Because this budget contains no measures to stimulate economic growth, it fails to meet the needs of the nation today and must be rejected by the Dáil. It has already been rejected by the people.
The formulation of economic and financial proposals for the coming year provided the Government with an opportunity to face the reality of our present situation and to make plans, based on that reality, to commence a programme of economic recovery. That would have involved a frank acknowledgment that the policies pursued over the last three years have not worked. It would also have involved an admission that the document, Building on Reality, is no longer relevant, that the targets and projections of that document have been abandoned and a statement that the document itself was being withdrawn and replaced by a new strategy.
This has not happened. The 1986 budget represents a continuation of existing Government policies. The opportunity it provided to make a new start has been missed.
The Government propose that we continue along the same dismal policy path in 1986 as we have been doing for the last three years. There will be continuing mass unemployment, exorbitant taxes, a further major increase in the national debt and still more harmful cutbacks in essential services, an outbreak of which we have seen in the last two days. It is quite clear that this budget is simply going to give us more of the same. There is no attempt to turn the economy around and start it moving in a new direction — a direction which would offer hope to a people who are deeply depressed and dispirited.
The year 1985 was another bad one for the Irish people, the third in succession. During 1985, economic growth came to a standstill and unemployment went up again to reach its highest level ever. As firm after firm closed down, more and more people lost confidence in their own country and emigration increased steadily.
But that was not the prospect offered by this Government and this Minister for Finance at budget time last year. Speaking in the 1985 budget debate, the Minister for Finance said, and I would like the House to listen particularly to these words: "At the beginning of 1985, the economy is, therefore, well placed for the substained expansion which is envisaged in the plan". That famous document, Building on Reality, which is becoming a kind of economic museum piece, includes the following statement:
In the final analysis, the success of any economic policy can be judged only by its impact on economic activity within the State, account being taken of the extent to which benefits are captured through numbers employed, levels of income, taxes and profits.
By those standards, which were set by this Government for themselves after being two years in office, their economic policy, which has brought growth to a standstill, created no new employment, pushed unemployment higher and higher, reduced incomes and profits, increased taxes, must be judged as a total failure. The depressing reality is that the existing policies which have brought us to the present disastrous economic and social situations are to be continued by this budget through 1986.
In my view, the high taxation policies of the Government have contributed more than any other single factor to reducing the economy to its present depressed state.
The existing levels of taxation, particularly personal taxation, are in a very large measure responsible for the prevailing mood of frustration, low morale and lack of confidence. They are choking enterprise and initiative and preventing investment and development in practically every area of the economy.
It is our view that this Government made a fundamental error of judgement when on assuming office, they gave complete priority, to the exclusion of all other economic and social objectives, not just to balancing the books but to achieving that balance mainly through the imposition of higher taxes.
From that crucial and erroneous decision, practically everything else has followed. Immediately on assuming office in 1981, they introduced a supplementary budget which imposed savage increases in taxation, thereby dealing a severe blow to an economy which was already feeling the effects of the international recession.
Since then, they have piled tax upon tax in every single year that followed. As a result, by the end of this year they will have taken over £2 billion extra in taxes from the people and out of the economy. This high taxation policy has depressed our economy further and further until we have now finally reached the present farreaching crisis situation.
It is absurd for this Government to attempt to deny the existence of the deep seated crisis in which we find ourselves when we have officially 240,000 people unemployed — officially 240,000, but as we all know, the figure is far higher — the highest ever current deficit, an enormous increase in Government borrowing, gone up from £12 billion when they took office to more than £20 billion today, and in the national debt.
The extent of the economic and financial crisis manifests itself in many ways. Perhaps the most chilling aspect of the crisis is the fact that national output is declining and revenues are falling, even though the rates of taxes are being increased. The entire Irish economy today is in a state of diminishing returns.
Over the last four years, revenue has persistently fallen short of budget targets. The cumulative shortfall for four years has now reached £545 million. Last year's shortfall of £123 million must surely set the alarm bells ringing. Revenue actually realised was a staggering £123 million less than the target set. For four years now, what has been happening is that the amount of revenue the Government have been attempting to raise has been greatly in excess of any anticipated growth rate.
In 1982, revenue was increased by 23.5 per cent on the previous year which was 9.75 per cent above the nominal rate of growth in GNP. In 1983, revenue was increased by 15.5 per cent compared with a nominal growth in GNP of 9 per cent. In 1985, however, the inevitable happened when the attempt to raise revenue by 7.5 per cent as against a nominal GNP growth rate of 5 per cent failed. The revenue refused to rise above the rise in nominal GNP. The process of taking more tax out of the economy than the rise in nominal GNP year after year when the economy was in deep recession could not continue indefinitely.
The experience of the last four years has great significance for this year's budget. It must cast serious doubt on the credibility of forecasts in the budget for tax revenue in 1986. That revenue is forecast once again to be well in excess of any possible nominal rise in GNP. The actual outcome of the last three years indicates, however, that this is not likely to be achieved.
The steady deterioration in the public finances over the past three years is perhaps most starkly indicated by the increase in the current budget deficit. Last year, at £1,284 million or 8.2 per cent of GNP, it was at the highest level ever in the history of the State. This year it will continue at a similar level and this Government, instead of eliminating the current budget deficit over a period of years, are in fact eliminating the public capital programme.
Is there any point in even mentioning at this stage that the current budget deficit projected for 1986 is about £180 million higher than the target set in Building on Reality? As the current budget deficit has risen and used up more and more of the amount borrowed by the Exchequer, the capital budget has been reduced each year accordingly. More and more money borrowed by this incompetent Government is going to meet the current budget deficit and less and less is available for investment in the economy through the public capital programme. That is the record of the past three years.
Before the budget was published, the public capital programme had been cut back to £1,706 million. Incredibly, a further £25 million was cut in that amount and announced in the budget. This, of course, is in complete contradiction to a statement in the 1986 public capital programme booklet which, speaking of the programme, states:
This reflects the pivotal role of State investment in the achievement of the objectives of long term growth and employment creation.
These are the Government's own words but despite the clear statement in this year's public capital programme booklet about the fundamental importance of the programme in generating investment and economic activity, the record shows a consistent reduction in the public capital programme during the past three years. This is, of course, economic madness. In money terms, the decline is from £1,835 million in 1982 to £1,681 million in 1986 — a reduction in real terms of about one-third. The decline in our investment programme is from 15 per cent of GNP in 1982 to 10 per cent of GNP this year. That sums is all up. Where are we going when we are actually reducing the proportion of GNP invested in future economic developments from 15 per cent to 10 per cent? In the budget the Minister for Finance announced an additional cut of £25 million in the capital programme. Of course the reason for the additional cut in capital expenditure is clear and I want to explain it to the House. It is typical of the deceptive approach of this Government towards our public finances. I use that word "deceptive" advisedly here in this House. For window-dressing, presentational purposes, it was obviously necessary to appear to reduce total public sector borrowing requirement — the Thatcherite phrase we must always keep in mind — from 15.7 per cent of GNP in 1985 to 14.2 per cent in 1986. In order to make it look well the figure had to be reduced to 14.2 per cent in 1986. When that could not be achieved through the management of current expenditure and the current budget deficit had to be presented as £1,250 million, then the only thing was to take this additional £25 million off the capital programme so that the right percentage of GNP for public sector borrowing could be presented to the public. This is a cynical and unforgiveable piece of manipulation of the public finances. Here we have a case of necessary and desirable capital expenditures already included in the public capital programme being cancelled so that the public sector borrowing requirement can be presented to the public in a favourable light.
The depressing reality about this area of the public finances is that while Government borrowing and the national debt kept on rising steadily, spiralling upwards, the amount available for economic development and infrastructure is being steadily reduced. What a contradiction in terms there is in this. The Government are borrowing more and more, the national debt is going up and up but less and less is being invested in the national economy.
When this major reduction in State investment through the public capital programme is added to the heavy increases in taxation which have been imposed, it is not surprising that we have reached a stage of cessation of growth in national output and permanent mass unemployment. For the last three years each winter has brought another sickening rise in the level of unemployment. In December 1985 alone, the figure rose by another 12,000 to bring it to the unprecedented level of 240,000. As we know, that is a serious understatement of the actual position. Our disastrous experience in rising unemployment must be starkly contrasted with the completely different situation in the rest of the EC. In most other countries in the Community unemployment has practically stopped rising since the end of 1983.
The average rise in unemployment in the EC was just above 1 per cent in the nine months to September 1985, whereas the rise here in Ireland was 8.5 per cent. While the Community as a whole were keeping their rising unemployment to 1 per cent, we were actually pushing ours up by 8.5 per cent. This denies this Coalition Government any excuse of pointing to a world-wide or Community situation as being responsible for our unemployment rate.
At 18 per cent our unemployment rate is the highest in the entire Community. This is despite the fact that in last year's budget this Minister for Finance had the audacity to tell us that employment would begin to go up in 1985. But it did not and the few limited measures brought forward in a flurry of public relations by the Government in October had no real effect on the outcome. The annoying feature of the situation is that, even as late as November, a Government statement to the people claimed that:
This package of measures to combat unemployment announced last week should further consolidate the improving trend indicated by today's figures.
The following month, December, we had an increase of 12,000 in the figure. In this whole area of employment and emigration, this Government have been and still are totally dishonest. They have made a series of false claims and unreliable projections to the extent that they have lost all credibility. Right through 1985, the Taoiseach, who on coming into office made the statement that he would always tell the people the truth, made a series of misleading statements one after the other to try to conceal from the people what exactly the situation was in regard to unemployment and emigration. Even now, he will not come clean on the issue of emigration.
It is interesting that my young colleague, Deputy Francis Fahey from Galway, is consistently trying to address questions to the Taoiseach on emigration and that the Taoiseach is equally consistently, through the use of parliamentary devices, avoiding answering those questions. It is my belief that were it not for the fact that the official figures of the live register have to be published every month we would not get the truth about unemployment either no more than we are getting it about emigration. The true position is that emigration continues unabated. The Central Statistics Office passenger figures would suggest that emigration was running at around 30,000 in 1984. The figures for the first six months in 1985 appear to be running at even higher levels still. This re-appearance of emigration in Irish national life is morally and psychologically the worst failure of the Government. It is a national humiliation and a constant reproach to the Government and their policies.
While the reduction of VAT on restaurants and selected services are welcome, they can only be of marginal effect and they are not related to any current strategy for employment. In fact there are quite a number of specific actions taken in the budget which will have a directly adverse effect on jobs, which will curtail investment and depress business activity and employment. The continuing reductions in investment, especially the reduction in public capital expenditure on building and construction and the decision to take £536 million more in taxes out of the economy this year, will create further deflationary pressures. The Taoiseach said only last November in the Royal Hospital, Kilmainham — I had the doubtful pleasure of hearing him — that:
The Government remain convinced that the economic strategy of stimulating growth is the only realistic approach to job creation and to the improvement of our national finances.
If the Taoiseach actually meant that why then did he not give us a budget that would stimulate growth instead of one which will depress the economy even further? Were his words in Kilmainham in fact just so much empty verbiage?
The principal new feature of this year's budget was the introduction of a withholding tax on interest paid on deposits in banks and other financial institutions.
Let us be absolutely clear that this is not a new levey on banks and financial institutions for the benefit of the income tax payer. It is simply a means of collecting more income tax from the public and the general body of income tax payers. The financial institutions concerned will not pay one penny more as a result of these changes.
To a considerable extent this new measure represents a book-keeping trick. It will have the effect of bringing forward revenue in the form of income tax that would normally be paid in the following year into this year so that in respect of a large amount of the tax payable on deposit interest the Government will take credit for two years' income in this one year.
It is certain in one way or another to generate an increase in bank interest rates and building society mortgage rates. Bank interest rates have been increased and building societies have already indicated that a rise in mortgage rates is very likely on the way as a result of these changes.
A very objectionable aspect of this new collection mechanism is that it will be grossly unfair and discriminatory in so far as small savers and those on low incomes are concerned, especially retired persons living on savings.
For individuals who because their incomes are small are not liable to income tax this new system will mean that they will pay income tax on income which is not taxable. Income tax will be deducted by the financial institutions from the interest payable to the depositor and paid over to the Government, and even though the person concerned is not liable to tax he or she will not be able to claim it back. This is unjust and inequitable. A sizeable proportion of the small deposits in our financial institutions would represent the life savings of older people and the interest on these deposits would represent a vital part of their small incomes. The Government propose to confiscate 35 per cent of that income. I use the word "confiscate" advisedly because, as these people would not be liable for income tax on the interest, they should be able to reclaim the tax deducted. They will not however be able to do so under these new provisions. In respect of one particular, group of people it can clearly be identified as naked confiscation of a portion of their income.
A married couple living on a contributory old age pension will receive just under £5,000 a year from July of this year — but their tax exemption limit will be at least £6,300. This means that over and above their old age pension they would be entitled to receive another £1,300 or more in deposit interest before they would become liable for income tax. But income tax at 35 per cent will be deducted from their deposit interest at source and they will not be entitled to claim it back. This is a glaring piece of injustice arising from this new provision which must be put right. This is not a tax on banks or financial institutions. In that, and many other cases, it is a confiscation of income from those on low incomes.
Here let me draw attention to one particularly glaring instance of contradiction in the approach of the Minister for Finance in this budget. In so far as the commercial banks are concerned, he is now giving them the benefit and the privilege of non-disclosure. From now on individuals, no matter how wealthy, will be entitled to place their money on deposit with a commercial bank and that bank will not be permitted to disclose to the Revenue Commissioners either the amount of the deposit or of the interest paid. On the other hand, the VHI, a State body which deals with the health of the people, an area which traditionally has been regarded as one where complete confidentiality should prevail, will in future be compelled to disclose personal financial information about both patients and doctors. We will not have the absurd situation where a businessman who may be engaged in some doubtful area of commerce will be entitled to hide his money away in complete secrecy with a financial institution while the law abiding citizen who is prudent enough to provide for his or her own health care will be compelled to reveal through the VHI their private medical history to the Revenue Commissioners. There is something about this divergence in the treatment of two different groups of citizens which is disturbing.
The world money markets are in a very volatile state at present. The psychology of the market place should always be taken into account when long established practices are being changed whatever the reasons for the change may be. It is legitimate to ask if the Government gave full consideration to the likely overall effects on savings, financial stability and the operations of the financial institutions, of the radical change made in this budget in the arrangements governing those financial institutions. The events of the last few days leave many of us with a suspicion that they are not unconnected with the approach of the Minister for Finance in the budget.
Everybody is putting a brave face on it, but there is fairly widespread questioning about its wider long-term implications. This is particularly true in the case of the life assurance world. This sudden imposition out of the blue of a direct tax on the income to assurance companies must have serious detrimental implications for their future operations. People contributing to pension schemes and endeavouring to provide for their retirement through life assurance and related schemes will certainly be affected adversely and are perturbed about this action by the Government.
A new child benefit scheme announced by the Minister in the budget has been rightly described as a confidence trick. The first thing to be noted about it is that it will supplant the existing children's allowances scheme. The value of children's allowances has declined considerably over recent years because of a consistent failure of the Coalition to increase them in line with inflation. Accordingly, the increase now proposed of £3 per child per month does not represent any significant improvement. This is especially so when we set against it the failure to extend the 4 per cent social welfare increase to child dependent allowances and abolition of the existing £100 child tax allowance. The reality is that the vast majority of families will get no increase in support for their children.
The increase of 4 per cent is completely inadequate and it is deplorable that it will not be paid until the third week in July. The Minister for Finance admits that the budget itself will raise the rate of inflation to at least 4.5 per cent and it is possible and likely that developments in the exchange rate of the Irish pound during the year could push it higher still. A reduction in food subsidies in April will further increase the cost of living for social welfare recipients. Many Deputies and commentators have already pointed out the hardship that will arise from the fact that while the additional cost and charges imposed in the budget on pensioners, lower income families and the unemployed will have immediate effect on household budgets, the small increase in social welfare will not come into effect until the third week in July which is the latest date ever. The poorest sections will have to pay all the increases immediately without any compensation until July.
That there is a serious hardship and deprivation among those who rely on social welfare for their standard of living is undeniable. It is a fact of life today that for well over one-third of our population, life is a constant daily struggle to make ends meet. This is a permanent state of affairs, not something that arises from time to time for them. There is no scope for the occasional luxury or the odd extra; it is the basic requirements — food, rent, heating and clothing that are the constant worry of countless thousands of housewives.
In this situation, a 4 per cent increase in social welfare benefits is almost completely meaningless. It will certainly bring no improvement in the circumstances of those on lower incomes. In the vast majority of cases, it will not make things any easier and as the year progresses, it is almost certain that their situation will actually disimprove. No matter how difficult the economic or financial situation may be, a Government have a moral duty to protect the living standards of those who are their special responsibility. This Government are simply not doing that. The Government made a very cold mathematical calculation this year. Their statistics show that the rate of inflation will be 4 per cent and that is the increase in social welfare recipients are going to get and not a penny more. That was not a very generous approach; the calculation is just a little too fine, too exact; there is no allowance for any margin of error or any inaccuracy in their measurement of the cost of living.
Another stated objective of the Minister for Finance in the budget is to achieve a major shift from direct to indirect taxation. This in itself, of course, militates decisively against the lower income section of the community and shifts more of the burden of taxation on to them.
I want to say calmly and without any degree of either emotion or exaggeration, that the social welfare provisions of the Coalition in this budget are a disgrace. The denial of the 4 per cent increase in the allowance for children specifically highlights and typifies their mean and miserable approach.
No one would seriously suggest that this Government deliberately framed a budget which is anti-family. What they can be accused of, however, is failing to understand or recognise that the combined effect of a number of different measures in the budget is very detrimental to families with children.
The increase in the standard VAT rate from 23 per cent to 25 per cent will increase the cost of practically all household purchases. The income tax allowance for children has been abolished. The miserly increase of 4 per cent in social welfare rates has not been extended to the children of the family. Nothing was done to compensate for the forthcoming rise in the price of bread and butter which will follow the reduction in the food subsidy in about a month's time.
I have heard and read speeches by the Taoiseach in which he has given expression to the finest caring humanitarian sentiments one could wish to hear. This miserable 4 per cent and its denial to the family makes a mockery of them all.
For the overwhelming majority of individuals, the income tax reliefs granted in this budget will be of marginal effect. They will not change the fact that we are the highest taxed country in the European Community and what relief there is will be greater for those at the higher end than for those at the lower end of the income scales. It is very much in keeping with the standard, traditional Fine Gael policy and outlook.
In the case of the overwhelming majority of taxpayers, however, the relatively minor reliefs in income tax will be more than wiped out by the taxes on motoring, beer, spirits, cigarettes, by increased VAT on household goods, increased charges for all kinds of services and higher bank interest and mortgage repayments. Even through the top rate of tax has been marginally reduced, a single person will still be paying a top rate of tax on an income of £10,500 and a married couple on an income of less than £20,000. Fianna Fáil see the high taxation policies of this Government, which are in no way altered by this budget, as being a principal cause of the depression in the economy and the record rise in unemployment. We believe that a substantial reduction in personal taxation, in particular, must be an essential ingredient of any programme of economic recovery. This budget has achieved nothing of any significance in this vital area. In fact, the truth is that overall the Government will collect an extra £217 million from the income tax payers of this country in 1986. That is the figure that matters, not presentational aspects by the Minister for Finance or Government speakers. Here let me quote Paul Tansey in The Sunday Tribune last Sunday:
The slick selling of the 1986 budget cannot disguise the fact that the personal tax burden will increase significantly during the year if the government's taxation plans are realised. Taxes on both personal income and personal spending will rise rather than fail as a result of the budget.
Taxes on personal income will rise more than twice as rapidly as inflation this year. As a result, direct taxes on personal incomes will account for a higher proportion of Gross National Product than ever before.
Taxes on personal income — income tax itself, the Youth Employment Levy and a quarter's contribution from the 1% Income Levy, are expected to yield £2,477 million this year. That represents an increase of £217 million or 9.6% on the £2,103 million raised by the government last year. Since the government anticipates that the inflation rate will rise by only 4.5% this year, the increase in the personal tax burden will run at more than twice the expected inflation rate."
As far back as the summer of 1983, we on this side of the House were making the case for selective self-financing cuts in taxation. As the economy was going into an era of diminishing returns in many revenue areas, that seemed to us to be eminently sensible. Having first dismissed the idea, the Minister for Finance, finally and grudgingly in the autumn of 1984, introduced some cuts in excise duties on an experimental basis.
In our view, and in the view of the people engaged in the trades concerned, these cuts have been successful. For some perverse reason, however, the Government will not acknowledge this success and are engaged in arguments which seek to deny the benefits that accrued and to justify their not proceeding further along this road. We all heard the convoluted attempt by the Taoiseach on budget night to make that case. He did not convince anyone on this side of the House, whatever about his own side.
We have done our calculations and are satisfied that there has been and can be a still greater gain for both the Exchequer, in pure revenue terms, and the economy in increased activity and jobs by further self financing cuts in taxation.
Unfortunately, in this budget, the Minister has now reverted to the old sterile process of imposing higher and higher taxes to bring in more revenue, whatever the cost in general economic terms and the danger of diminishing returns.
This is a complex area, but the benefits would be very considerable if the concept is right and properly and selectively implemented. I would, therefore, urge that an impartial examination be carried out by some outside agency which, having taken all factors into account, would give us an objective assessment.
There are two others areas which should be examined also; the excise yield from petroleum products has increased by £160 million, but the quantity sold is down by almost one-third. VAT on new houses has been increased from 3 per cent to 10 per cent since 1982 and private house production has declined by over 4,000 and employment in the construction industry has been halved. A cost benefit study of taxation policy in these two areas would surely be well worthwhile.
This Government have made a complete mess of the whole situation in regard to farmer taxation. The Minister for Finance has had the humiliation of having to come before the Dáil and announce in this budget that, a year and a half after it had been introduced with such a flourish, the land tax will not become operative in 1986.
Fianna Fáil never had any doubts about the true nature of this proposed land tax. It was an expedient not based on any principles of equity or sound taxation policy, rushed in hurriedly to meet a political crisis in the Coalition. Fianna Fáil stated at the time that in our view the right way to proceed was to have farmers pay income tax on their incomes the same as every other section of the community and that the abolition of income tax for the majority of farmers was a mistake. These recent developments prove that we were right in that opinion.
I recall the Tánaiste and Leader of the Labour Party stating at the time of the introduction of the new land tax — and it is no harm to recall these things from time to time — that:
The new arrangements will be devised to increase the yield from farmer taxation in 1986 to about twice the level produced by the present system. This objective of increasing the yield is an absolutely critical factor and the legislation will be designed to ensure that the administration and collection of the tax will be fully effective.
Far from producing double the yield, the land tax will produce nothing in 1986. The Minister for Finance has been forced to do an about-turn and extend income tax for another year, but he has also been forced into the sorry admission that he cannot put any estimate on what it will yield.
The situation in regard to the taxation of farmers is now one of total confusion. This Government stand convicted of political manoeuvering resulting in a clear dereliction of their responsibilities in this important area, farmer taxation, an area which is important from the point of view of tax equity and badly needed revenue.
Despite many claims and statements to the contrary this Coalition Government have no policy for taxation. Their actions and statements in the area of taxation over the last three years have been a mass of contradictions and inconsistencies. They put the highest rate of income tax up to 65 per cent, they brought it down to 60 per cent, and now down to 58 per cent. They put VAT rates up to exorbitantly high levels, then brought them down, and now in this budget have put them up again. We have had the virtual dismissal of the reports of the Commission on Taxation. After all the protestations about equity and reform and shifting the burden of taxation on to those who can best carry it, we have in this budget a change-over which is universally recognised as being regressive, and bearing much more heavily on the lower income section of the community. This budget clearly shifts the burden of tax from direct to indirect and the Minister stated that that was one of his objectives. How can this be justified on the grounds of equity? How can this be reconciled with the frequently stated objective of this Government of spreading the tax burden more fairly throughout the community? Every student of economics knows that a shift from direct to indirect taxation is in fact acting in an unfair manner against the lower income section of the community.
In the table of contents of the budget speech this year there are 87 headings and subheadings but the word "agriculture" does not appear in one of them. The only item related to agriculture is one solitary heading entitled "Farmer Taxation". The approach and attitude of this Government to agriculture is exemplified by the total absence of any reference to it in the budget.
It is difficult to decide whether this attitude derives from a supercilious Dublin 4 hostility to farmers or just plain indifference. Is it necessary to remind this Government of the fundamental role of agriculture in the Irish economy? Agriculture employs directly 15 per cent of the workforce — I want to give these figures in case the Minister has forgotten them — and accounts for over £1.5 billion in exports. Just now when there is a major shift in European Community policies to the disadvantage of Irish agriculture and when the European outlook is becoming increasingly doubtful and difficult for Irish farmers, the Irish Government should be giving increasing attention to the problems facing Irish farming. Domestic agricultural expenditure should be so structured as to make maximum benefit of EC funds. Something must be done urgently about our beef cow herd, which has fallen from three quarters of a million to 400,000 in ten years, before it too becomes subject to quotas. With domestic interest rates so high there is still a case for cheap guaranteed European loans, at least for development farmers. This Government's neglect of our primary industry, agriculture, is a national scandal. A budget speech which gives no indication of any support for agriculture or even an assessment of its prospects or its contribution to the economy, cannot be taken seriously as a statement of economic policy.
Fianna Fáil will seek the support of the people in the next general election on the basis of an Action Programme for Economic Recovery. Monetarist policies have been tried and found wanting. They have not worked. Economic recovery is an urgent national necessity to restore national morale and social solidarity. Unless it can be got under way soon the strains and stresses on community life will reach breaking point. Mass unemployment as a permanent feature of life brings increasing alienation and confrontation with more and more young people turning against the institutions of State. The higher taxes needed to pay unemployment benefit cause resentment and disillusionment and as the morale of the working population sinks, the black economy flourishes.
A comprehensive action programme for national recovery must be formulated on the basis of the existing economic and financial realities. This can be done and it is nonsense to suggest that because the financial situation is difficult, economic recovery cannot be attempted. It is precisely because there is deep-seated economic recession that a programme of economic recovery is necessary.
We see this Government's preoccupation with the financial difficulties and a blind refusal to look beyond them as the principal intellectual constraint on any attempt to initiate economic revival. The obsession with budgetary arithmetic to the exclusion of everything else is preventing positive thinking. It is an intellectual straitjacket. The pluses and minuses of the budget arithmetic have become the reality, not the economy, but we must break out of this straitjacket. In fact, it is not civil war politics that this country needs to get away from but Victorian economics and financial precepts.
In planning our economic recovery we must be conscious of the fact that despite the awful climate of defeatism created by this Government and their policies, we do have many resources and great economic potential. The modern world is one of new opportunities even though this Government see only problems and constraints.
The new industrial revolution the information-technology revolution is likely to continue at a very rapid rate over the foreseeable future. For many countries this brings the fear of job losses, but for us in Ireland, it is a Heaven-sent opportunity. It represents a possibility of competing on equal terms in a way that was never possible in the old traditional sectors. This is a period of fundamental innovation and development, with new markets being created all the time and with endless scope for us to take a share in these markets.
In this new industrial revolution, we do not have to compete with the large industrial nations who in the past dominated world markets in old industries like shipbuilding and heavy engineering industries where the economies of scale gave them an insurable advantage. Today there is a new ball game with totally different dimensions and demanding different resources and abilities. We have a great opportunity to excel in these new areas which do not involve competing with well entrenched countries in existing markets. Fortunately for us, the determinants of success in information technology and associated industries are knowledge, intelligence and education and not huge fixed assets or large concentrated workforces. We can have highly successful small firms in computer software and in valuable components for high-tech international programmes for instance. We have in Ireland the right kind of educated flexible labour force for this new world. The micro-electronic revolution is a golden opportunity for us if we grasp it. We have access to the right market and our small size means that we can have a major increase in output without distorting world markets or having to substantially upset existing market shares.
In the past we lacked industrial and entrepreneurial skills and experience in developing products, through industrial innovation, research and design. But the sixties and seventies have changed that and instead of complaining about being too heavily dependent on multinationals we should see the period of their arrival here as creating the foundation from which a leap forward in new high-technology industrial development can take place, building on the wave of new products and techniques they brought. In terms of an industrial resource and technological base, the situation is better now than it has ever been in our history.
We have now a different type of industrial and commercial community from when we started the present phase of development 30 years ago. We have built up over the past decades a reservoir of skills and personal resources necessary for the development of a new type of strong exporting indigeneous industry. The potential is there if we decide to go after it.
We must be active in developing efficient companies with quality products meeting market needs here and overseas, whether these companies are private, State owned or joint ventures, whether they are big or small. We must give a further emphasis to science and technology, which is an important component of international competitiveness. Failure to bring forward new products has led to the decline of many firms in our economy. The identification and development of new products must be accorded a higher priority than hitherto. Food processing, mari-culture, products based on national resources such as forestry, micro-electronics, information technology, biotechnology, chemical and pharmaceutical products — these are the sort of areas that we should be concentrating on because we can win in these areas.
A national programme for technological innovation outlined in our policy document will be developed by us to raise the level of innovation and technology transfer to Irish firms. We intend to improve linkage between third level colleges and industry, including the establishment of enterprise centres in third level colleges, and seek a greater market industrial spin-off from higher education. Our document on science and technology charts the way for a major input from our scientists, engineers, chemists and technologists into a dynamic innovative new sector of Irish industry.
There are strong grounds for considering the establishment from the existing State support agencies of an industrial and commercial advisory service similar to the agricultural advisory service. At present the YEA can provide some advisory support to community enterprises and the IDA and Shannon Development in the mid-west provide advice to existing and intending small businesses in manufacturing and some limited services but many types of firms and potential entrepreneurs are not covered by the existing framework.
A programme of economic recovery must involve a complete reorganisation of the taxation structure, an increase in the public capital programme, a mobilisation of private investments for economic development and the creation of a favourable climate for private investment.
A significant reduction in personal taxation is an essential to economic recovery. The present crucifying levels of personal taxation are choking enterprise and initiative, because the rewards of endeavour are snatched away by taxation, whether that endeavour is in the form of private enterprise or extra earnings on the factory floor. To restore national morale and confidence, it is also necessary to give everyone confidence in the taxation system and to inspire the belief that it is equitable and that all are paying their fair share.
The first step in this area is to implement the reforms recommended in the Fifth Report of the Commission on Taxation. That report proposed a comprehensive range of measures for a more efficient and effective tax administration, including assessment, collection and enforcement. In particular, it proposed a system of self-assessment for the selfemployed, with effective sample auditing and definite automatic penalties. This could certainly bring about a significant increase in the tax collected from the non-PAYE sector. With an efficient tax administration all would pay their taxes within an equitable system coupled with lower tax rates than at present.
Interest rates and exchange policy are becoming increasingly inportant elements in the management of the Irish economy. High interest rates have had a very real restrictive impact on the economy, discouraging investment and multiplying business failures. We must aim at the lowest level of interest rates and there should be a clearly stated policy for this area.
The rate of exchange of the Irish pound is also of crucial importance either in promoting or inhibiting exports. Here again a clearly stated policy is called for. The Economic Background to the Budget makes the following statement: "The protection of the external value of the Irish pound is the primary aim of monetary policy." We must ask whether that represents an actual statement of policy or whether it is just one of those ritual statements made from time to time to prevent any speculation in the market place. Neither the Taoiseach nor the Minister for Finance has made any statement about the value of the Irish pound. Vague statements of intent such as the one I have quoted are not a substitute for policy.
Ours is an open-ended economy. We rely heavily on our export trade for economic progress and development. We should have the best possible calculation as to what exact external value of the Irish pound is in our best interest and formulate our exchange rate policy accordingly.
My colleague, Deputy O'Kennedy, has been asking for such a statement for three or four weeks. It is most irresponsible of the Government that we have not got a clear statement of policy in this area either by the Taoiseach or by the Minister for Finance. As far as we can see, the market place is being let run riot. We have had no indication of any kind of the Government's intentions, their objectives or what they would like to see happen.
An expanded and revised public capital programme is urgently needed. Over the last three years, the public capital programme has been decimated. It has been reduced by one third.
In this year's booklet published by the Government, the statement to which I have already referred emphasises the basic importance of the public capital programme as an engine of growth and development. The resources have to be found for an expanded programme and the thrust of the programme itself has to be redirected towards positive, specific investment projects. Two other things are necessary. First, the public capital programme should be dovetailed into the reorganised taxation structure so that both will be working towards the same objective with tax incentives related towards capital investment projects. Secondly, there should be a completely new drive to mobilise investment funds to support the public capital programme and to parallel it in appropriate areas.
Fianna Fáil have been attacked about our proposal to invest an additional £200 million in the building and construction industry to get it moving again. We have had the stereotyped rejection from Government commentators on the grounds that it would involve more State borrowing. They prefer to borrow to pay dole rather than to put the money into building and construction. But it need not because I am certain there would be no difficulty whatever in securing this level of investment and more, through suitable arrangements with the building societies and other financial institutions.
By cutting back the public capital programme as they have done, the Government are in effect saying that there are no worthwhile projects available to invest in. That is absurd and certainly does not offer any great encouragement to the private sector to invest.
Fianna Fáil are fully committed on return to office to a revival of the construction industry through investment in high-yielding projects. This will: (1) give a significant stimulus to the economy generally; (2) boost confidence and morale in an important area; (3) take workers directly and immediately off the dole queues and (4) improve our infrastructure.
Our investment projects would include, tourist development, enterprise centres in third level institutions, motorways, by-passes and the road network generally, decentralisation projects and infrastructure.
Britain and France, though in the middle of an economic recession, are about to undertake one of the biggest construction projects ever. Should we not be thinking along the same lines with, of course, European Community involvement?
Our full tourist potential is not being realised. High prices, high taxes, inadequate supply of facilities are severely limiting factors on growth and development. There is no overall direction and policy initiatives are made on a piecemeal basis. VAT goes up and VAT goes down, excise duty on spirits goes down and then goes up, a few minor hotel grants are thrown in for good measure. We need a clear, consistent strategy for the industry which would identify the inputs from the relevant agencies, the level of resources to be committed, the priority locations and tourism products to be developed.
The right energy policy is a key element in a programme of economic development. Energy is one of the few areas where recent developments have been favourable from our point of view. We have our own supply of natural gas and oil prices are falling dramatically on the international markets. But we must fully and urgently exploit this situation for economic development.
For many years now the high cost of energy has placed a very heavy burden on industrial costs and affected our competitiveness. Natural gas must now be used widely and extensively as a flexible instrument of economic development. There is no point in leaving the gas stored up for the year 2,000 when the whole emergy situation may have changed. If these gas finds off our coast are to be developed and if even the present field is to be used adequately after the ESB present usage diminishes drastically when Moneypoint comes on stream a much more dynamic approach is needed. Investment in natural gas projects are remunerative in every sense of the word. It is difficult to understand why this Government do not press ahead with all possible speed in the development of the natural gas network. We will do that instead of slowing it down by the exercise of excessive bureaucratic control as this Government are doing.
By the end of this year, Bord Gáis Éireann will have paid over £300 million to the Exchequer. That has been a very welcome injection into the Exchequer, but in my view it is bad economic policy to maximise the financial return to the Exchequer in that way. A far better economic return could be procured if a flexible pricing policy were used and natural gas supplied at favourable rates to key areas to stimulate economic development and job creation. In this way the return to both the economy and Exchequer would be infinitely greater.
In this country the whole area of mining exploration has been badly handled in recent years. We need a new orientation with a programme of onshore exploration, so that mining can make its full contribution to economic development. An attractive climate for exploration needs to be set out by the Government in order to attract investment. The necessary risk capital is available internationally for this very specialised type of risk investment, but it will not be forthcoming until clear and reasonable terms are outlined by the Government on the basis of which really significant development could take place.
We will develop the neglected marine wealth around our shores in order to make a significant contribution to the economy. State investment in fisheries today is less than half in real terms what it was in 1982. The new department of the marine and the implementation of a national marine policy will give a major boost to research and exploration and to the development of fish farming, fish processing and marine related industries. We will set up such a department.
The full scale development of the forestry and timber industry can make a major contribution to an expanding Irish economy. Ireland's capacity to grow trees quickly is one of our great natural advantages. The international market for timber is a buoyant one. It is estimated that there will be an 8 per cent shortfall in world supply by the year 2000. The EC is only 50 per cent self-sufficient in its timber needs and imports approximately £10 billion worth of timber every year. We have about 300,000 hectares of State forest at present and while our stated annual planting target is 10,000 hectares we are planting only approximately 6,500 hectares annually. The management and development of this basic natural resource needs commercially oriented management and direction and accordingly we intend to place it under a commercially-oriented State company like Bord na Móna, who are already successfully engaged commercially in the development of a similar natural resource.
Major initiatives are needed in the development of our horticultural industry. We will be putting forward shortly a comprehensive development plan for that industry.
The decentralisation of the public service and greater regional autonomy will play an important part in our programme for economic recovery. Local authorities will be encouraged to act more in the role of development corporations in their areas. The situation whereby every decision of any consequence must go to Dublin, often to people who have no first hand knowledge of the areas which their decisions will affect, is seriously impeding development in a number of areas. Local authorities will be encouraged also to deal direct with Brussels for funds for development projects.
My colleagues and I are increasingly conscious of the fact that in practically every parish in Ireland there is an individual or a group with an idea for development. It may be in any one of a wide variety of areas, manufacturing, agriculture, tourism, services, community development and very often related to a local resource or local circumstances. These initiatives should be encouraged and we intend to devise special machinery to do this.
Fianna Fáil on return to Government will above all else provide Government leadership in bringing about the economic transformation that is needed. This Government have failed hopelessly in that regard. They are seen to be walking away from their most solemn commitments. They did a bad day's work for the morale of employees everywhere when they rewarded their own loyal employees in Irish Shipping for a lifetime of dedicated service, by callously throwing them on the scrapheap.
