On behalf of my party and other parties in this House I should like to welcome the Austrian President and his entourage. It is particularly timely that they should be present for this debate because I believe that Austria has been unique in addressing its employment problems, with a commitment to employment as a primary target. If in the course of this debate and in ensuing years we could achieve what they have we would have served our community very well. We have much to learn from Austria. We welcome the President and his party and hope we will learn from them.
Economic and Social Research Institute Review: Statements (Resumed).
Deputies
Hear, hear.
To return to the ESRI report we are discussing, the Government's response, as enunciated by the Taoiseach, demonstrates little real commitment to examine the policy issued raised in the report, apart from the Taoiseach congratulating himself that we are now on the verge of a period of high growth. That is a serious defect.
I might return to the issue of youth employment since a very high number of young people leave our schools annually without adequate qualifications. Few people realise the scale of unemployment those young school leavers face. On the basis of the most recent figures it is estimated that five thousand young people who leave school each year with no qualification experience 62 per cent unemployment. We do not have a policy to get to grips with that issue. Even those with intermediate and group certificates face almost 40 per cent unemployment. That is the prospect for a quarter of our school leavers, with little hope of any improvement.
It is interesting that the ESRI in its report points to the Portuguese as having achieved convergence to European standards, not through very rapid growth in wages and rising unemployment, but through a much slower convergence of their wage rates, thus avoiding the problems of rising unemployment. Perhaps we should ask the ESRI to explore the success of the Portuguese and how they achieved it.
It is important also to look to the sectors in which we expect growth. The ESRI predicts some employment growth in coming years, 1 to 1.5 per cent, which would translate into 10,000 to 15,000 new net jobs. This would still fall short of the natural increase in our labour force, so it appears they are still banking on emigration as the safety valve. Nonetheless it is important to look at job projections. It is predicted that in the first period, to the year 2000, growth will take place in market services. It is predicted that the growth in service employment will be seven times that of manufacturing in the period 1990 to 1995 and somewhat less, two and a half times, in the second period. That clearly points to the services sector as the major area of potential.
It is disappointing that, although the Taoiseach commissioned a Task Force on Services, in his remarks today he has shown no commitment to changing the tax deal for the services sector. The overall position in the services sector is chronic. They face 21 per cent PRSI, typically 21 per cent VAT and 40 per cent tax on their profits. Many people struggling to keep a business together in the services sector find that of the £ they take in across the counter for the service they provide, they have left approximately three pence to keep their business going, the Government having gone off with 60 pence. There is no way in which the golden goose of employment, namely the market services sector, can continue to realise its potential if we continue to impose that type of tax burden on them. That is an issue that has been faced by the Task Force on Services. They have put it to us that we must reform the PRSI and the corporate tax systems as they bear on services. Sadly there has been no response from Government in this area.
Recently when I questioned the Taoiseach on the European Commission decision that we must cut our employment taxes by 1 per cent to 2 per cent of GDP, i.e. 2 per cent to 4 per cent of the burden on the wage bill, he responded that the Government was not committed to that. He refused to commit himself to what the European Commission has set as its target. That is very disappointing because the Commission has shown in its document on growth and competitiveness that if we did that we could reduce our unemployment rate by up to 4 per cent. That would be a major improvement. Even after this bonanza of growth the ESRI note that we will not have achieved that 4 per cent reduction in unemployment. It goes back to the net issue. There are fundamental policy changes that we must make if we are to address the employment issue.
I wish to refer to the issue of work sharing and the opening up of new employment opportunities. In the Netherlands where work sharing has been a major plank of their employment strategy for many years they were unique in the period 1983-91 in that they achieved 40 per cent growth in employment at a time when we had static employment. In large measure that was achieved through a policy of facilitating flexible working arrangements in every shape and form. We must learn from their experience. They set an ambitious target in the public sector where 30 per cent of all jobs were to become work sharing positions in future. They pursued that target relentlessly and opened up employment to many people who had been denied it.
Ireland has a grim record in job sharing. Only 1,500 people in the entire public sector are job sharing. Generally, public sector managers are unwilling to facilitate it. In the nursing sector there is a huge demand for flexible working hours and job sharing but it has not been made available to them. One-third of women who are unemployed are seeking work sharing opportunities. Some of the older reports show that half the Irish employers did not see work sharing as presenting major financial or reorganisation problems. The potential is there if the Government is willing to get the concept of work sharing going.
In France and Italy successful workplace agreements have been developed. They have come into force particularly where redundancies have been in prospect. Instead of redundancies on a wide scale they have maintained their numbers and have had reduced working hours with Government support. Our tax system leans the other way. We tell an employer and workers facing into redundancy that tax breaks and assistance will be available from Government only if they go down the traditional redundancy route of destroying jobs. There is no future if that is the way we proceed. We give all the tax breaks to redundancy lump sums but no break to more progressive agreements in the workplace that could maintain jobs or facilitate recruitment through reduced working hours. The trade union movement is anxious to see reduced working hours. Perhaps we could match the need for work with the desire for less work hours by facilitating such partnership agreements in the workplace. We could have scope to trade less hours for more employment.
Equally, we must look at the options for early retirement. A substantial number of people in Ireland is between the ages of 55 and 65. There are approximately 90,000 at work many of whom might be attracted, if a reasonable package was put together, to opt for reduced working hours and to facilitate recruitment to the workplace. We will see an explosion in the number of young people in the workforce who will have ambitions to continue working and to raise a family. Clearly we should try to facilitate them.
Sadly, in Ireland, there are huge levels of overtime working. There is an onus on Government to provide schemes whereby, in collective bargaining, the option of reduced overtime working for more employment can become more attractive. I urge the Government to look seriously at work sharing and workplace agreements which have been a feature of some of the successful employment countries in Europe.
The ESRI report is timely. It points to the fact that we are on the brink of a period of economic growth. The key issue set by the ESRI is whether the benefits of this economic growth will be shared equally in our community. Do we have the policies and the conviction to ensure a fair share out of the benefits of this growth or — as we did in the past — will we go through a period of high economic growth and come through with the problems of high structural unemployment virtually untouched? If we are to judge from the Taoiseach's statement to the House today the Government has not got to grips with the strategic issues pointed out in the ESRI report. It continues to believe that continuing with policies that have failed in the past will, in some way, alter our experience. We have an unique opportunity — perhaps lasting no more than five years — when we will have the benefit of low interest rates, the benefit of 3.5 per cent of GDP being transferred to us as Structural Funds, and a period of falling dependency ratios to facilitiate the reforms we need. This is a unique opportunity for policy change, not an opportunity for continuing on in the age old way of spending money.
The ESRI say we must be more selective and must have more open questioning of the priorities chosen by Government, with proper appraisal and competition for the use of these moneys. They ask us to reform to make our economy hungry to use the scarce resources we will have to the benefit of our community, particularly the unemployed. It is a major challenge and I hope successive speakers from the Government benches will show that they have squared up more courageously than the Taoiseach to the challenges set out by the ESRI.
I am pleased we are having this debate. I asked the Taoiseach on the Order of Business some weeks ago if he would allow time for a debate on the ESRI report and on the task force report. It is important that our national Parliament should debate important economic reports. The report by the Commission on Taxation — a comprehensive blueprint for radical reform of our taxation system — was never debated in the Dáil, was never officially responded to by the Government and there was no White Paper. It is regrettable that the good work done by that commission has been lost. Often, we are so busy with day to day work or urgent work that we omit what is important. It is important to think ahead and to reflect on what the ESRI is telling us. It is important that we learn from the lessons of the past and that we do not repeat the mistakes. While there were huge increases in growth in the period 1980-92 the unemployment level increased by 40 per cent. There are lessons to be learned and we are more likely to learn if we debate the report when it is current rather than leaving it on the shelf to wither. This is a valuable report. The ESRI is patted on the back but all too often its work is ignored in day to day policy making in which the Government engages.
I very much regret that the Taoiseach was selective in what he chose to take from the ESRI medium-term review. I too pay tribute to the Director of the ESRI, Dr. Kieran Kennedy, and the senior staff who compiled this report. Recently I was briefed by senior ESRI staff on the future trends in the economy and other matters and I was very impressed by the level of commitment, expertise and sheer dedication that I witnessed during my visit to the ESRI office. We need to listen to them. The Taoiseach, rightly, says they are not infallible but nobody is infallible and we all make assumptions based on certain criteria. Nevertheless these people are committed to the country and in particular to the marginalised. The review and the eight back-up papers draw attention, in particular, to the plight of the unemployed.
It is important that such reports are not just noted but that we learn from them. Today is given over to statements in which the report will be noted. I will not summarise the ESRI's findings, the Taoiseach did that albeit on a selective basis. I will deal with the essential medicine that we need to administer if we are to remedy the ills of the past. Sometimes we deal with economic problems in the way we deal with potholes: we fill the pothole, we deal with the symptoms but not with underlying causes.
The ESRI draws attention to our attitude to the national plan and is critical of certain matters in it. We have a very high dependency ratio. For every ten people at work there are 22 people dependent, that is the fundamental reason for taxation being high: the sheer numbers dependent on social welfare account for its high cost. Unless we change the dependency ratio, with more at work and fewer dependants we will not provide the economic opportunities and improved living standards we seek. We have to make choices, and hard decisions. We cannot continue to increase public spending and at the same time look for lower levels of taxation. The two are inconsistent, but, unfortunately, many Members want both. They want higher Government spending and more tax cuts. Taxation is the key to kick-starting the economy. We have not created the number of jobs we require in any decade, with the exception of the 1960s, since the foundation of the State. What was it about the 1960s that accounted for high levels of employment? We had low taxation and a zero budget deficit, people with a pioneering spirit were able to modernise and keep up-to-date with the economic international trends. We have lost that pioneering spirit and tended to pander to everybody who comes before us.
The Taoiseach clapped himself on the back for the Programme for Competitiveness and Work. I presume he was referring to me when he said that some members of this House have been influenced by “right wing economists” who would not wish to see the Government engaged in pay deals of that kind. To the best of my knowledge I am the only Member who has criticised this pay deal, but I have done so for very good reasons. The pay deals agreed in the Programme for Competitiveness and Work are not sustainable or in the interests of the unemployed who were not involved in the negotiations. I was disappointed again yesterday when I asked the Taoiseach to give a commitment that the one organisation whose sole agenda is to look after the interests of the unemployed would be involved in negotiations of a programme of this kind or in the central review committee. I find it very hard to understand that anyone committed to dealing with the problem of unemployment can justify keeping that organisation away from the negotiating table. The reason is that the pay deals being agreed are not in the interests of employment, they are putting people out of work.
A recent report indicated that for every 1 per cent interest in wage costs, we loose 4,000 jobs. Instead of an 8.5 per cent increase in wage rates over the three year period of the programme would it not have been better to have held present wage rates and to have gone for massive tax reductions? The single choice would have generated over 40,000 jobs. That is the policy we require. When the Taoiseach paid tribute to Dr. Kieran Kennedy he did not draw attention to his submission to the forum before the Programme for Competitiveness and Work was negotiated. Dr. Kennedy wondered what level of pay cuts we could afford and he drew attention to the fact that the Programme for National Recovery and the Programme for Economic and Social Progress was bad for employment. He believed pay cuts were required to generate employment. I agree with him. I am disappointed that the social partners, in particular the employer organisations, were so keen to go along with the cosy consensus, which is not responsive to market trends. For example, during the currency crisis in early 1992, the public sector pay bill had to be honoured and ability to pay was not a criterion. In the unsheltered private sector many companies had to negotiate pay reductions with their workers and if there had not been a devaluation, the reductions would have taken effect. Central pay bargaining of that kind does not take account of ability to pay and certainly the Programme for Competitiveness and Work does not take account of ability to pay. It is assumed that the taxpayer and the State, a major employer, will have enough resources which it can raise through tax or borrowing. That is not good enough.
The ESRI tell us that taxes on income and wealth are projected to fall from 24.6 per cent of GNP in 1994 to 21.4 per cent by the year 2000. This fall of 3.2 per cent is worth £950 million in 1994 terms, which is enough to cut income tax by 25 per cent, to cut all employers' and employees PRSI by 40 per cent. If we were to choose either of those routes we would give a massive kick-start to the economy and encourage enterprise. We would make it worthwhile for companies to employ more people instead of seeking ways to try to replace manpower with technologies. That is the reality of our economic climate. On top of these tax reductions, taxes on expenditure are projected to fall from 16.5 per cent of GNP to 15.2 per cent by the year 2000. I believe that those indicators give us an enormous opportunity to radically reform the taxation system. We ignored the report of the Commission on Taxation, which was not debated in this House and the Government of the day, which I accept had changed, did not respond to it. There is no commitment on a serious level of tax reform. The Taoiseach made a passing reference to it, he accused Opposition parties of not being able to take the big step forward. If he is suggesting that seeking to raise £5 million from home owners by an unfair property tax is tax reform, he will give tax reform a bad name. He needs to look again. Taking £5 million from home owners, the amount allocated in the budget to a single organisation, gives tax reform a bad name, discredits those who pursue it and does a disservice to efforts to reform the taxation system.
We need a five year plan to reduce tax. We also need to know the targets the Government wishes to achieve during its term of office. The previous Government, of which my party was a member, set targets for tax reform. We set a target of a standard rate of 25 per cent and a higher rate of 40 per cent. When we left Government the higher rate had been reduced from 54 per cent to 48 per cent and the standard rate to 27 per cent. If that Government had lasted those rates would have been reduced even further and reached the targets set.
I wish to quote from a book — I have quoted from it before and it is relevant — by Cedric Sanford who carried out a comparative study of the tax system in six English speaking countries. In regard to our tax system and our capacity to reform it he stated:
Despite a comprehensive blueprint provided by a Commission on Taxation the Republic of Ireland saw less reform of the structure of its tax system than many other English speaking countries. However, it has been to the forefront of administrative reform, including the introduction and extension of schemes of self-assessment.
He went on to say that if we had shown half the commitment to reforming the tax structure as we had to reforming the administration of the tax system this would be a much better place. He said, about the previous Government:
The tax reform movement quickened very remarkably from 1989 when the Progressive Democrats joined in a coalition with Fianna Fáil and promised a complete overhaul of the tax code. This Fianna Fáil-Progressive Democrats Coalition was responsible for the biggest ever reductions in personal income tax, the phasing out of tax relief on life insurance premiums, the attack on fringe benefits, the reduction in corporation tax from 43 per cent to 40 per cent, the phasing out of accelerated appreciation and for most of the reforms on VAT and excise duties.
That was the position after a mere three years in Government, albeit three difficult years in which we had to convince our partners of the need for tax reform.
The tax wedge is the difference between what it costs an employer to take on an employee and what the employee takes home. It costs an employer £3 to give an extra £1 to an employee in wages and is destroying the incentive to work in the economy. I said recently at the Leinster branch of the Institute of Chartered Accountants that the tax system was a bit like the Irish psyche — it was negative, begrudging and obstructionist. It is also anti-enterprise, business and jobs, particularly small businesses which account for 90 per cent of companies in the economy. These are the real losers. Patrick Campbell, one of the successful Irish entrepreneurs, said recently that the business person was the real suspect in the economy, that the Revenue Commissioners had more powers to pursue business people than the Garda Síochána had to pursue criminals. He wondered who the real suspects were and if we really wanted to encourage enterprise and initiative in the economy.
I cannot stress often enough the importance of tax reform. There is no point telling people that next year they will lose certain reliefs; tax reform has such a bad name that people are genuinely worried. I favour a system where householders pay for services; no one would object to this. What frightens ordinary people who are trying hard to pay for a house and educate their children is that the Government does not understand their plight, assumes that they have money and are a wealthy class when they are finding it hard to make ends meet.
A property tax, whereby two householders living in houses of equal value are charged the same amount, is not fair. One could have a mortgage of £70,000 and an income of £30,000 while the other could have no mortgage and an income of £200,000; yet both will pay the same amount if their properties are the same value. If that is what the Taoiseach calls tax reform he does not understand what is required in changing the tax system.
Even with tax reform I accept that we have a major unemployment problem. The ESRI report states that by the year 2000 18 per cent of the live register, or 13.4 per cent of the labour force, will be unemployed. This is a frightening indictment of politics, the Government and public policy. This is not sustainable; that we will cast aside so many people, like a human setaside, and say to them that we will give them social welfare on condition they do not work. It is not as if there is no work to be done; we will pay them social welfare to stay at home and do nothing. This is wrong and the reason I am such a strong advocate of the concept of workfare.
I am aware that people will tell me this is right wing, it is not, it is sensible. There is no alternative for so many people. The State should be compelled to offer work, particularly to the 85,000 young people under the age of 25, currently unemployed. In return for working three days each week — it should be a combination of work and training — they should be given their welfare payment plus a premium of, say, £20. If we fail to do this many people in my constituency and other parts of the country will never know what it is like to work. The most enterprising and highly educated young people — the people we can least afford to lose — will emigrate to capitalist economies, some of which have introduced workfare schemes where they will respond to incentives. Why is it so many of our people do better when they go abroad? Often they are more appreciated.
We have to think seriously about the concept of workfare instead of dismissing it because of some ideological hang-up. If we fail to do this the level of unemployment — the human setaside to which I have referred, the equivalent of the Common Agricultural Policy so far as agriculture is concerned, whereby compensation is paid to set people aside — will haunt us as the number at work, the ten people at work who maintain nine dependants, continues to decrease. We face increasing competition from countries in Central and Eastern Europe. The multinational sector accounts for 50 per cent of jobs in manufacturing. This is a dynamic sector and has provided enormous job opportunities but it is mobile and is not committed to Ireland. Like every other business, it is committed to making money. It could move quickly to the emerging democracies in Central and Eastern Europe where a highly educated post-graduate — many of these countries have a good system of education — could be employed for as little as £5,000 a year. That is the reason we have to look to our own resources and tackle the problems in the economy.
In chapter 4 of the back-up document to the ESRI report Patrick Honohan said about the national economic plan: "It is thus, by definition, only one element of an overall strategy". The Government seems to think it has all the answers. He was critical of the fact that the Government seemed to be placing too much emphasis on the need to deal with the symptoms, what he described as type one scenarios. He stated:
Of the weaknesses in the economy which result in Ireland's economic development still falling behind other EU countries, some, like climate, may be taken as more or less permanent and irredeemable; susceptible only to compensatory measures whereas others, like physical infrastructure, can be corrected by appropriate action... The plan emphasises type one weaknesses [in other words, the symptoms] the peripheral location, the small domestic market, the low population density, the widely dispersed pattern of settlement . . . Such an approach does nothing to make the economy more competitive and, indeed, may damage competitiveness (for instance, by encouraging persistence of dispersed settlement).
He drew attention to the need to look more carefully at projects which will be supported such as telecommunications and water and sewage treatment projects. He wondered if grant aiding or giving decent capital allocations to projects such as telecommunications or water and sewage treatment plants would delay the evil day when we would have to confront the real problems. The Taoiseach referred to telephone charges and seems to believe that following the hullabaloo last year there is no problem. There is a problem in that regard. We have the highest telecommunications costs in the European Union. Telecom Éireann is overmanned and is not able to deal with the modern telecommunications explosion. International charges had to be reduced because Telecom Éireann faced competition internationally.
Rather than dealing with the fundamental problem, namely, the cost of supplying telecommunications services because of overmanning and so on, it simply switched the cost structure from international calls where it faced competition to the domestic user. As a result business people and the ordinary users of telephones have to pay for the failure of Telecom Éireann — and the failure of the Government to force it — to deal with the fundamental problem that confronts the country. In respect of the State sector generally, I hope the Government does not become paralysed because of ideology. A State company that is not providing an essential public utility should be disposed of subject to the market conditions being right. I accept that only a certain amount of capital can be raised at any one time and that a number of companies could not be floated together, but we should examine them on a project by project basis. I do not have a problem in regard to the disposal of the Trustee Savings Bank but I do have a problem with the manner in which the Government set out to dispose of it. It should be disposed of on the basis of fair and open competition, not on the basis of a sweetheart deal.
The State's involvement in our economy distorts the real market. The State, with its permanent workforce and guaranteed income levels seeks to compete with many private sector companies in areas where it need not become involved. Why do State companies in competition with private ones have huge marketing budgets? Why can a person not run a private bus service in Dublin? An unemployed person wishing to run such a service is legally prohibited from doing so. Is that sensible in this day and age? I do not believe we need all this State monopoly, and that matter should be addressed. The monopolistic position of the State in many sectors has led to higher costs and charges, and in sectors in which it sought to compete, where the private sector is more than doing an adequate job, it sought to use huge marketing budgets. It does not seem to have a problem getting money to put private companies out of business.
I referred earlier to the problems in respect of unemployment. One of the most disturbing aspects of the ESRI report is that we will continue to have a major unemployment problem with more than 200,000 unemployed in the year 2000. That is regrettable and it is even more regrettable that many of them will be long term unemployed. Patrick Honohan in chapter 4 of his back-up document, referring to the "educational drop-out", stated:
The relatively high proportion of children who leave school with no qualifications or low qualifications reveals a structural weakness in the educational system at initial, primary and secondary level.
I support that view. Why is the real debate on education here about who controls the school and who does the teaching? That is not the issue. It does not matter who controls the schools. There is hardly any religious left in either the control or teaching of education. The issue is about what is taught in our schools and the output from our educational system. By that I do not mean the results one receives on a piece of paper, but the attitude and confidence instilled in those that come through our education system. Dr. O'Hare, the President of DCU, recently referred to the need for an enterprising spirit. He was not referring to it in a Thatcherite manner but to the need for instilling confidence and determination in our people, in other words, encouraging them.
Our education system does not do that because we have not reflected on the output, role and value of education. Talking about who controls our schools or who teaches in them is similar to Jack Charlton saying he will concentrate on who drives the bus in which his team travels or about what colour the seats are rather than on the strategy or methods he will use to make the players play better football. That type of attitude does not make sense. We get ourselves into a national tizzy every time the ethos comes up for discussion and major arguments occur about who will control this and that. At the end of the day that is not what is important. It is not what the public, parents, students or teachers want.
We need to examine our education system because it is turning out many young people of 15 and 16 years of age who are virtually illiterate. I am frequently surprised at the standard of literacy in letters I receive from people with good second level qualifications. Has what was called in my day the "three Rs" been taken off the agenda or are they not taught in the same way? The system today does not seem to be having a similar effect. Besides the need to change, revamp and re-evaluate the role of our education system and the output from it, the demographic changes to which John Fitzgerald referred in the introduction to the back-up report must be taken into account. With a projected fall in birth rates there will be fewer people at school and fewer teachers will be needed. This provides us with a unique opportunity to examine the education system, plan for the future and not get involved in a meaningless debate.
I referred earlier to the need to radically reform our tax system. Higher growth rates bring in increased revenue which can be frittered away in higher spending. There will be many demands on the Government to spend more whether on education, health, social welfare or the environment. If we choose the spending route there will be more people unemployed, the economy will be less competitive and we will be less encouraging to entrepreneurs who have an enterprising spirit. Many of them will go elsewhere. People respond to incentives. Money will not be invested in business if it does not make money.
The past few years have shown that money invested in non-business activities has been far more lucrative than money invested in business. The distortion in our tax system so far as the services sector is concerned has been damaging. It is interesting to note that most of the additional jobs predicted by the ESRI will be provided in the services sector, for example, in distribution, transport and tourism. That sector is subject to a 40 per cent corporation tax regime whereas the manufacturing sector is subject to 10 per cent. It is interesting that the two service areas where the 10 per cent tax rate applies, software development and the international financial services sector, are extremely successful. Money can be transferred around the world in seconds by electronic means. Money is price and tax sensitive. If it is not lucrative to invest here, money will not be invested here. Despite political difficulties and the recession in the financial services sector in 1989-90, that sector has been very successful and has generated 1,500 jobs. I hope the Minister will be able to extend the deadline date beyond December for companies seeking permission to apply for a permit or licence to trade there. Obviously, that will require EU approval, which I hope will be forthcoming. The services sector has an enormous capacity to create jobs and it is labour-intensive. We must examine the level of tax applied to that sector vis-à-vis the manufacturing sector.
I welcome this debate and hope it is the start of many such debates. It requires discussion such as this to force people to read these reports, reflect on them and adopt their provisions in making policy at every opportunity. I want the Government to respond to the report and not to shelve it. The Taoiseach seemed to take the view that the report highlighted good progress, that the Government had done a great job and will continue to do its work as before. The only commitment he gave, and I was pleased about it, was that there would be no public spending spree. That small reassurance is welcome from a Government that has increased spending by 17 per cent — four and a half times the rate of inflation — over the period of its first two budgets.
I am disappointed the Taoiseach used the opportunity of this report to congratulate himself and the Government on a seemingly good job because that is not what the report says. While the report is remarkably optimistic the Taoiseach chose to avoid all the policy issues raised in it and conveniently made no reference to the summary on page 79. It states:
Ireland will thus have the capacity, if it has the will, to address its most basic problem, unemployment. However, solutions will not be found if the economy is left on autopilot.
That is the report's conclusion. If the economy is left on autopilot, those challenges, and the main one of unemployment, will not be addressed. It is regrettable that the Taoiseach should use the opportunity of the limited debate on this important ESRI report as an occasion for self-congratulations and clapping the Government on the back for achievements which the report indicates is not due to domestic Government performance or the handling of our economy. In so far as this House provides for relevant debate of pressing issues confronting our people, it is regrettable that the debate on this report consists of a series of statements and a speech drafted for the Taoiseach, presented with rose-tinted spectacles, with the thorny issues referred to in it glided over. In so far as he referred to those issues at all, he made a passing reference to taxation and the role of small business, which I will come back to later.
Many, if not the majority, of my constituents and many members of the public if they were in the public gallery or if RTE were permitted to broadcast this debate in its entirety would be mesmerised by the mood of optimism coming from the Government benches while discussing the most optimistic report of the economy in years, having regard to the reality of their lives. That shows there is a real economy where people live and one of booming indicators where economists and Government spokespersons live, and the twain never meets. Many of my constituents who have been unemployed for a number of years and who are concentrated in black spots where there is up to 75 per cent unemployment, those living on low incomes and oppressed by taxation, trying to make ends meet, must be bemused by the sentiments in the Taoiseach's speech that people never had it so good, that we are living in prosperous times and can look forward to boom and bloom, and that all the indicators and fundamentals are sound. There is no comparison between that and the real economy.
The Taoiseach came up with a fantastic new economic maxim today when explaining public service cutbacks of post-1987 and especially post-1989 and the expectations of economists at that time of the implications for unemployment. He described the phenomenon as "expansionary fiscal contraction". The students to whom Deputy Harney referred should reflect on that. What in heaven's name is expansionary fiscal contraction? There is a great ability among speech writers for Government Ministers to come up with such phrases that have no meaning for the public; and if the opposite phenomenon was detected in the economy over the next ten years they would come up with a new maxim, equally meaningless. It reminds me of the concept of hysteresis to which the former Senator Brendan Ryan, who I believe is an engineer, introduced us when the all-party committee on unemployment was set up in the dying day of the last Dáil to examine the unemployment crisis. He explained that hysteresis is an engineering term that describes how something goes up and stays up despite all the common phenomena indicating it should come down, and he applied that to unemployment. The Taoiseach, then as now, said that all the fundamentals are sound, that we are performing better than any of our European partners, growth is exceptionally and consistently high and despite those indicators unemployment is going up and staying up. It is probable for people in the real economy that the concept of hysteresis imported into economics is at least as relevant as the Taoiseach's one of expansionary fiscal contraction.
The ESRI's medium-term review is remarkably optimistic. It projects the biggest rise in living standards, for those at work, and the best economic growth rate since the 1960s, low inflation, a falling tax burden, low interest rates, a falling national debt, a falling proportion of children and a significant reduction in and eventual elimination of the current budget deficit. It is almost too good to be true. Is it possible for the ESRI or any institute or economist to forecast in the present climate that interest rates will remain stable and low? I suggest it is not. Having regard to the phenomenon we experienced towards the end of 1992 and early 1993, it is not impossible that we would be confronted with a version of that again; and having regard to the direction Britain is taking within the European Community, it is not impossible that we would be confronted with difficult situations for our companies trading in Britain.
I am not here to second guess the ESRI's conclusions. Let us take those conclusions within parameters set out, that the prospects for our economic growth appear more optimistic than they have been since the 1960s, and the implications that has for the main problem confronting us, namely, unemployment. Contrary to the softly, softly catchee monkey approach of the Taoiseach, I argue those optimistic forecasts require a radical new departure in our economic policy to transform the benefits of the optimistic economic prospects into a major drive for jobs.
Questions must be asked about the Government's policy on low inflation, high balance of payments surplus, high saving ratio and low borrowing, when Ireland has such high unemployment.
The Taoiseach virtually denied us the opportunity to question any of these matters, but I question them. It is ridiculous to have an inflation rate of 1.5 per cent when unemployment is just under 300,000 and expected to remain high well into the next century. Is it not equally ridiculous to have a staggeringly high balance of payments surplus, a characteristic of an economy in good health, when there is such high unemployment? Is it not questionable to have such a high savings ratio at a time when there is a desperate need for investment in the economy?
The ESRI report is so optimistic that the authors are in danger of being sacked as members of the dismal science. It is 30 years since we had such a remarkably favourable outlook for the economy. All the excellent economic indicators must be channelled into dealing with the historic failure of the Irish State: mass unemployment. We must challenge the conservatism of Irish policy-makers and those with power to come to grips with this scandal.
The ESRI forecast that unemployment, while falling somewhat, will remain at 200,000 at the end of the century. I would be interested to hear in the reply to this debate the precise difference between the calculation on the basis of the live register, which is 266,000, or more than 18 per cent, that will remain unemployed at the end of this decade and the calculation on standard labour force techniques, which is 200,000. In either event the level of unemployment is frightening and our major challenge. The long term unemployed will not gain from the booming economy and high emigration will continue. Since the foundation of the State in 1922 those in power have neglected the unemployed, forcing too many to emigrate.
What is different today is what we have the opportunity within our grasp to do something about mass unemployment and emigration. It is time we ignored the self-seeking warnings of the economic elite. They warned about the evils of boosting inflation, reducing the balance of payments surplus, more effectively taxing the massive outflows of profit, utilising low interest rates, encouraging investment from high domestic savings, encouraging Irish firms to invest more in Ireland and changing Government policy from capital intensive investments such as road building to labour intensive investments. I unashamedly argue for all these matters. Only the most right wing economist would object if inflation doubled to, say, 3 per cent. If the effect of inflation rising to 3 per cent was that it helped to create thousands of jobs in the process, which is likely in the context of the indicators in this report, I see no reason to follow the Conservative Ministers in the Tory Cabinet in Britain by throwing our hands in the air in alarm at the prospect.
Few would object to running down the balance of payments surplus, which is a false indicator of the state of the economy — an NESC report dealt with that matter. It has been estimated that if the personal savings rate was cut by even 1 per cent it would create 3,000 extra jobs in a couple of years, particularly in indigenous industry and services. It would also boost taxes and reduce Exchequer borrowing. The national debt-GNP ratio is rapidly declining and is already within the Maastricht criteria. It must be remembered that the national debt was run up by the profligacy of successive Governments, including Fianna Fáil — the Taoiseach was very selective in the years he chose. Interest rates are down and the Government must use this opportunity to boost investment in the economy. A fall in the Government's borrowing requirement and a projected fall in a public expenditure as a percentage of GNP means there is room for increased public spending. If it is targeted, and it should be, at the long term unemployed, that is justified, and I do not agree with running away from it, which has been characteristic of this debate so far.
I do not believe in public spending for its own sake, but like most economists in the past I have long argued that capital spending is generally welcome. However, I am in favour of rigorous assessment and in this context I am not satisfied that public spending on massive road programmes is the appropriate way forward. Many other infrastructural and environmental spending projects should be considered as investments, because EU money is regarded by the Government as being free.
The medium term projections of the ESRI provide our policy-makers with a set of unprecedented opportunities. The high rate of growth forecast will make possible a significant improvement in living standards and will lead to significant employment creation. The Government faces a crucial policy option between chugging along and keeping things ticking over, or making a decisive shift in public policy which might tackle the twin problems of unemployment and poverty. Up to now Irish Governments have not shown the slightest inclination to do anything about unemployment. It appears the official mind believes there are no intellectually respectable arguments that high unemployment is not inevitable given primary commitments to fiscal discipline.
The Government has shown no reforming instinct in running the economy. The last two budgets have been neutral, there is little sign of new thinking and as long as the much vaunted fundamentals are right, nothing else matters, or nothing can be done anyway. One gets the strong impression that the only strategy is to keep the lid on things and wait for our demographic structure to change in ten or 20 years, thus eliminating the unemployment problem. The worst scenario presented by the ESRI projections would lead to the development of an unbridgeable gulf between the haves and have nots, between the contented, to use the term of John Kenneth Galbraith, and the poor and marginal.
The fundamental challenge presented by these projections is to ensure that economic growth benefits the poor and unemployed and leads to a permanent shift in their marginalised position. It is vital to develop policy instruments that can translate economic growth into jobs. Growth has produced relatively few jobs in the last 20 years because the fruits of that growth have been largely seized by those already in work. There is a chapter in the ESRI report on this phenomenon. The NESC published a special report on our unique ability to translate apparently healthy growth rates into employment. That is the major challenge confronting this economy. If our growth rates are projected at 5 per cent consistently for the next five years, it is even more important to focus on that question.
Projected growth will generate more than 130,000 jobs by the year 2001, but with the annual inflow into our labour market still on the increase as a result of the rise in the birth rate up to 1980, these extra jobs are unlikely to reduce the present level of unemployment by more than 35,000. Most of these extra jobs will go to those leaving the education system in the years ahead but many of the older unemployed who are married with families and who do not have the desired marketable skills here or abroad will be unaffected by this employment growth.
Approximately 70,000 people aged over 35 years have been unemployed for over a year. This group of unemployed must be targeted by specific policy measures. The ESRI report makes much of the need to maintain competitive labour costs. This usually means keeping wages low. The answer to our unemployment problem is definitely not one based on dismantling employees' protection and creating a pool of cheap labour. If we try to compete with other countries on this basis we will be cutting our own throats.
The ESRI report advocates the intensification of such supply side measures, for example, education and training. Obviously that is right but it must not become the sole focus of job creation policy. The world is constantly changing. Education and training on a vastly larger scale will be the most important element in meeting this challenge. Permanent employment is no longer a reality for many, but we must develop a concept of steady employability and make it a reality.
We must not, however, neglect the demand side of job creation policy. There is not a fixed amount of work to go round. Any cursory examination of the state of our public services and the poverty in our towns and cities and, to some extent, in our countryside, makes it only too obvious that much useful work needs to be done. Serious consideration should be given to the creation of a new third sector or social economy to provide support for working mothers and the elderly, repair damage to the environment and renovate our inner cities. A version of such plans was being argued within European Commission circles and, specifically, by the outgoing President, Jacques Delors. Unfortunately and regrettably such plans did not form a significant component of the Commission's recent White Paper on Competitiveness and Growth. Instead, the paper emphasises competitive disciplines which translates as the dismantling of pay elements in our European welfare system.
The Taoiseach's speech was disappointing in that he confined himself to regurgitating the optimistic conclusions in this report without indicating what he will do to give effect to the prospects held out by the report in terms of job creation. The two areas to which he referred were taxation and the role of small business. I cannot understand why the Taoiseach continues to believe that this Government has ushered in radical tax reform. He spelled out three headings to demonstrate this tax reform. They include (a) the reduction of mortgage interest and VHI relief to the standard rate; (b) the taxation of short term benefits which will have a positive effect on employment — let us understand that the Taoiseach is talking about the taxation of unemployment and disability benefit — and (c) the extension of full PRSI to future public servants. These are the three elements of the Taoiseach's tax reform achievements.
I find it hard to believe that those measures are seriously being advanced in this House as a contribution to broadening the tax base. In ideal tax circumstances where there is genuine equity in the tax structure, there may be an argument for tackling the question of reducing mortgage interest relief to the standard rate, but in the context of the manifestly inequitable tax system that we continue to have, reducing mortgage interest relief for home owners, who are the people paying tax in this economy, is by no means a progressive development and does nothing to contribute to broadening the tax base.
It is fantastic that the Taoiseach should argue that taxing the unemployed and the sick is a contribution to broadening the tax base. There is no reference in the Taoiseach's speech or in the debate on the Finance Bill, which is continuing in another room of this House, to broadening the tax base in terms of taxing wealth, taxing land or tackling evasion more effectively so that those who have contrived to avoid paying their fair share through the years will be more likely to be required to pay their fair share in the future.
A levy of £50 million from the sick and the unemployed is only a little more than the amount of money paid by all the farmers of Ireland, and the Taoiseach presents that as a contribution to broadening the tax base. It is a nonsense and Deputy Harney did not improve my temper on the matter by her contribution. Her quoting of this book, which I also heard from her finance spokesperson for 12 hours yesterday during the debate on the Finance Bill about the tremendous contribution of the Progressive Democrats in Government, is not as I recall it. There were significant reductions under the Progressive Democrats for the high earners but there was no genuine tax reform. Tax reductions are not the same as tax reform. Tax reform involves broadening the tax base, getting a fair yield from those who own property and wealth in this economy and spreading the burden that we saw graphically demonstrated last Monday during the centenary celebrations of the Irish Congress of Trade Unions, when the enormous burden was pulled through O'Connell Street by the PAYE "slaves" who have paid the main share of taxation since the Taoiseach's heyday of 1960 to which he wants to bring us back.
The Taoiseach boasts about the 1960s. On his recent trip to the United States, he stated that those were the days when he had such a casual acquaintance with the taxman that he was not required to make any tax returns. He said that when he was approached by the taxman he told him that he would "fix it up". He did not fix it up and, according to his own story, the taxman said that he would get him on his death bed, to which the Taoiseach replied that if he left it with him until then, that was fair enough. That was the tax climate of the 1960s. The Taoiseach told that story with far greater panache but it is a good story and it tells a great deal about the tax regime that obtained here in the 1960s. It is not a regime I would wish to return to because the only people who paid tax in the 1960s were the PAYE workers. We must not go back to that.
I admit there have been some improvements since that time. The present Minister has made some improvements but we are still a long way from having a fair system. Last weekend, the Minister for Finance delivered to me by courier a series of amendments, one of which is to give more favourable treatment to tax exiles. The effect of this amendment, which came out of the blue last week, is to relax the minimal requirement for the super rich to pay in this jurisdiction. Up to now if you had a residence in this country and spent one day here you were liable for tax in this jurisdiction but now the residence requirement has been abolished. This is not unconnected with the announcement by prominent individuals that they were leaving this country and an oppressive tax regime. Anyone who read the report of the Telecom inquiry knows some of them paid virtually no tax. We are now making provision for them to come back after a year and they will no longer pay tax in this jurisdiction. You can have a residence here — a castle — and spend 140 days in this country if you wish without paying tax. That is not tax reform and is an issue which must be addressed if we are to create jobs.
It would be too much to expect Deputy Rabbitte to give any credit to the Taoiseach or the Government for the improvement in the economy but when things go wrong he is quick enough to stand up and blame them for it.
I welcome the comprehensive and timely report of the ESRI. The authors are to be congratulated on their work. The message conveyed by the report is positive and encouraging and confirms that the economy has recovered strongly from the serious situation which existed in the 1980s. As a result, we can look to the future with realistic confidence that the well-being of each section of society can benefit from the improvement in the economy. It should not be forgotten that this undoubted upturn in the state of our finances did not happen by chance. Extremely difficult and sometimes unpopular decisions were taken by successive Governments to restore the nation's financial well-being. The courage and foresight of Ministers for Finance is to be commended.
The same type of courage will continue to be required over the coming decade if the final stage of recovery is to be successfully achieved. At a time when intense media attention tends to magnify out of all proportion each difficult financial decision, it is vital that occasional negative reaction should not be allowed to hinder the development of responsible economic policy.
An unwelcome development in society is the tendency for certain people within the media to respond in a cynical manner to the work and efforts of others. While anyone involved in political life is only too well aware of this development, it is not the only profession singled out for negative attention. Economists have been the target of much cynical comment. While there is little doubt that they sometimes fail to analyse matters correctly it is grossly unfair to berate the profession as a whole. It is important to realise that the difficult nature of the discipline itself makes them vulnerable to attack when they take a public position on any given matter.
There are two lessons to be learned from the performance of economists in the past. The profession must accept that its findings and reports deserve to be treated with respect rather than recognised as the ultimate truth. This involves an increasing acceptance by economists of the validity of other inputs to the information and implementation of economic policy. It is interesting to note the recent comments of a Nobel prize winning economists, Dr. Douglas North, who stated: "Most modern economics does not address real problems, it makes assumptions about a world that does not exist". These comments by such a distinguished researcher give the profession grounds for reflection. In return for a less dogmatic approach by certain economists I hope that the tendency among many to immediately dismiss the comments of any economists should not be a feature of financial debates in future. Economists have a major role to play in assisting our increased understanding of the factors which influence our financial well-being. As we continue to tackle difficult economic issues it is vital that each relevant sector of society is encouraged to make every possible contribution.
It is appropriate that the authors of the report should address a central concern of many at an early stage in their document, the problem of reconciling the various reports of an improvement in our economic well-being with the fact that many people remain extremely disadvantaged. The authors note that in the early 1980s the nation was living beyond its means. The standard of living indicators most commonly used abroad is GDP but this is not suitable for us because it includes the profits of foreign owned companies and fails to exclude payments of debt interest abroad. They also deal with the influence exerted by practices such as transfer pricing and differences between apparent and actual economic growth.
From reading the report's evaluation of various factors influencing our economic well-being, two key issues are worth stressing — it is clear the influence of major Government policy change remains for a number of years after its implementation. Poor policy decisions have a long legacy but, on the positive side, a similar effect follows the implementation of excellent policy. It is encouraging to note the conclusions of the ESRI. The impact of the turn around in Irish growth performance has not yet been fully felt by the private sector. Output growth during the last decade has not been fully matched by a comparative growth in the purchasing power of available national resources. A growing share of available resources has been channelled to improve the balance of payments at the expense of consumption and investment.
This effect was part and parcel of the successful efforts since the early 1980s to stabilise fiscal and international payments. This correction will not be needed in the years ahead although reversion to irresponsible fiscal management must be avoided. In addition, an increasing share of output growth will be available to satisfy domestic demand and have a higher employment content. These comments are encouraging and indicate that the strong measures taken in recent years should have a positive impact on all sectors of society in the near future.
The second issue worth stressing is the high level of exposure of an open economy such as ours to international developments. While international trade is exerting an increasing influence on every country we are particularly dependent on financial developments largely outside our control. Therefore, any significant trend towards protective policies by any of our main trading partners would have a serious effect on our economy. As we saw on more than one occasion, external changes in interest rates and exchange rates can cause severe problems on our domestic markets.
The message conveyed by this is twofold: first, our information gathering systems must be continually developed so that we can react as quickly and effectively as possible to international developments and, second, we must develop our ability to anticipate external financial developments. In this way alternative strategies can be implemented as early as possible. In the past we were inclined to regard research and development as mainly the responsibility of external agencies such as universities and professional research institutions such as the ESRI.
The complexity of economic and policy issues, which are increasingly becoming a routine part of political life, means we must place much greater emphasis on including research facilities in Government Departments. Such facilities should become a standard component of the services available to public representatives. The international market place is extremely competitive and we can only reach our full potential in that market if we are all informed to the greatest possible extent. Increasing our level of commitment to focused research and providing the necessary resources for such work must be made a priority in the future.
The second impression formed from reading this report is that the quality of life in Ireland during the 21st century will be determined to a large degree by the decisions we make during the coming years. This message must be made clear to everyone if we are to make substantial progress in dealing with the more difficult problems facing us as a society. Our goal must be to develop the structures necessary to enable each individual to play a meaningful and satisfying role in society. While such aspirations might seem unrealistic, substantial progress can be made if we focus on two key inter-related requirements. First, we must place a premium on the creation of an atmosphere which will encourage both economic and personal development. Second, it is vital for the common good that the importance of responsible behaviour is fully recognised. The ongoing improvements in our taxation system have already had a significant impact on our economy. As excessive taxation is the single greatest obstacle to the growth of a spirit of enterprise and investment, it is vital that the process of reform is continued.
Another immediate goal must be the encouragement of students to avail fully of opportunities for educational development. A succession of reports confirms that an early school leaving age and a lack of specific skill are the most accurate predictors of long term unemployment. Opportunities for second chance education and industrial training must also be increased.
The development of these facilities is influenced to a certain degree by the economic realities of the day. State-sponsored training programmes must be clearly focused on areas which have realistic prospects of creating employment. The lack of such a focus has two negative consequences: first, State resources are not utilised to the full and, second and more important, it is extremely discouraging for people who have undertaken difficult and time consuming courses not to be able to gain employment at the end of the day. These people will not be easily encouraged to follow further courses or avail of other educational opportunities. It is very important, therefore, that we develop adequate audit or monotoring systems which will ensure that investment in education and training is properly utilised. We must also ensure that the institutions and bodies providing such educational facilities are sensitive to the changing needs of society.
The report refers in some detail to the dangers of excessive demands for pay increases. While it is only natural for people to endeavour to improve their standard of living, it is vital that pay increases remain at a realistic level. The highly responsible attitude of the social partners and the trade unions to pay restraint has been a major factor in the dramatic recovery of our finances in recent years.
There are four other factors which I consider highly relevant in terms of the performance of our economy up to the end of the decade. First, there is an urgent need to reintegrate fully the activities of the various State agencies involved either directly or indirectly in economic development. All too often we have seen examples of duplication of services or inadequate communication between various agencies. There is substantial scope for a more streamlined approach in such circumstances.
Second, I wish to deal with the likely effects of the major changes in our population during the coming years. The ESRI report notes that our birth rate has fallen dramatically since 1980. As a consequence, our population will become older during the next 20 years. While this is likely to result in a decrease in the level of unemployment it also means that we will have to increase services in areas such as health and training. It is vital that our economic development policies take the impact of such changes fully into account.
My third point deals with the need to encourage major development of the exporting activities of Irish-owned companies. As foreign markets become more competitive and, despite international and EU trading regulations, more protected, it is vital that our companies develop positions of strength in some of these countries. This has already taken place to some degree through the expanded activities of major food companies such as Dairygold, the Kerry Group, Avonmore, the Waterford Group and Golden Vale. This pattern needs to be continued and deserves our full support.
My final point deals with the need for a substantial increase in the availability of venture capital for new businesses and the expansion of existing enterprises. While Government policy has led to a definite improvement in the availability of such funds during the past year or two there is major scope for an improved performance in this area by the banks and other financial institutions. There is no shortage of ideas, skills and energy among our excellent workforce and well educated young population. If companies are encouraged and properly advised, particularly during the early stages of development, I have no doubt that any investment will yield an excellent dividend in the medium and long term.
I congratulate the authors of this excellent report. It is heartening to read such an encouraging overview of our economic prospects for the remainder of the decade.
I wish to share my time with Deputy Deenihan.
Is that agreed? Agreed.
I congratulate the ESRI and Dr. Kieran Kennedy on the publication of this and other excellent reports.
The ESRI states that Ireland will experience a period of rapid growth during the next five years and significant growth in employment. It also states that this rapid growth could lead to a substantial increase in total employment. However, it warns that the rapid rise in the labour force means that the growth in employment will not be sufficient to absorb all labour market entrants. It goes on to say that the combined effects of employment growth and the increases in the labour force and net emigration will lead to a slow reduction in the unemployment rate from its current high level to approximately 13.4 per cent by the year 2000.
This is welcome news indeed; it is a very optimistic report in many ways. We must note that its authors say that this could leave Ireland with one of the highest unemployment rates in the European Union. One of the most significant phrases in this document is that "Ireland will have the capacity, if it has the will, to address its most basic problem, that of unemployment". We are also told that solutions will not be found if the economy is left on auto-pilot, that they will be dependent as much on changing attitudes among those at work — that is very significant and has implications for some recent agreements — as on Government policies.
Three issues are identified if we are to make the most of this window of opportunity. The economy must not be left on auto-pilot and there must be changed attitudes among those at work. A critical factor is the kind of Government policies to be pursued in this period. The picture is not quite as rosy as was painted by the Taoiseach this morning. I regret he did not avail of this opportunity to spell out some of the hard policy decisions that must be taken over the next few years or some of the key issues surrounding tax reform. I have to agree with Deputy Rabbitte that, for the Taoiseach to come into this House and identify three areas as constituting serious tax reform is extraordinary and really must be questioned. He must be asked if what this Government means by tax reform is reduction in mortgage interest and VHI relief and taxing unemployment benefit?
The report contends that competitiveness in labour costs must be maintained if high levels of unemployment are to be avoided. It is also clear from this report that huge public policy changes will be necessary in relation to education and social welfare since demand in both areas will change dramatically. We have not begun to debate the economic implications for our universities of the changing structure of our population. We had better do so soon or there will be a crisis in many of those areas within the next couple of years because we will not have engaged in the type of long term planning that is essential given our changed population structure.
There is a need for a quality, long term approach to be adopted by the Government, as opposed to the type of ad hoc changes we have often seen in relation to economic and social measures. It is clear from the report that, from a public finances perspective — I have used the phrase already and repeat it — this is a window of opportunity. We should be careful because there have been windows of opportunity before. Making the most of this window of opportunity is dependent on high quality Government, on transparent, accountable public decision-making — the recent debacle on European Union funding does not augur well in that respect — on placing at the top of the list of priorities an absolute, determined approach to tackle the problem of unemployment, particularly long term unemployment here. If this opportunity is not grasped the consequences for the quality of life of our people, for our crime rate, for the creation of a society of “haves” and “have nots”, a two-tier society, will be catastrophic.
Probably this is the most critical period in terms of the kind of Ireland we want to see in the year 2000 and beyond. The responsibility on Government, the social partners and the country as a whole to get it right is enormous. It is simply unacceptable that the majority should have an increase in their living standards while simultaneously long term unemployment shows little change. This is the cutting edge issue which will determine a great deal about Irish life in the years ahead. I have not the slightest doubt that, as a society, over the next five years we must have the political will to adopt policies to tackle long term unemployment. We must move away from the prevailing belief that long term unemployment is a problem but not one about which we can do anything. We must begin to create an atmosphere of confidence that this problem can be tackled. It is very clear that the preceding two Government programmes failed miserably to tackle this issue. It was not inevitable that the issue would not be tackled, but the correct policies were not adopted. My colleagues, Deputies Richard Bruton and Yates, have clearly spelled out the failure of economic policies over the past four years in tackling this issue.
It is ironic that the report should say we have steady progress in most areas of economic life with the notable exception of unemployment. I am very glad they used the word "notable" because it appears to be almost a misuse of terms to talk of economic progress while at the same time talking about our present high levels of unemployment. The oft-quoted phrase, already used in the House this morning, is "getting the fundamentals right." We do not have the fundamentals right while we still have thousands of people condemned to a life of long term unemployment. The next step clearly must be to ensure that we tackle that issue.
The title of Chapter II of this report "Where did all the growth go?" is a damning indictment of the policies of this and the previous Government. The common factor has been Fianna Fáil participation in both Governments. We continue to have too high a level of Government indebtedness. Current Government spending figures are worrying. I pointed to that when I contributed to the budget debate. The real reason the Government cannot deal seriously with economic or tax reform is simply that the public spending explosion has not been stopped or assessed sufficiently carefully.
In a few years time, when the present growth cycle has slowed down. I hope we will not be asking where did all this economic growth go. The real danger is that the fruits of growth will be absorbed by extra public expenditure and the people will realise just how seriously the economy has been mismanaged. Of course, that is the real reason for the imposition of inappropriate taxes, including the taxing of the widow's pension which, thanks to Fine Gael opposition, has been dropped. Why do we need residential property tax and a reduction in income tax relief on VHI premia and mortgage interest? It is clear that we have a free spending, reckless administration, not looking carefully at the fruits of growth. The point has already been made this morning that the ordinary citizen does not feel the beneficial effects of the growth we are meant to be experiencing in our economy, according to the rosy picture the Taoiseach painted this morning. The ordinary citizen is feeling ever more pressurised by growing taxation and lack of tax reform. I do hope the Minister for Finance pays attention to what is said in this report. I note that the Taoiseach commented on the dangers of public spending in his remarks this morning.
The report says that a reversal to irresponsible fiscal management must be avoided. We must also remember that international events and the world economy can throw up very unexpected challenges. There is no doubt that Europe overall faces the very severe challenge of dealing with unemployment. Asia, the USA and China are taking trade from Europe, placing Europe in a vulnerable position overall, with no guarantee that that challenge will not increase. The stringency required in public spending cannot be over-emphasised because the overall position in Europe presents us with such a crisis.
Ireland is suffering from an exceptionally high level of long term unemployment and in 1991 we had the highest unemployment rate among the OECD member states. In 1992 there were 92,000 women on the live register, an additional 44,000 in receipt of lone parents allowance and 70,000 women classified as dependent adults. It must be recognised increasingly in public and financial policies that these people and others, who may not be eligible to register, share many of the characteristics of the long term unemployed in terms of their exclusion from the labour force.
We must also examine the costs of not tackling unemployment. The White Paper issued by the European Union recently stated that the economic and social costs of unemployment were enormous. These are comprised not only of the direct expenditure incurred in social security support for the unemployed but the loss of tax revenue the unemployed would contribute were they working, the increased burden on social services, rising poverty, crime, health costs and the rising levels of educational under-achievement.
One really must look at the numbers of young people leaving school without the skills needed to enter or remain in the workforce. There is a major challenge for public policy to ensure that young people leave school with greater skills. It is clear that the most effective way to tackle the long term unemployment problem is to prevent the unemployed from drifting into long term unemployment. This is where we must put our efforts. There are some very disturbing statistics on the training offered by Government. In 1992, the adult long term unemployed accounted for just 7 per cent of the beneficiaries of State assisted training. That is an appalling indictment of the efforts we have made in training to help the long term unemployed.
I counsel against complacency despite the optimistic picture in this report. One cannot foretell what will happen economically or socially and the worldwide changes which are taking place in trade are unpredictable.
The depth and seriousness of unemployment does not merit any complacency, rather it merits prioritisation and serious commitment and political will at the highest level across the social partnership and the political spectrum. One cannot overemphasise the importance of tax reform. The difference in costs for Irish employers employing one person, as opposed to English employers employing one person must be examined and we must have reform in this area, otherwise we will not create jobs.
I welcome the ESRI report and acknowledge its optimistic outlook for the economy. For the sake of this country I hope the forecasts will materialise. Despite the optimistic outlook it is important that we do not become complacent. The main Opposition party must ensure that the Government is kept on its toes and that it will not become complacent, that it will not misuse the obvious economic benefits which will come on stream not only with the improvements in the economy but with the extra money from Europe. Unlike what we did in the mid-seventies, late eighties and early nineties we must not miss this opportunity. We have to learn from the lessons of the past when we had strong economic growth but did not capitalise on those advantages. At this stage all sectors of society are beginning to realise it is difficult to run an economy and that one must have the co-operation of all sectors to achieve the desired results.
Despite the forecasts in the report there is no guarantee that interest rates will remain low. We were optimistic about rates in the late eighties and early nineties but, owing to circumstances outside our control, they got totally out of control throughout Europe. Interest rates are a major influence on investment and consumption levels. Despite the present low level people are cautious. Rates will have to remain steady for some time before people have confidence to invest and borrow heavily. They have learned from experiences in the past when they borrowed heavily on the grounds that interest rates would remain consistent. Also, the currency markets may not remain calm. As late as this week, the weakness in sterling caused major concern for several Irish exporters especially in the food, furniture and clothing sectors. The Irish Exporters Association voiced their concern in the national media. Were it not for the improvement in sterling yesterday, through the intervention of the banks, another crisis could be looming for Irish exporters. We depend heavily on the English market where one-third of our products are exported. It is important that sterling remains strong and that the Irish pound does not lose its competitiveness vis-á-vis sterling. A repeat of 1992 was feared if this trend continued. The English purchaser is aware of the strength of the Irish pound against sterling. This emphasises the importance of a single currency in Europe. I understand that only 2 per cent of transactions in Europe are carried out using the ECU. It is important that we move rapidly towards a single currency especially for exports.
Deputy Fitzgerald referred to Ireland's attractiveness for mobile international investment. I spoke with people from the Silicon Valley area last night who are looking increasingly towards the Pacific rim. That company which had an interest in Europe and in Ireland in the early eighties and early nineties is now opening an office in Vietnam. They see marvellous opportunities in that whole area. That will present a major threat and provide major competition for mobile international investment. One of the reasons so much mobile international industry came to Ireland in the late eighties and early nineties was the fear that American and other foreign investors would be excluded from the Single Market. Now that the Single Market has come about they see it is not affecting them and that they can come into the Single Market with their products. They are not as concerned now about exclusion and are looking to other markets and areas which would be cheaper as regards labour and other costs.
The major problem facing us is unemployment. We will still have one of the highest rates of unemployment by the year 2000. I appeal to the Government to focus its efforts on solving that problem. Delinquency, drug abuse, lawlessness and crime all stem from unemployment, having nothing to do, being disillusioned and marginalised. Unless we can turn our good economic performance to advantage by creating a more equitable and contented society, all the progress we make will be useless. We will have a divided society. People who are working will do well and those who are unemployed will become increasingly less well off. It is important that we avoid marginalising various sections of our people.
This report examines the macro rather than the micro environment. Our economic performance is reflected in rural areas. It is predicted that there will be a decline in pupil numbers and that schools will close. Rural Ireland is being ignored.
It is unfortunate that I have not more time as I wished to refer to the relevance of costs in the tourism industry. However, the opportunity to contribute to this debate is welcome.
I am pleased to facilitate Deputy Martin by sharing time with him but as he is not present, I do not know if the arrangement holds.
I am sure that is satisfactory. Agreed.
I, too, welcome the opportunity to participate in the debate on the ESRI Medium-Term Review 1994-2000 and echo the Taoiseach's comment that politicans from time to time are quick to criticise economists' reports for their lack of soul but the ESRI, always maintains a human touch whether their reports make cheerful reading or not. That is refreshing. They always manage to link the economic and social dimensions. The authors of this report manage to keep the social agenda linked to the economic agenda. That is an important point because economists are concerned with the bottom line, which is understandable, because everyone needs to know how much money they have to carry out their programmes. Clearly the financial health of a nation is reflected in Government Departments which have to function within financial parameters.
ESRI medium-term forecasts in the main have been accurate. I welcome the ESRI report and, in particular, its forecasts of increased living standards and reduced unemployment. These forecasts point to the success of this Government's policies in dealing with the problems facing us. I agree with Deputy Frances Fitzgerald that it could lead to the belief that we no longer need to make special efforts to deal with the problem of unemployment, and in particular long term unemployment. I am concerned also that this report could lead to the false belief that all our problems are over and that we no longer need to keep a tight rein on public expenditure. We need to keep those two factors to the forefront as we simply cannot allow the financial rewards from the pain the community bore from 1987, when we successfully tightened our belts, to be dissipated by the whiff of good news. We cannot allow expenditure to get out of hand and allow ourselves to indulge in our latest fantasy. To do so would be to renege on the unemployed as there would be less finance available for them. Deputy Fitzgerald and others echoed the Taoiseach's emphasis on the need to be parsimonious with public expenditure. I share that view as we cannot forget the number of long term unemployed.
I welcome the forcasted fall in the number of people out of work but we must remember that what we are talking about is a modest decline from a very high starting point. It is forecast that over 250,000 people will be out of work in the year 2000 and that is not something to be complacent about. The major task facing all of us is to reduce this figure consistently. I do not need to detail the policies introduced by this Government to address the unemployment problem, such as the implementation of the Culliton and Moriarty reports, the work being done to improve the environment for small businesses and the overall improvement in taxation levels.
One of the most disturbing aspects of the ESRI report is that while unemployment is set to fall, the rate of long term unemployment will fall much more slowly with the consequence that the long term unemployed as a proportion of the unemployed will grow constantly. We must pay special attention to this. The recently announced community employment — an amalgamation of the social employment scheme, team work and CEDP — will go some way towards addressing the problems of the long term unemployed but it is clearly not enough. Earlier I described community employment as a "pact" between the unemployed and their community. I want to broaden that pack to take on board all those at local level who can help us build community employment and through it provide pathways to further progression opportunities, to education, training and, of course, jobs.
Local area development programmes and community employment offer a real chance to get to grips with unemployment. FAS responded to the political imperative to become more involved in project work and much worthwhile work was done and continues to be done through the social employment scheme but I have stated publicly that projects need to have training and education opportunities and, most importantly, trainees need vocational guidance to help them link up with employment opportunities. This is where the local area partnership offer people a real opportunity. There are now 12 local area partnerships and the number will be increased to 33 in accordance with an arrangement reached in the Taoiseach's office. Local area partnerships comprise business people, the social partners and those who want to see their local community thrive. Often the business people are able to unlock doors for the unemployed. I welcome the extension of this partnership and I aim to work closely with them. Community employment is a hands-on interventionist exercise. The ESRI says on page 61 of its report:
Even if employment growth were greater than forecast it is likely that many of the jobs would require skills which those who are unemployed do not have. This highlights the importance of labour market policies aimed at increasing the skills and education of the unemployed, especially of the long term unemployed.
To those who suggest that we leave it to the market to adjust matters I say that that simply cannot be done. We need to achieve a balance between proper market forces and pro-active labour market initiatives so that the unemployed get a chance to return to the labour market.
There has been much talk about participation, citizenship, democracy and other fine ideals which we hold as public representatives but the greatest test of citizenship is whether a citizen has the right to participate in the local community, in other words, whether they have the opportunity to take up a job.
I am convinced that we have not concentrated enough on the progression from the community employment programme, formerly the social employment scheme, where education and training are linked, to a thorough search by job placement officers for a job and placement for participants. The reason the community employment programme will be more effective is that provision is made for a longer training period. If, after a period of one year, a person is progressing well, requires more training and no one else is waiting to take their place they will have an opportunity to remain on to gain more skills which would give them a better chance to gain employment.
Community employment is a first step on the path; it introduces the participant to the world of work and its routine and it starts the process of rebuilding lost or dormant skills. Community employment is a positive end in itself and community sector employers are well placed to provide work opportunities. When looking for work one of the greatest problems the long term unemployed face is the attitude of employers. Our experience to date demonstrates clearly the reluctance of employers to hire people who have been long term unemployed, even when generous subsidies are provided. I ask employers to look at this issue again as we must foster a sense of kinship between those who can provide employment, those who are in employment and the unemployed. The ESRI report state that special measures are needed to improve the skills of the long term unemployed as well as those in employment. We need to foster a sense of solidarity which is reflected in the White Paper on growth, competitiveness and jobs.
Another group on which I propose to concentrate my efforts in the coming months is those in danger of becoming long term unemployed, in particular those between 18 and 21 years. It is unacceptable that young people should go straight from school on to the live register without having acquired some work-related skills. The finest of young people have said to me — we have all met them in our clinics — they do not want to sign on the live register. I am now examining all the schemes provided to such young people with a view to rationalising them into a new programme which I propose to call Youthstart and which will work in tandem with the EU Youthstart programme being devised by Commissioner Flynn in Brussels.
One of the bluntest messages from this ERSI report — I have spoken about its positive aspects; a humane approach is always adopted — is that "a rising tide does not lift all boats". The heady message of Seán Lemass in the 1960s was "that a rising boat does lift all boats". Despite the optimistic, although careful assumptions made by the ERSI and others there is still a need to take pro-active measures to deal with the high level of long term unemployment. This can best be done in the local development areas which are set to increase from 12 to 33. There is a need to promote a sense of solidarity within these areas between those in employment, the unemployed and those who can give them a start in life to unlock the door to opportunities at local level.
I thank the Minister of State for sharing her time with me and giving me an opportunity to speak to the ESRI report and focus on the question of intervention in the labour market. As the Minister of State outlined, even though we will enjoy significant economic growth and prosperity in the years ahead we will continue to have a high level of long term unemployment. There is a clear need for intervention in the labour market and introduce policies which target specifically the long term unemployed.
In many ways this ESRI report endorses the policies outlined in the National Development Plan under which significant resources will be allocated for training and education. The report states that "the proposed increase in public investment in this area in the medium to long term is very important". I am delighted that the Minister of State proposes to introduce a Youthstart programme as no young student should have to join the dole queue automatically when they finish their leaving certificate. That is an appalling introduction to life. That is the reason I welcome the students' summer job scheme and the fact that increased resources are to be allocated for the community employment programme which is to replace the social employment scheme.
We need to offer our young people much more. For far too long we have under-estimated the damage life on the dole can do to a young person's sense of self-esteem, confidence and belief. We should try to eliminate the range of negatives attached to their first experience of having to sign on the dole. We can begin to do this by introducing schemes such as Youthstart and allocating greater resources for programmes such as the community employment programme. It is essential that we invest more and more in education and training.
The ESRI report suggests that we are only now beginning to reap the benefits of the investment made in the eighties in education, in terms of increased skills, which has aided economic recovery. In other words, there is a long term return, not short term. It is important therefore that there be forward planning. I was surprised that certain Opposition spokespersons ridiculed the National Development Plan because emphasis was placed on human resources and on the need to allocate resources for training and education. I fail to understand this and I would defend strongly and tenaciously this approach. There is a need for unity in this House given that we have no option but to provide resources in these areas.
While the rising tide did lift many boats in the sixties the jobs were not as highly skilled as they will be towards the end of this decade and into the next century. A high degree of skill and educational qualifications will be required. Unfortunately, the statistics show that many of the long term unemployed do not possess these skills. It is important therefore that we intervene to prevent children from leaving school too early. In this regard I welcome the introduction of the six year school cycle. We also need specific employment policies to prevent people from drifting into long term unemployment, to provide the long term unemployed with the necessary training to acquire the skills they need and enable them re-enter the labour market with some confidence.
I wish to share my time with Deputy Flaherty.
Is that agreed? Agreed.
The medium-term review of the ESRI gives a projected picture of this country for the next ten years. I compliment the authors of the report, the spouse of one of whom is in the House. It provides a great basis for discussion and there is much political content and thought involved in many of the implications in its recommendations. What type of speech would the Taoiseach have made if he had written it himself? Much of what he read out to the House this morning was drafted for him by his staff. I would like to have heard his contribution had he drafted it himself, based on his business background. The debate does not appear to be riveting as far as the media is concerned as the press gallery is not jammed with reporters.
They may be in their offices listening to the debate.
They are probably writing about the Minister of State's speech which was also written for her.
I write my own speeches.
I welcome the Minister's announcement of her new staff. That is the advantage of handing out one's script before speaking.
The main aspect of this report is that at the end of the decade we will still be faced with more than 200,000 people out of work. What is wrong with the mechanics or ability of Government that it cannot translate into jobs the potential of our young people, the potential inherent in our education system and the legislation passed in this House relating to financial mechanisms and so on? Why are people's initiatives stifled when it is projected that at the end of the decade we will still have 200,000 people unemployed?
The report also predicts a decline of up to one-quarter in the school-going population in the next ten years which will give rise to great savings for the Government in power. With the extra savings that will accrue to the Department of Education and with a surplus of teachers because of the decline in the school-going population, why can we not do some forward planning and provide extra tuition for children who need it? The resources which have been put into the training of teachers should not be lost because of a fall in the natural birth rate.
The projected increase in the number of people between 50 and 65 years is proportionately huge and will mean additional costs for the Government. In many rural areas people are moving from their houses to nearby towns and villages both for safety reasons and for comfort in later years. Huge tracts of rural Ireland are dying. In a parish on the western seacoast which I visited last week there are 110 houses, 49 of which are occupied by either one or two people all of whom are pensioners. It is unlikely that children will ever live in those houses again. Parishes such as that are literally dying by the week. The Government's response to the Bishop's document, a Crusade for Survival, could have been drafted by anybody in three to four hours. It is simply not a response and is filled with words such as "should" and "would be".
In the area of the marine, which was referred to as having great inportance, the recommendations of the task force stated that coastal zone management should be developed as a priority; that the protection and promotion of the sea fishing industry requires sustained and determined effort; the commitment to further well regulated development of the aquaculture sector based on local consultation should be enhanced; emphasis should be given to realising the potential of a local community-based approach to shellfish development; the Department of the Marine should bring forward, before the end of 1994, proposals for a new licensing and planning framework and the development potential of angling tourism should be supported. They were merely recommendations in the context of forthcoming electoral contests. None of them is a commitment or contract by Government to deal with the problems with which people will be faced every day of the week. The Government does not have the capacity to deal with the central problem emerging from this well written report, namely, that we will still have 200,000 people unemployed at the end of the decade, many of whom are currently attending school. On leaving school some of them will go to college, attend third level courses, find jobs in the private sector or set up businesses because of their initiatives, but thousands will not fall into any of those categories. Those are the people on which the State must concentrate. It must provide them with a high standard of education and incentives to do what they can with their ability. It must also provide well throught-out and regulated State-backed opportunities that will allow them to better themselves and remain in their local areas.
I never cease to be amazed at people who see an initiative and develop it. I had occasion to visit a printer's unit last week which started business with two employees less than 20 years ago. Today that business employs more than 110 people and deals with very sophisticated printing facilities. This is the result of one person's initiative. We have great capacity as a people. When our people are faced with a competitive instinct abroad they respond very favourably. It is regrettable that our bureaucracy and the constraints placed on people by State Departments weigh down and block many people from using their initiatives.
The Government's response by setting up county enterprise boards and regional authorities is not the answer. The regional authority set up to deal with Galway, Roscommon, and Mayo is already £60,000 short in funding. Why should a regional authority vested with particular responsibilities and terms of reference be short of funds to do its job properly after only a few months in operation? Why should quangos or semi-Government bodies such as this be set up to give the perception that the problems of unemployment and others are being dealt with when they are not? Why is the Government spending more than £2.5 million to project its view by public relations companies given that it has the largest majority in the history of the State and that most of the economic forecasts are good in terms of a low inflation rate, an economic boom and growth, an increase in living standards and improved lifestyles?
Where is the spin-doctoring in the anti-tobacco campaigns?
The Government is spending that sum employing friends and relations of its members, and private consultancy companies to promote various causes that do not need spin-doctors as the people understand them.
That is rubbish.
I accept the Deputy's point about anti-tobacco legislation, but huge contracts are being given to public relations companies, programme managers and others to put forward the Government's view.
The report is well written and contains much decent material, but the Government does not have the vision or capacity to tear away the layers of bureaucracy constraining business people from expanding, promoting exports, recruiting additional staff. Not enough is being done in respect of education or providing opportunities at the appropriate level for those who have fallen into the category of depending on State assistance for the remainder of their lives. The schemes that have been set up are only temporary, short term measures. We will have to wait to see the implications of the Government's action in this regard but I do not hold out great hope for them in dealing with the central point identified by the ESRI report, namely, that at the end of this century we will still be faced with an appalling unemployment rate of more than 200,000 people. That prediction reflects a pathetic realisation of the Government's inability to cope with the fundamental problem of dealing with unemployment.
At this time of the year many groups of primary and secondary school children visit this House. They should be asked to study this document. Much of the indications in it provide good news for them, particularly for the primary school children who will be coming out of colleges onto the jobs market after the year 2000. The message for them in the report is that they should stay in the education system for as long as possible. This message should be noted by those who will be seeking jobs in the near future: because of demographic factors the number of people coming onto the jobs market for the year 2000 will decrease substantially. That has been a bedevilling factor of our economic and social policies. In comparison with competitor countries we have had a steady and additional demand for jobs during the past ten to 15 years because of the population boom working its way through the educational system. The predicted radical reversal of that pattern from the year 2000 provides an opportunity for us to reconsider many policies.
I listened to much of this debate on the monitor in my office, and in the light of that radical new opportunity to analyse, assess and reconsider policies, I was disappointed that the Progressive Democrats proposed the same old formulae for cutbacks, a reduction in direct taxation and an attack on the public service. Those proposals may have had a validity in the past decade but in the light of this report I would have expected a new approach. Its line of policy will be seen to have little value in the changing face of economic policy and, hopefully, social policy in the years ahead. My approach is closer to that of Deputy Rabbitte who called for an improved social policy.
Reference was made to a relative of the Minister and I will refer to another, namely her father-in-law. My approach to this matter is similar to that of our former Taoiseach and party leader. The central challenge he sees arising from opportunities and cautions sounded in the report relates to a topic of which many people have referred, namely the huge number of unemployed.
In an article in The Irish Times on 16 April he is quoted as saying:
There are today almost 70,000 people who are aged over 35 and have been unemployed for over a year. Very many of these — as well as some younger unemployed people — are now unlikely to get jobs here or elsewhere and, unless their plight is addressed in a far more radical manner than has yet been contemplated, they will remain in indefinite poverty and their children will be brought up in conditions of severe deprivation.
We must face up to the prospect of growth not being one of controlled growth. We will have people in employment, a large section of our community living better than they have ever lived, while a large minority will live in comparative conditions of severe deprivation. The majority of people employed would enjoy an unprecedented improvement in living standards.
We have only to recall the uncontrolled expansion of consumerism, individualism and an unhealthy self-interest in England under Margaret Thatcher. None of us would like to recreate the type of society created in the latter end of the Thatcher era. That is the prospect if this growth is not controlled and used intelligently and sensitively. If that were to happen it would indicate a gross failure on our part as politicians as we will be responsible for many of the decisions in distributing resources.
The central forecast of the report suggests a period of substantial progress and improved living standards over the next decade. It states in its introduction that Ireland will have the capacity, if it has the will, to address its most basic problem, that of unemployment. However, it will not be found if the economy is left on autopilot, it will require a change in attitude.
We have all watched with interest the position in South Africa in the past few weeks. I have had an interest in it for the past seven to eight years. The South Africans have identified their lost generation. To some degree our unemployed are our equivalent of their lost generation of people who by virtue of their protest about the apartheid style education received no education. Major problems are faced by young people in their early twenties who have been engaged in the struggle and received no education. It is admirable that they had the foresight to identify those problems some years ago and established a programme to target that lost generation.
This report does not have good news for our long term unemployed. Their children may be able to look forward to a good future and to job opportunities if we intervene and advise them not to leave school too early. There is no future for the unemployed unless we intervene. The report, in its final section on interventions in the education area, identifies education and training as being important. Education is doubly valuable because it gives people a way out of becoming a long term drain on the social welfare system and provides valuable work in education and training areas. From my experience of areas of a high level of social deprivation in my constituency, the schemes to date have been extremely effective.
We have learned much about local programmes. Of all the schemes, the one that impresses me most and which is under-invested in is that providing an opportunity for the long-term unemployed to return to full-time education. There are only 3,000 places available on this scheme. As Deputies on all sides of the House, including Deputy Martin who spoke a few minutes ago, said, this matter should be a priority.
I regret there is not more time to discuss this important document which, if properly applied, could change the tone and emphasis of Irish politics, which has moved to the right, and I include in that the parties who are traditionally of the left and whose policies are little different from those of the right.
I commend Deputy Mary Flaherty on her speech. It is important that we emphasise the commitment to public service, public values and social values and address the drift to the right that we have seen in recent years. We have the best forecasts for our economy for 30 years. Our economic performance is top of the European league. There is a strong growth rate, roughly three times the European average, low inflation, a balance of payments surplus and a radical improvement in public finances. Since the Government took office we have seen a resurgence of confidence in the economy, a growth in the numbers at work and a fall in unemployment figures. We have delivered a stable fiscal environment, with falling interest rates and a return to buoyant economic growth.
I am delighted, as a Labour Party Minister in the Department of Finance, we have delivered these tangible improvements in our economic performance. Our management of the economy has shown that responsible fiscal policy and a commitment to quality public services can be compatible objectives. I note that the ESRI forecasts, which envisage that we will reach the Maastricht debt-GNP ratio target of 60 per cent by the year 2000, also envisage continuing modest improvements, building on what we have already achieved in public services.
Last year there was a growth of 16,000 net non-agricultural jobs. We were the only EU country, apart from Luxembourg, to record jobs growth last year. This year we expect jobs growth to rise to 24,000. We have concluded a national pay deal which will maintain and improve international competitiveness and will deliver stability for business to plan ahead. If we are to achieve the targets which the ESRI says we can achieve, it will be critically dependent on maintaining that level of competitiveness and not choosing to pay so much to people in work that we cannot reduce the numbers out of work. If new and small enterprises respond positively to the better markets, lower interest rates and new business incentives, the jobs forecasts will be even better.
The reduction in interest rates is very important in that it makes much more sense to invest money rather than leave it sitting in the bank. We have had a very high savings ratio but a very low investment ratio. I would tell Irish business that, as the jobs potential is there, the market is there, there is confidence in the economy, interest rates are low and the opportunities are there, they should go out and invest. We must ensure there is investment in the real economy rather than in a property boom, with a growth in house and other property prices and no worthwhile improvement in job numbers. There should be genuine productive investment rather than investment in financial assets and land speculation.
The IDA is attracting a record number of new jobs at present and, from what has been announced and what we know is in the pipeline, we expect that the multinational sector will deliver an extra 9,000 industrial jobs in 1994. This year has been the best for many years for the IDA in attracting jobs and that is a measure of confidence in the Irish economy.
Creating sustainable employment was our central concern in framing this year's budget. We set about shifting the burden of taxation away from income in a package that will lower personal income taxation in a full year by £330 million. People such as the Progressive Democrats talk about tax reform, but real tax reform involves restructuring the tax system away from property and in favour of work and of reducing taxes on income. In its brief period in Government, the Progressive Democrats did not deliver on tax reform on such a scale. A reduction of £330 million in personal income taxation is real tax reform. The budget had a particular focus on the low paid. Again, that is real tax reform rather than simply concentrating on the people at the top. The budget focused on those most likely to become trapped in unemployment if they lose their jobs and gave an employment boost to vulnerable sectors by reductions in employer PRSI in the lower income range.
The national plan will give a major boost to jobs, investment and long term growth potential. The plan has been virtually finalised with Brussels and my officials are tidying up the small print prior to its circulation and translation. We expect the formal launch to take place in mid-June, following which we will be in a position to draw down substantial funds for investment in Ireland's economic potential. The Department of Finance is preparing new guidelines on project evaluation and management: Patrick Honohan, in the medium-term prospectus report, makes very good points on this matter, to ensure that we get the maximum value from the investment of EU and Irish funds under the plan so that not a single ecu is wasted.
As the ESRI review points out, one effect of a strongly growing economy, out-performing our European partners, is that we are likely to exceed 75 per cent of European GDP within the next couple of years. It will clearly be more difficult in 1999 to negotiate funding on the scale we have been receiving, although we intend to be around and to carry out that negotiation. It is critical that we get value for money from investment under the national plan. In the longer term, as Ireland's economy and output per head converges to the European average, we must look forward and plan for the day when we are no longer net recipients in Europe but become net contributors. With European transfers now amounting to more than 3 per cent of GDP there is a danger that certain economic sectors will become long term dependent on transfers of money from outside. We must use these transfers to build up our economic capacity for self-sustaining growth for the time when transfers on this scale are no longer available to us.
The forecast of substantial improvement in Ireland's economic performance provides a unique opportunity to tackle hardcore unemployment. As the conclusion to the ESRI report states: "Ireland will have the capacity, if it has the will, to address its most basic problem — unemployment". Good economic news must be translated into a concentration on the areas of disadvantage, particularly in tackling long term unemployment. The fruits of growth must not be confined to those already in work, enhancing the living standards of the comfortably off or generating a property boom. They must be distributed to make a real difference to communities at risk, to the disadvantaged and the long term unemployed, even though that may involve lower growth in living standards for those already in jobs. As the residential property tax has shown, the voices of the comfortable are much louder in society than are the voices of the excluded. Our task is to show that the leadership which will ensure that the fruits of growth are used to bring the excluded in from the margins and overcome the barriers to their participation in the Irish economy.
Rising tides do not lift all boats, and economic growth is a necessary but not a sufficient condition for tackling unemployment. The new jobs created when our economy grows are most likely to go to the well educated, to returning emigrants and to increasing numbers of women participating in the workforce. It is interesting that between 1987 and 1993 there was an increase of 55,000 women in employment an no change in the total number of men in employment. Without special measures the jobs market leaves the unqualified, early school leavers and the long term unemployed last in the queue, or more likely, outside the jobs market altogether. The improvement in the economic outlook and, from the late 1990s, in the balance between those retiring and those coming on the jobs market for the first time, will make it easier for young people with education and skills to get jobs. However, those who leave without any qualification are likely to add to the 60 per cent-plus unemployment rate and to form the next generation of long term unemployed unless the extra resources generated by economic growth are targeted effectively to breaking that cycle.
The pattern of people becoming trapped in long term unemployment has been remarkably stable and reductions in the flow into unemployment will not address the problem of the stock of long term unemployed, 130,000 of whom are currently out of work for a year or more. Past figures show that less than 20 per cent of those out of work a year or longer get back into the workforce. Breaking that cycle and the problem of hardcore unemployment is a crucial task.
I have allocated a substantial share of the resources in our national plan to rebuilding the economic potential of the long term unemployed to bring them back into the economic mainstream. The Local Development Programme will reach into unemployment blackspots and offer an imaginative and integrated development programme. The Community Employment Programme, which is a significant improvement on the old SES, will offer 40,000 places this year, a major change in the scale of public action on unemployment. None of these proposals is cast in stone: it is important that we constantly improve our response in the light of experience and realise that it is as important for us to learn from failure as it is to learn from success.
Training and education are part of the process of rebuilding economic potential, as well as community action and genuine devolution of power and resources to local communities to help them devise programmes reflecting their local needs. A community which believes in its potential is in a good position to unlock that potential and to offer hope to its young people growing up. In many of the community development or partnership programmes there have been practical and tangible examples of that work in areas such as Ballymun and Finglas, to which Deputy Flaherty referred, Moyross and Southill in Limerick and in other areas. There have been unemployment blackspots but the communities have come together in a targeted way to tackle disadvantage and to unlock and rebuild their economic potential. They are achieving major success. We want to resource and increase that development and ensure that rebuilding the potential of the unemployed becomes a core feature of Government policy, that unemployed people will no longer be on the margins but brought back into the system. No economy can operate if it leaves one tenth of its workforce, the present figure for long term unemployed, outside the economic picture and not in a position to contribute of their talents to society. We must bring those people back into the economic system. That is the clear intention of the Local Development Programme to which we have allocated approximately £1,000 million of resources under the National Development Plan.
Left to their own devices, private employers are simply not interested in hiring the long term unemployed when they have their pick of school leavers. An interesting survey of employers was carried out recently by the Tallaght partnership. There has been notable success in the efforts of the area partnership companies in drawing up inventories of the talents and skills of the unemployed workforce in their communities and in persuading private employers to take people from their registers. We need positive discrimination to ensure that a share of the vacancies are filled by people from the long term unemployment register. We must use our training budgets creatively, anticipate skill shortages and ensure that the long term unemployed have the ability to slot into vacancies as they arise.
Nevertheless, even with very optimistic economic forecasts, we know that the private sector alone will not come up with the answers and there will remain a substantial role for community employment, bringing the talents and enthusiasm of people now out of work to bear in delivering new services to the community. One of the most exciting and imaginative programmes I have seen in action in the area of community employment has been the arts squads, which bring vision and imagination to the whole area of community arts. Wonderful work is being done in those areas. There are jobs to be done around the country in caring for the elderly and the ill, improving the environment and providing community services. We can find and are finding better ways of bringing talents and potential of unemployed people to work thereby improving the quality of life for the community.
Looking at the whole area of community employment, there is to some degree a tension between the quantity of what we do and the quality of what we are able to do. The clear message I am hearing from unemployed people is that the quality of programmes is preferable to spending resources too thinly. That confronts us with choices; whether we opt for 40,000 places on a community employment programme or 20,000 places on a more intensive and higher quality community employment programme offering longer duration employment to the participants. Those are the real and difficult choices we have to face.
I look forward to the report of the National Economic and Social Forum on how we can improve our response to long term unemployment and improve community employment programmes. I look forward also to the practical results of the pilot programme involving 1,000 places this year on the CMRS's imaginative work option.
There has been a fall of one-third in the birth rate since 1980 and the total child population under 15 will have fallen by a quarter by the year 2005. One of the major policy choices we face as a society is how we use the opportunities and resources freed up by this major demographic change to focus particularly on the hardcore unemployment problem.
Last year, all the teachers released as a result of the fall in primary school numbers where redeployed in remedial education or in disadvantaged schools. There is a clear choice to be faced between reducing class sizes generally — and reaping whatever marginal difference there is between teaching a class of 29 or one of 28 — or targeting sources where they can really make a difference in preventing another generation of early school leavers from being destined to become tomorrow's long term unemployed. I would much prefer to see those extra resources used in Headstart programmes, in remedial education, in targeting disadvantage and in second-chance education for those who lost out first time around than to see them deliver less perceptible improvement when spread over the population as a whole.
I note that one of the Progressive Democrats spokespersons calls the Minister for Education the minister for disadvantage and intends it as an insult. The Minister for Education bears that title with a badge of pride.
At second level, reaping the demographic dividend will take more time, first, because of the welcome increase in participation levels post junior certificate and, second, because of the decision taken under the Programme for Economic and Social Progress to add a compulsory extra year for second level schools precisely at the top of the demographic peak when today's 14 year olds, children of the 1980 boom year, complete their junior certificate. It will take longer for us to be in a position to use a demographic dividend and to put more resources into second level to help disadvantaged communities. Again, we face the choice at second level of whether we spread resources thinly among schools around the country to reduce marginal class sizes or whether we use it in a targeted way to prevent a new generation of early school leavers who are likely to become tomorrow's long term unemployed.
Managing the changes caused by falling numbers in our education system is a major task. In a society where publicly funded education comes under a variety of different ownership and management structures, it is critical to have interschool co-operation, and indeed proper regional structures, rather than rivalry, to ensure that competition for falling numbers does not further marginalise disadvantaged pupils. We would ill-serve the pupils who most need our help if certain schools cream off the more academically able pupils, leaving other schools to become the dump schools in an area. That would not serve anybody in our community. Whatever the legalities of ownership, where public money is allocated to a school, it is important to effect a result that is of benefit to the whole community. In County Clare, for example, the whole area of managing a declining population and school amalgamations was well run with the co-operation of the Church authorities, the vocational education committee and so on. That serves as a model for how these issues should be managed.
Falling child numbers lead in the long term to a problem of larger old age dependency with a small population at work. This raises issues of long term funding for pensions and setting aside resources in time against that eventuality. The opportunity offered by a more favourable demographic picture is, therefore, transient and there is a limited window of opportunity which frees up extra resources in our society to tackle hardcore unemployment.
The prospects for growth as outlined in the ESRI report present us with tremendous opportunities but we need to grasp them on behalf of the least advantaged in society rather than using them simply to make the well off more comfortable.
I wish to share my time with Fine Gael.
Acting Chairman
Is that agreed? Agreed.
The message from the ESRI report is clear. Even if the relatively optimistic forecasts are fully realised, there is still no scope for complacency. This report and the information it contains should be important for the Government and our policy makers generally in the way they form public policy for the remainder of this decade.
On the face of it the report seems to give grounds for optimism. However, on deeper examination the news is far from good. The prospects for the long term unemployed are dire and the predicted increase in emigration is alarming. The effects of projected demographic trends allied to increased emigration will inevitably drain the country of our youth, energy and creativity and sap the spirit of the nation. Emigration not only inflicts hardship on families but affects communities. I know communities which cannot field a football team. It also affects consumer purchasing power which, in turn, affects the economy.
This is too high a price to pay for an increased standard of living. We have been warned and now is the time for action. The challenge for the Government is to forge policy in such a way that all citizens benefit from the projected improvement.
The single most alarming prediction in the report is that the level of unemployment will be about 200,000 at the end of the decade. This figure is unacceptably high. No country can sustain such unemployment. The economic effects are disastrous. The ugly social side-effects are even more alarming. Government policy must take on board the moral necessity to ensure everyone benefits from the fruits of our prosperity. We cannot exclude the long term unemployed and their children.
If the report does nothing else my hope is it will put job creation at the top of the Government's agenda and that the Government will use its energies to tackle the unemployment crisis. Unemployment has been remarkably absent from the top of the Government agenda for the past few months. The Progressive Democrats have argued for radical pro-jobs tax reform since their formation. While in Government for a short period we strove systematically to bring that about. Our record in that regard stands no matter what anyone in the House suggests. In Opposition we offered to be part of an all-party group to work towards consensus on how radical tax reform can be brought about. As a party we pledged our support to any initiative in that direction.
A programme of pro-jobs tax reform cannot be achieved over one or two budgets but must be brought about through a coherent series of steps spread over as many as five budgets. If ever a Government was well positioned to carry out such an exercise it is this one. It has the biggest majority since the foundation of the State and also stands to have the longest term of office of any Government in recent times. If pro-jobs tax reform is on the agenda nothing can stand in its way. What has it done to date? Two budgets were introduced. The first, with the ill-fated 1 per cent levy, was nothing more than a weak holding operation. The second attempted to reduce employers PRSI but it was reduced at the lower end of the scale and increased at the upper level. This represented a scoreless draw for employment prospects. While we all appreciate the decrease at the lower level it is not radical PRSI reform. It merely pushes the limits around and does not improve the overall position. This approach would be fine if it were the intention to create a low scale, low pay economy, but if it is the policy to stem the brain drain, this measure will be counterproductive. I took a rain check of the various pharmaceutical industries and co-operatives around Cork harbour and in the Munster region. I was told that this measure would militate against the creation of additional jobs. The money that could be used to employ highly skilled workers will now go to the Government coffers in the form of increased PRSI payments. That is the effect it will have on the employment of graduates.
We are told that the key to our future is competitiveness. How can we compete if we create a tax regime which forces our brightest, brainiest and best people to emigrate? We educate our top graduates to the highest level and export them to work for our competitors. Highly skilled Irish born and educated workers are employed abroad, working against our economy. If it is the Government's intention to stem the brain drain they must look in the next budget at the impact employers' PRSI at the higher level has on the employment of graduates.
The Progressive Democrats are deeply concerned about the long term prospects for the unemployed. We must not create a two-tiered nation. The long term unemployed cannot be left behind. There is a strong onus on the Government to introduce an education/training programme which will bring them on board. There would be plenty of work to be done if through our taxation system and other measures we could unleash the potential for job creation in the small industry sector, the services sector and the food processing sector. With proper planning and budgetary provision 200,000 people will not be unemployed by the year 2000 as is predicted in the report. If it happens it will be as a direct result of the failure of Government policy and the Government will stand condemned.
I ask the Government to embark on a five-year programme of radical pro-jobs tax reform and examine our training and education programmes to ensure nobody is left without a job because they do not have the necessary skills as is the case for many long term unemployed. We must create an enterprise culture which will ensure that people will not only be employed but will create jobs for others.
Debate adjourned.