The change in the GNP increase is a .3 per cent reduction in the growth of GNP in 1980 offset by a .4 per cent increase in the growth in 1981 with no change in 1982. The net effect is .1 per cent over three years. To talk about that as a serious miscalculation is on the part of the Leader of the Opposition a serious miscalculation. I have replied to the limited points in the debate. Frankly, the quality of the debate has been remarkably disappointing and very little has come from the Opposition. However, it has given us the opportunity to clarify a matter which has been the source of some public confusion. The nonsense talked on the other side of the House has now been thoroughly and effectively exposed and we can now get back to the ordinary work of running the country.

The Dáil adjourned at 2 p.m. until 12 noon on Monday, 4 June 1984.

Dáil Éireann díospóireacht - Thursday, 31 May 1984

Balance of Payments: Statements.

Dáil Éireann díospóireacht -
Thursday, 31 May 1984