I wish to share my time with Deputy Gilmore.
Private Members' Business. - Inflation Rate: Motion (Resumed).
The following motion was moved by Deputy Noonan on Tuesday, 3 October 2000:
That Dáil Éireann–
conscious that rising prices have cancelled the benefit of the 5.5% pay increase under the Programme for Prosperity and Fairness, have wiped out the 5.5% increase in social welfare payments announced in the budget and reduced the standard of living of persons on fixed incomes;
concerned that inflation has particularly hit young families who are entering the housing market and face huge child care costs;
alarmed by the impact of rising oil prices on the cost base of the economy;
condemns the failure of the Government to anticipate the inflationary pressures or take any real measures to combat inflation, and calls for the introduction of non-inflationary gain-sharing mechanisms, and a coherent strategy to reduce Ireland's exposure to external shocks whether through foreign exchange markets or through energy dependence.
Debate resumed on amendment No. 1:
To delete all words after "Dáil Éireann" and substitute the following:
conscious that increases in real living standards have been delivered by this Government, for employees and social welfare recipients, through the partnership process;
cognisant of the progress which has been made in increasing the supply of affordable housing and the major initiatives which have been taken to enhance the quality and supply of child care;
aware of the fact that taxes on, and as a result retail prices of, petroleum products are among the lowest in the EU and are below those of most of our main trading partners;
supports the proactive approach of this Government in dealing with the pressures which exist in the economy and has confidence that future measures, under consideration in the context of the Programme for Prosperity and Fairness and the next budget, will build upon the major gains of recent years and further improve real living standards.
–(Minister for Finance).
Acting Chairman
Is that agreed? Agreed.
I am glad to make a brief contribution to this timely and critically important motion from our Fine Gael colleagues. This morning, Deputy Ruairí Quinn, our party leader, demanded a new social welfare Bill to deal with the urgent plight of 880,758 fellow citizens and their dependants who are primarily supported by social welfare assistance and benefits. This repeats calls by the Labour Party since April last. On 15 June, for example, in an Adjournment debate I asked for a finance (No. 2) Bill and a new social welfare Bill. When the awful consumer price index figure of 6.2% emerged in mid-August I, with my col league, Deputy McDowell, called for the return of Dáil Éireann and I demanded a special meeting of the Joint Committee on Social, Community and Family Affairs. At the subsequent meeting of the committee in September, I asked for an urgent inflation compensation package for people on fixed incomes to become effective on 1 January at the latest. The Minister, Deputy Dermot Ahern, responded in his usual Sphinx-like, unconcerned and even amused way. While supporting this motion on behalf of the Labour Party, I repeat our call for an emergency social welfare package to become effective as soon as possible to show solidarity with our most vulnerable citizens.
The year 2000 has been a total disaster for social welfare recipients. A Government in the late 1920s was rightly remembered for cutting old age pensions. When this Fianna Fáil-Progressive Democrats Government is defeated in the forthcoming general election, as it certainly will be, it will always be remembered as the Government which slashed social welfare in real terms at a time of unprecedented growth rates of up to 13% per annum.
For nearly six months, the monthly annualised CPI rate has been running above 5.2% and is now heading for 7% or more. In the same period, social welfare incomes have risen by only 5.2% to 5.7%. Even to the most blasé Ministers for Finance and Social, Community and Family Affairs, it is now clear that social welfare rates have been seriously cut in real terms by up to 3%. In April, the Minister for Social, Community and Family Affairs, Deputy Dermot Ahern, confidently predicted that inflation would taper off this year at 3%. Like so many of his pronouncements, that prediction is now in tatters and the 1.5 million citizens for whose income the Minister is primarily responsible have completely lost confidence in his administration of the Department of Social, Community and Family Affairs.
A striking feature of the recent summer of discontent in Fianna Fáil was the way in which a large number of backbenchers disowned the Minister for Finance, Deputy McCreevy. As this year has progressed, his credibility has been more and more eroded, particularly in relation to his treatment of people on social welfare. His general increase of £4 last year has been effectively wiped out.
The basic social welfare rates and assistance of £77.50 and £47.50 per week are deplorable sums for adult citizens and their dependants to be expected to live on. It is now past time for the Government to come forward with an emergency social welfare package, or at least to consider the introduction of that package on 1 January 2001. It should not put it off until April, but should bring forward the reform of next year to this year. I commend the motion and our Fine Gael colleagues.
I am delighted to see the Minister with responsibility for housing and urban renewal in the House for this portion of the debate. I remind him that when he took office, the average price of a new house in this country was just over £73,000. The average price on the last day for which figures are available was £131,821, an increase of 79%. The average price of a new house in Dublin when he took office was £84,000 and the average price of a new house in Dublin now is almost £178,000, an increase of 112%. The average price of a second-hand house when he took office was £72,000 and the average price of a second-hand house now is almost £150,000, an increase of 107%.
House prices do not form part of the consumer price index but the increase in house prices has driven up the levels of mortgages that people have to pay, the increase in house prices has driven up the levels of rent that tenants in the private rented sector have to pay and the increases in the levels of rent in the private rented sector have at least mirrored the increases in house prices. On the basis of evidence produced by the auctioneers and valuers and on the basis of the information available to me, the level of increases in rents has been in excess of that in house prices.
I was extremely disappointed to hear the Taoiseach yesterday and today effectively telling this House that the promise the Minister with responsibility for housing and urban renewal implicitly made, that there would be legislation to protect tenants in the private rented sector, will not be met. Apparently the report of the commission on the private rented sector has been referred to the housing forum. We have had one committee dealing with the problems of tenants in the private rented sector for over a year and when it reports, the Government's response is to refer it to another committee instead of legislating to deal with the problem and tackle this aspect of the housing crisis.
I invite the Minister with responsibility for housing and urban renewal, who is in the Chamber, to tell us now or at some point, if he proposes to intervene in the debate, what has happened the commitment that he made publicly in July when he published the report of the commission on the private rented sector and said that he would be making proposals to Government in September. Did he make the proposals to Government? Did the Government reject them? Why is the Government kicking to touch the report of the commission on the private rented sector at a time when tenants are paying record levels of rent and when those levels of rent are contributing so much to the problem of inflation, which is the subject of this motion tonight?
I wish to share my time with Deputies Brendan Smith, Conor Lenihan and Fleming.
Agreed.
One of the problems causing the rise in inflation is that many people have much more money to spend on goods and services. I accept that house prices, wage and fuel costs, consumer products and services are increasing inflation. All of us in this House are concerned about the rise in inflation and that it was forecast it would be 3%. We now have to accept it is 6.2% as of last month. Due to the success of our economy we have become a consumer driven nation. The Irish punt is currently trading at 0.76p to the pound sterling and the dollar is trading at IR£1.11. Not long ago we were on a par with sterling and the punt was trading at $1.60.
The fact that we are locked into the euro is not helping inflation. Currently the punt is worth 0.78 euros. Lack of confidence in the euro and the fact that countries like the United Kingdom and Denmark have opted to remain outside the euro zone is not helping matters. I am confident that the euro will survive in the long-term. The euro has weakened against the dollar. Our inflation rate has risen significantly as a result of high prices and fuel is just one of the areas affected. By joining the euro currency we effectively transferred control to the European Central Bank. We cannot control our interest rates. In the past we could put up interest rates to control inflation and to stop spending.
I suggest one line of thought which may help reduce inflation and the high cost of consumer goods. All importers of goods, myself included as I am an importer, should buy more in the euro zone where the currencies are locked together and the weakness of the euro would not affect inflation. I was speaking to Mary Hanley of the external trade section of the Central Statistics Office today and I was amazed to hear that our imports from the UK and the USA have increased by 21% and 18% from January to June of this year on the same period last year. Last year we imported £6.6 billion of goods from the euro zone compared to £27 billion from the rest of the world. That is a huge imbalance and is one of the reasons inflation is being forced up. We are buying goods in pounds sterling and in dollars and our euro currency is not strong enough to offset the imbalances.
This year to the end of June, for example, we imported £4.3 billion from the euro zone and £16.2 billion from the rest of the world. That imbalance is staggering when one considers that £5.9 billion of that was imports from the UK alone. That was for the first six months of the year, which represents an increase of 21% on 1999. A total of £3 billion of that came from the US. I appeal to all importers seriously to examine their buying strategies to ensure they buy within the euro zone where currencies are not affected by the weakness of the euro. That is not a recipe to tackle all the problems related to inflation, but such a strategy would help.
I urge the Minister for Finance to compensate pensioners and social welfare recipients in the forthcoming budget for the high inflation experienced this year and to use the predicted £2 billion surplus that will be available to improve the quality of life of our senior citizens, those less well off and workers.
I am glad to have the opportunity to make a contribution on this important issue. As the Minister stated last night, the inflation challenge is a pressing and serious issue. In its three years in office the Government can be proud of its economic achievements in job creation, management of the public finances and investment programme for the next five and half years. The Minister outlined the Government's policy last night. He stated that its economic policies are designed to ensure all sectors benefit from the fruits of our economic prosperity. I join Deputy O'Flynn in hoping we can look forward to major improvements for pensioners in the forthcoming budget, similar to those implemented in the previous three budgets. I have no doubt that in the next two budgets further improvements in the range of social services will be made by the Government under its policy of social inclusion.
There seems to be a small industry among economic commentators of trying to talk down the economy but thankfully the economy is structurally strong and is becoming stronger. We should remember the average rate of growth in the economy over the past three years has been 8% compared with an EU average of 2.5% per annum. The general Government balance has increased dramatically, the national debt has fallen and the numbers in work increased by 96,000 in 1999 alone. There are 200,000 more people at work since the Government took office. They are the statistics that matter to the people. One does not need to read a Central Bank report or economic indices to appreciate the growth in the number of jobs available, all one need do is read the job advertisements that span two or three pages in the provincial newspapers, which is a welcome improvement. Another economic indicator is the number of planning applications in the local newspapers.
There has been great economic activity in areas such as the two counties I and the Leas-Cheann Comhairle represent. The people in those counties suffered immeasurably over a period of 30 years owing to the political troubles in that province. That is not to say all our economic difficulties are surmounted – far from it – but there have been dramatic improvements. The Government is implementing policies that are bringing about great improvements in the economic and social life of rural Ireland.
I have said to the Ministers for Finance and Enterprise, Trade and Employment that we need a better range of job opportunities. We need new knowledge based industries in rural Ireland, particularly in the north east, the north west and in the six southern Border countries. I am particularly concerned about the needs of my constitutency. I appeal to the Government to continue its policy of ensuring we attract inward investment to the Border region and my constitutency.
One of the best ways to ease pressure in the demand for housing and infrastructural improvements witnessed on the east coast is a strong regionalisation policy. The parties in Government, Fianna Fáil and the Progressive Democrats, are the only two political parties that had the courage to implement a policy of regionalisation, regionalising the country and retaining Objective One status for the Border region, the midlands and the west. That will achieve economic activity that would not otherwise come to us. By bringing economic activity and jobs to rural Ireland we will ease the demand for housing and infrastructural improvements on the east coast.
I welcome the Government's policy on infrastructural development in our towns and villages in recent years which facilitated the provision of housing, thereby maintaining the population in rural areas. That policy is effective and can be given extra momentum. Every town and village should have the best possible infrastructure within reason to facilitate the provision of housing, ensuring people can live in rural areas and commute some distance to work.
There was considerable media coverage in recent weeks of fuel and energy prices. It is welcome that the Government did not increase excise duty on unleaded petrol or diesel in the last three budgets. In the past people in the Border region witnessed the outflow of money to the North when motorists crossed the Border to buy petrol and diesel. Speaking from a narrow parochial viewpoint, it is welcome that the traffic is now reversed and northern hauliers and motorists are buying fuel south of the Border. That contrasts with the position some years ago when there were no fuel stations in large tracts of the Border area. The position is now reversed with new fuel stations opening on the southern side of the Border and stations closing on the northern side.
The £41,000 million available under the national development plan over the next five and a half years could change the face of rural Ireland. It could ensure that necessary infrastructure for this century is put in place to attract jobs to rural areas and thereby ensure a more even spread of population and job opportunities which would have positive social effect.
I am glad to have the opportunity to support the amendment tabled by the Minister, Deputy McCreevy.
I welcome this opportunity to contribute to the debate. It is not often one gets the opportunity to enter a fulsome defence of the Government's record on the management of the economy. It is a source of great pride to me that I have the opportunity to defend the record of the Minister for Finance, Deputy McCreevy, who has played an outstanding part in developing and stewarding this economy to its current level of success. I am also proud that I was one of the few members of my party and perhaps in the House who bothered to defend last year's budget when the Minister came under sustained attack. He was right to introduce innovative moves towards tax individualisation. We need more of the same in the years ahead and in particular in the two budgets the Government intends to introduce before going to the people some time after March 2002.
It is the objective of the Government to continue in office until 2002 and implement the solemn promise it gave the electorate on tax reform. That is the core objective of the common policy Fianna Fáil and the Progressive Democrats put before the people in the last election. There were other objectives including a zero tolerance policy on crime and aspects regarding the peace process, but the Government's core mission statement was to reduce tax rates to 20% and 40%. That is something we will achieve within the lifetime of the Government. The Minister should take a bow for his singular determination to achieve that objective. One would expect criticism of our policies from the Opposition but some leading figures internationally and on the domestic stage, quite apart from the Opposition, have queried the Government's policy of continuing to reduce taxes.
It is essential that we continue to cut taxes, not least because of the inflation problem that surfaced in the past 12 months but also to maintain the partnership process in which we are engaged through centralised pay bargaining. It is important for the rights of the middle to low paid that they see something in the next two budgets in terms of tax cuts and raising the thresholds. Deputy McDowell will agree with me and with SIPTU that anybody earning £10,000 should not pay tax. That is eminently achievable and the question that now arises is whether we try to do that in this budget, the next one or in both.
Would the Deputy care to make a wager on that?
I would not mind, but that is the elemental promise of the Government.
Why wait?
We will not wait; we will implement. The "nay" sayers in the Opposition, the Central Bank and the ESRI are utterly wrong in their interpretation of what is needed. Many Opposition Members are trying to blame the Minister or the Government for the increase in inflation, but I know Deputy Dukes, if he were true to his profession as an economist, would acknowledge that 70% of the acceleration of inflation that was experienced in the past year was down to three factors: one related to the excise duty placed on tobacco in the last budget, one was the 2% rise in European interest rates and the other was the increase in global energy prices, given that the price of a barrel of oil is now approximately $33.
The Deputy has a long way to go to fill in the rest of my thinking on that matter.
These three factors account for 70% of the increase in our inflation. How can we protect ordinary workers on low wages who are vulnerable to price rises, from increases due to inflation? How can we protect those people in a way that is non-inflationary and which does not put us into a further wage price spiral? That is the Minister's objective and I do not doubt he will rise to the challenge. I welcome the Tánaiste saying recently that she intends to continue with the policy of cutting taxes; it is good to see she is not for turning on that, nor am I. We must push ahead with that plan.
The Deputy will rock and roll with the Attorney General.
The outlook for oil prices is the only fly in the ointment. If one takes a two year view of the oil market one could see prices declining. An odd aspect of this is that in the next six months we may be prey to higher oil prices by dint of the weather. If there is a bad winter in the US or Europe we may see an increased surge in demand for oil, lifting the price and causing huge problems. However, the weather is something nobody, least of all in this House, has any control over.
Is that a fact?
That is new.
It is not new. Deputy McDowell is finance spokesperson for his alternative Government, but it is well known that production—
It is the first time I heard that the weather in the US affects inflation.
I am not saying that. I am saying there could be a further increase in oil prices. It is a well known fact – I am not the one propounding this – that if there is a harsh winter in America there is an increased demand for oil.
What about a harsh winter in Siberia?
The capacity of the worldwide oil industry has not caught up with demand. Many wells were capped at $10 a barrel and they cannot be brought back into production quickly – there is a time lag between production meeting demand. If one takes a two year view, however, production will meet demand.
There is nothing wrong with our economy. It is probably one of the most competitive economies in the world and recently the extraordinary figure of 25,000 people in long-term unemployment was produced. That is an extraordinary statistic which, for obvious reasons, the Opposition is not keen to tell the public, but it is a real figure which exemplifies the success the Government has had with unemployment. We are effectively operating as a country at full capacity, with 4% unemployment. By most economic reckoning that is full employment or as close to full unemployment as one can get. During the 1980s there were similar or lower figures under Ronald Reagan in America, but those were extraordinary even in the view of American analysts.
By any yardstick this Government has performed excellently. The budget has some key objectives, one of which is to ensure that low and middle earners gain and are not hit disproportionately by inflation. The wrongs visited on middle to low income workers must be addressed. To be fair, that has been a key objective for Opposition parties for some years and there is broad consensus on achieving justice in the tax system and equity for the middle and low paid.
The euro's difficulties account directly for approximately 1% of inflation according to some experts, but there was very little the Government could do to arrest its decline in the past 12 months. We saw one central problem with the euro when Mr. Duisenberg came to Ireland some months back. He made a speech which wrongly analysed the problems besetting the economy and suggested we should not go ahead with tax cuts. That is utterly flawed and in some ways it shows why the euro is perceived in the marketplace as being not very well co-ordinated as an operation. There is clear evidence from the market and its observers that the Governor of the European Central Bank is going to European capitals, speaking sometimes in broken English and saying different things at different times in different places. That is getting to the market, which sees an element of confusion in communications from the bank. That is a serious problem which the bank must urgently address.
Send them a judge.
Mr. Kissinger famously remarked that he never knew who to ring when he wanted to speak to someone who ran Europe and that is a problem with the European Central Bank; nobody knows who Mr. Europe is. I hope the bank will clarify that. The intervention of the Federal Reserve and the Japanese central bank has put a floor to the currency and it will go up again.
I appeal to the Minister to ignore the odd voices calling for changes in the Groceries Order. There is no economic data to sustain the view exemplified by Moore McDowell of UCD that it is inhibiting competition and adding to inflation. There is no economic evidence to suggest that removal of the Groceries Order would have any effect on our inflation. Food prices here are very competitive and retail competition, as we know, is excellent. I thank the Opposition for being relatively silent.
In reality, this is the economic issue with which we will deal for the rest of this Dáil session and for the next year or so. The inflation we are now experiencing is an inevitable outcome of our economic development in recent years. It is part of the economic cycle; we are now at that point in the cycle when demand in the economy is very high and the supply of services cannot meet that demand, resulting in an increase in inflationary pressures. We should look at inflation from two angles because we are such an open economy: the external sources and the internal factors. The external sources have been well flagged and identified by many people. The increase in the price of oil from $10 to $30 in the past 18 months is the most noticeable and it has been very significant on a worldwide scale.
Also, the depreciation of the euro by approximately 20% since its launch has added to inflationary figures, but this applies to other European countries tied into the euro. Unfortunately, this impacts more on Ireland than on other countries because such a large proportion of our trade is with countries outside the euro zone. Approximately one third of our trade is with the UK, one third is with countries tied to the euro and one third is with other countries. As a result, we are more susceptible to changes in the euro than countries whose main trade is with other euro countries. As long as Britain remains outside the euro currency, it will lead to further difficulties in the years ahead and that is something we will have to acknowledge, accept and deal with.
Interest rates came down to a very low level last year but they have moved up again by 2%. This is feeding into the high level of borrowing in Ireland. Due to the large number of people at work, everybody has a greater capacity to borrow whether for new houses, new cars, foreign holidays and new consumer items. There has been an increase in the general level of borrowing. When there is an increase in the inflation rate and the interest rate, it further compounds the factors.
Some of those factors to which I have referred are, to a large extent, outside our control. Those internal factors are much more so under our control. One which has been mentioned a lot and which was discussed at length on Committee Stage of the Finance Bill last year when we were implementing measures approved in the budget is the 50p increase in the price of a packet of cigarettes. That item alone increased the rate of inflation by three quarters of 1%. Everybody knew it would have that effect but agreed that in the interests of public health it should be done. Notwithstanding the difficulties it would cause, there is a strong case for the Government to take further action along those lines again to discourage smoking which is again on the increase among young people. I hope the debate on inflation will not cloud the importance of the public health aspect of that overall debate and that is something to which we will come back in the near future.
I am very concerned that the service sector has been profiteering to an enormous extent. Most companies' profits have increased significantly recently. We only have to look at the figures from the banks to see the level of the increase in profits. That is adding to the inflation pressures as well. Last April we introduced a minimum wage of £4.40 per hour for the first time in the history of the State. That resulted in a wage increase for everybody who earned below that rate. However, many people in the hairdressing industry, in shops and in the pub and restaurant industry abused the introduction of the minimum wage and used it as an excuse to put up their prices. They said it was because of the wage increase, but I have no hesitation in saying they abused the situation. I am pleased the director of consumer affairs has a new role in price fixing and publicity. That is something on which we will have to concentrate in more detail as time goes by.
In County Laois, a survey of the price of petrol at the petrol pumps was carried out during the summer months. I will give credit where it is due in that it was carried out by the young members of Fine Gael, and I acknowledge that. It showed that within a ten mile area there was a variation of over 8p per litre for a gallon of petrol. That is a price difference of over 36p per gallon from Mountrath to Portlaoise. There is no economic reason for that. The only difference is that one person decides to charge more than the other. I have no doubt that the person who was selling petrol at the cheapest rate was not doing so at a loss. Obviously, the person who was selling it at the higher rate was making an excessive profit. I do not think people look at prices anymore, they just pull into wherever the service is convenient and purchase their products there. The public has by their actions tolerated a certain level of inflation because of the general improvement in their income.
Competition is essential and I was pleased to read in yesterday's papers that Eircom announced a 20% reduction in some of their call charges. We have seen the benefit of competition with Ryanair and Aer Lingus. It has increased the volume of traffic, business and tourism into the country.
Inflation can only be dealt with in the context of social partnership and that is why I hope all the social partners will have an agreed formula in advance of the budget so that we do not have an increase in wage rates to any significant extent and that if there is to be a difficulty because of the inflation rates, it will be made up through tax reductions. It is important to recognise that the standard rate of income tax has been reduced by 4% in the past couple of budgets and the top rate of income tax has also been reduced by 4%. That has put more money in people's pockets and has enabled them to purchase more products, adding to the inflationary pressures.
In the past few years the economy has had a growth rate of an average of 8% compared to a figure in Europe of 2.5% per annum, and that again has shown the strength of the Irish economy. That has been reflected in the past three years in that the paid workforce has increased from 1.5 million to 1.7 million. That means there are 200,000 more people in the workforce now than three years ago who are in a position to borrow money for houses, cars and other products. The volume of house building has not been able to match the increase in the number in the workforce. When demand exceeds supply, there is one, and only one, inevitable outcome – the price will go up. That is why we are here. We will have to deal with that situation in the months ahead. It will take more than months to bring the situation into a state of equilibrium.
We will have hard choices to make when dealing with inflation. We have almost full employment. The level of competition in the workforce is not as strong as it would be if there was extra capacity in the economy. If we are to deliver on some aspects of the national development plan and fast-track some of the construction projects that need to be carried out, including housing, we will have to tell the construction industry that more European and foreign construction companies will have to come here to do the work. If we wait around long enough, we will see the price of construction products increase. We need some external competition to ensure the projects are delivered on time. We should introduce a new level of competition into the marketplace, which does not exist because we have almost reached full employment.
I look forward to income tax reductions in the budget. The Government, as a result of the recent truckers' protest, will do something to alleviate pressure on VAT and excise duties. We will have to watch the profiteering by some businesses which is adding to the inflationary pressures.
I understand Deputy Ulick Burke is sharing his time with Deputies Dukes, Cosgrave, Boylan, Perry, McCormack, Ó Caoláin and Joe Higgins.
Yes. I welcome the opportunity to contribute to Deputy Noonan's timely motion. The core sentiments of this motion are threefold. First, inflation at 5.5% has wiped out the benefit of the Programme for Prosperity and Fairness with the result that the unions are correctly looking for compensation by way of wage increases, and this will add to inflation. Second, the effect of inflation on the many young couples who are saving to buy their first home now find that their hope and wish to do that has again been pushed further away from them with rising interest rates and inflation Third, the impact of rising oil prices will ultimately have a cost effect on every item of food and service essential for everyday living.
It is widely accepted by every economic adviser as well as in advice from the Central Bank and the European Central Bank that inflation is being fuelled by Government policy and, particularly, by last year's budget. Its failure to act in a constructive way to reduce or even halt current trends is unacceptable. Inflation is twice the Government's projected figure and is close to 6%, three times the rate of our European partners. From an economic point of view, Ireland may be heading into its worst winter for 30 years. Nobody wants this to happen but the omens are there and everybody with the wit or wisdom to see them are taking them seriously except the Minister and the Government.
The parallels of 1979 are there in many ways for those who remember them. If the echoes of 1979 are to be heard, we must take urgent action to prevent the reoccurrence of the effects of the oil crisis of that year. It had a disastrous effect on industry, employment, emigration and the business world in general. The current oil price increase will start a new spiral of increases in electricity, transport, heating and food costs, all essential to the well-being of people, particularly wage earners and social welfare recipients. Much of the industrial progress of the past decade could be quickly eroded if cost increases destroy our competitiveness.
People have been warning the Government about inflation for over a year but to no avail. The Minister has not intervened. The Taoiseach states there can be no tax cuts for those at the higher income level in the next budget. This will further encourage the unions to take action. As partners to the PPF they were told there would be a reduction in tax and they will rightly demand compensation.
How can the Government deny social welfare recipients their entitlements to retain their current purchasing power? This is the most vulnerable group to be affected by inflation. If one adds the doubts about the continuation of the partnership surely there is an urgency which the Minister seems to have ignored.
The Government cannot continue to ignore inflation at 6.2% when pay increases are at 5.5% and social welfare increases are at 5%. People will be poorer if the Government does not take action. The possibility of house prices even being stabilised by the Government's policy is remote. It has failed to tackle interest rates. Mortgage holders who were lured into buying a house by attractively low interest rates will be seriously affected, having been accustomed to manageable payments. The message is becoming louder and clearer to most people – inflation is here as a real threat to economic growth and threatens employment, living standards and the basic services on which we depend, but it has been ignored by the Minister.
Deputy Noonan pointed out how pervasive inflation has become and the danger it poses for continued growth in output and living standards. Inflation is raising our cost base and seriously endangering our competitiveness. No sector of the economy is immune. My concern in this debate is with agriculture and the agri-food sector, both of which are of key significance for employment, exports and the overall level of economic activity.
Total farm incomes will increase this year for reasons which have nothing much to do with the Government. That increase will hardly compensate for reductions in the past two years. Therefore it is disheartening to find that a modest increase in income levels is being eroded by inflation. This problem affects farming families as much as families in any other sector.
To date the Government has refused to take even the most elementary short-term palliative action to deal with the problem of inflation. Deputy Noonan proposed a reduction in excise duties on fuel long before any sectoral protests. People should clearly know that it is nonsense for the Government to claim that changes in excise duties can only take place at budget time. That is not the case. A reduction in excise duties can be implemented at any time. In addition, there are ways in which reductions in excise duties on fuels can be targeted to benefit the productive sectors of the economy, including agriculture, if the Government so wishes.
It is also open to the Government to consider applying a regulator to excise duties on fuel to offset the effective increases in oil prices. Let no one on the Government side claim that if we were to do so we, on our own, would bring about a major change in OPEC policy – we would not do so. If the Government wished, it could immediately set in train a reduction in excise duties on fuels and, by bringing simple legislation before the House, could introduce a system under which we could regulate the tax take on fuels to offset the effects of any further increases in oil prices. Apparently, however, the Government is mesmerised into immobility. It will not even consider such measures until the magic budget day, by which time inflation will be further entrenched and it will be even more difficult to take action to reduce it.
Deputy Noonan also pointed out that inflation is roaring ahead in the services sector which also adversely affects farmers and the food industry. As an interesting sidelight on the culture, or what one might laughingly call the ethos, of Fianna Fáil, it struck me that Deputy Fleming, when speaking about inflation in the services sector, accused people of profiteering. However, when he speaks about inflation in the housing sector and in house prices he talks about the laws of supply and demand. Have things changed at all or has Fianna Fáil any understanding of how the economy works?
Inflation is affecting farm incomes in many ways. If that was not enough, the Government is contemplating measures which will further turn the screw on farm incomes by ratcheting up costs. In a shameful and bare-faced piece of bad faith, the Minister for Agriculture, Food and Rural Development, Deputy Walsh, has reneged on a commitment given in this House by the Minister of State, Deputy Ned O'Keeffe, and is now applying a charge on farmers under the national beef quality assurance scheme. The Minister is now contemplating a new classification of animal vaccines which, if implemented, will reduce competition and, inevitably, increase costs for farmers. I raised this matter on the Adjournment yesterday and the reply from the Minister of State, Deputy Ned O'Keeffe, was incomprehensible. I smell trouble ahead when Ministers become evasive. That bodes ill for Irish farmers.
At a time when we see a limited recovery in farm incomes the Government is adding to the effects of inflation by imposing extra costs on farmers. It is incapable of dealing with inflation, it is anti-competitive, anti-farmer, inimical to the food industry and lethal for rural communities.
This Government has failed the people. It has lost control as inflation grows at a rate which undermines the basis of industrial peace. The partnership which is so important to ensuring that economic development is sustained is under threat. Those on low pay in particular are feeling the bite of inflation and experiencing a fall in living standards.
The PPF sees this section of the labour market and social welfare recipients left with no prosperity and a lack of fairness. When the agreement was struck there was an expectation of 3% inflation between tax measures and wage increases. This meant an expectation of a real gain of 7% in disposable income. Due to the ineptitude of Government, which obviously has its eye on some other game, that reasonable expectation is lost.
The Government should have anticipated the problem of the pressures which would push up inflation. The Minister's budget was inflationary. At that time he should have taken measures to counterbalance the effects of his actions. The Government's financial management is of no value to the majority of people in the short or long-term. If it is not in the interest of the majority it must be declared anti-national. It is unacceptable and unrealistic to expect the labour market to stand by while the agreement sees people left 4% short of their expected take home pay. Such people rightly point to others who are reaping a far greater reward.
Young families are particularly badly hit as they are caught in every way and both partners are forced into the labour market. If they are in rented accommodation they are experiencing rent increases as a direct result of the Government's response to the Bacon reports. As these rents rise it reduces the couple's prospect of security and of saving a deposit for a home of their own. Government implements the negative effects of Peter Bacon's report by failing to fast-track the sections which would speed up the final grant of planning permission, thus putting more houses onto the market which, in turn, would reduce the price of houses. Should a couple be fortunate enough to be blessed with children, their problems really commence. Now children become a major problem and a major expense, a cost which further reduces the family's capacity to put together a deposit for a home in which to rear their children. Should they be lucky enough to somehow get the key to a home of their own, they live in fear because of the Minister for Finance and his colleagues. They now worry about the repayments and how they will grow and grow, and they will as long as this Government follows its poor policies.
As if it is not bad enough that after a couple have struggled to put together a deposit for a home and worked hard to pay a child minder, they are now faced with family members who may be in receipt of social welfare whose living standards are being eroded due to Government's failure to control inflation.
This Government's failure means people cannot afford to rent an apartment, nor can they get together a deposit for a house. If they have children they must work all hours to pay for child care. They cannot afford to fill their petrol tanks. They cannot even afford to give their old age pensioner mother a few euro to make her social welfare pension last from one end of the week to the other.
When I hear prominent Government backbenchers and Ministers stating that the minimum wage is fuelling inflation I despair for the people and lose all confidence in the Government. The Government is saying that charge hands in supermarkets and helpers in restaurants and bars, the people on the lowest pay, are fuelling inflation. How far removed from reality is this Government that it can assert that the minimum wage is the cause of the increase in the price of services? It is ridiculous and farcical.
Let me give the Minister some hard facts on inflation which he might take on board. Perhaps then he could tell me what is causing inflation and who is suffering. I visited an elderly couple last week in their home. Their pride and joy in their kitchen was their oil-fired cooker at which they were sitting in their top coats in order to keep warm. In August 1999, having had oil-fired central heating installed, they bought 1,100 litres of heating oil which cost £263. In September last, they sought to buy a refill for which they were quoted £440 for 1,100 litres of heating oil. They thought it was a mistake and clarified it with the oil company who told them that was the price, that the cost of heating oil had increased substantially. That is an understatement. It had gone up by £177. Not having the money they did not get the oil. The company refused to deliver a lesser quantity because it would not be economical to do so. They were encouraged to get this system of heating because it is environmentally friendly, clean, easier to handle than coal or turf, but there they were in their beautiful home, in their beauti ful kitchen living in the cold, all because inflation had affected the cost of home heating oil.
What is the Government doing about this? It is throwing its hands in the air and ignoring it. That is just one incident I came across and I have no doubt that that is happening all across the country. Young couples are affected in the same way. They were encouraged to get oil-fired central heating in their new homes but now they cannot afford the fuel. If they had a hearth they could at least buy briquettes and have some heating. That is one cold fact of inflation, and the Government is not even aware of it nor is it making any gesture, despite the fact that there is £1.9 billion in excess in returns to the Exchequer.
In relation to housing, something else that affects people, the 20% social housing policy is a nonsense, a cop-out for doing nothing, and it will not work because builders and developers are running away from it. Young couples are fearful of it. Where builders and developers are thinking about it, who is going to pay for it? The cost will be added on to the price young couples have to pay for the homes we are encouraging to get out buy. That is not a policy. It is a cop-out. It is time the Government came up with a realistic housing policy to look after our young people and to encourage our emigrants to come home to work. It is a nonsense, it is farcical and it is not acceptable. People expected that, in a booming economy, they would all be rewarded. There are people who are doing well, but they are in the very top income bracket. The middle and lower income groups are suffering because the Government does not realise the difficulties and problems of ordinary people. I would have thought that Government backbenchers, given that Ministers are so far removed from reality, would have been able to advise them that there is a need to tackle inflation and to tackle it immediately, before the next budget, in order to give some relief or at least to indicate that the Minister for Finance intends to do something. There are no such indications, and people are in despair. It is not good enough. It is not acceptable. The Government should shut up shop and go to the country and let in a party that will rule the country and give fair play to everybody. We have people on this side of the House who are capable of doing that and who are only too anxious to take over the reins of office.
I wish to draw to the Minister's attention the recent media coverage advocating the abolition of the grocery order as a means of tackling inflation and in particular the publication of erroneous and misleading figures emanating from the Competition Authority. Official figures from the Central Statistics Office show that food prices and grocery orders are not the source of inflation. There has been no difference in inflation rates between grocery orders and non-grocery order items. The CSO figures for the year to June 2000 show overall inflation running at 5.5%. Food inflation, including that for meals in restaurants for this period is just 3.1%. When the meals out category, with inflation of 6.2%, was deleted the cost of supermarket shelf food items had increased by just 2.4%, less than half the overall inflation rate. From the CSO base date of November 1996 to date food prices have increased by 13%, or approximately 3.5% per year. Grocery order items rose by 13.1% and non-grocery order items by 12.9% during the same period. CSO figures confirm this. The actual cause of high inflation is not food but energy, transport, insurance, mortgage repayments and services.
I appeal to the Minister to remove cigarettes from the price index. This would allow the Government to pursue a public health policy of eliminating smoking in the greater population. The fact that it is included was a primary factor in the inflation rate last year.
Calls for the abolition of the grocery order also overlook the reality of competitiveness in the Irish retail sector and have more to do with the ambitions of certain new entrants into the retail trade here than with tackling inflation. Irish consumers have three distinct choices in fulfilling their grocery shopping needs. At the lower end of the market are the discounters offering approximately 800 lines, no named brands, no service. They are clearly the cheapest alternative for shoppers who wish to shop in that environment. It is important to emphasise that in the UK market discounters, after ten years, have managed to capture only 3% of the market. This would suggest that discounters have very limited appeal. Second there are the multinationals, Tesco, Dunnes, Superquinn, all large supermarkets run by corporate bodies. They have a 50% share of the Irish market. Third, we have the independent sector, made up of such groups as Supervalu, Centra, Spar, Londis, Mace, Forecourt and the independent shops. The independents currently hold a 47% share of the Irish market. That means that practically one in every two consumers here, by choice, shop in an independent store. There is no other country in Europe where this choice is available to consumers – the UK is an example – because the multiples have eliminated that market.
I would like to impress on the Minister that the minimum wage is very much a minimum. It is not minimum to the employee. It is gross. After taxation it can work out at £3.80. Deputy Noonan has correctly promoted the concept of giving people a minimum net wage. That is what Fine Gael will be promoting in Government. The figure of £4.40, which is gross, is far from that figure.
If the Government was doing its job, there would be no need for the debate because we would not be dealing with an inflation rate of more than 6%. The effect of this rapid rise in inflation is that it has wiped out any benefits of the 5.5% increase in the Programme for Prosperity and Fairness. For people on social welfare, some of whom got the 5% increase early while others waited half the year to get it, the fairness is long gone. For many people on social welfare this 5% increase is not real. For example, an old age pensioner or carer in a local authority house received a £4 increase in the budget. About three quarters of that would go on the review of local authority rents and, therefore, in real terms they received an increase of £1. With an inflation rate of 6%, they are about £4 or £5 worse off now than they were at the beginning of the year. Government inaction has reduced this person's pension or carer's allowance by about £4 per week in real terms.
What about the married couples who the Minister discriminated against in the budget? Those are the couples on lower incomes, that is, those earning less than £28,000. The Fianna Fáil-Progressive Democrats Government looked after the higher earners. Couples earning less than £28,000 are discriminated against whether one stays at home or both work outside the home. There are estimated to be more than 250,000 two income couples.
The Deputy should conclude as the time allocated to him is up.
I do not think I took three minutes. That is what was allocated to me.
It is 8.02 p.m.
I will take your word for it.
That is the position.
All those couples are discriminated against because of the Government's failure to tackle the inflation crisis.
As in the past when inflation rose, it is ordinary working people who are blamed. Once again there is hype about wage inflation. The pay increase under the Programme for Prosperity and Fairness has been wiped out and workers are rightly seeking to maintain their incomes. We hear nothing of the massive profit-taking by corporations, whose tax share has been progressively decreased under this Government.
The real causes of inflation include systematic profiteering in the property development and house building sector, rising oil prices and the collapse of the euro, which has made imports much more expensive. Then there is the factor which none of the three larger parties in this House is prepared to admit, that is, the surrender to the European Central Bank of control over our own currency. Without the euro the Government could have raised interest rates much more quickly and to much greater effect than the European Central Bank has done. While this would still have led to some price increases, it would have stemmed the currency spiral which has led to so many price increases on imported goods.
Inflation has wiped out the much vaunted social welfare increases introduced in the last budget. Those dependent on social welfare are worst hit by inflation and the Government must address this as a matter of urgency. Instead of yet another tax bonanza for the highest earners, the Minister for Finance must provide in the next budget the resources to compensate people on social welfare and should target significant moneys at areas which will substantially improve the quality of life for the vast majority of people faced with the inequalities in current health, education, child care and infrastructural spending. I urge a total reappraisal of the Government's policy to address effectively the issue of inflation.
(Dublin West): Working people and social welfare recipients have been the subject of a major con trick on the question of wages, living standards and inflation. It should be quite clear to all by now that the so-called partnerships, the deal between Government, bosses and trades unions, are an organised way to keep workers' wages down while every Tom, Dick and Harry in business can profiteer as they will. The Central Statistics Office listed house prices as one of the main reasons for the rise in inflation, with increases in private rents, average mortgage interest payments and local authority service charges. The cost of mortgages rose for one reason, that is, blatant profiteering by landlords, developers and house builders, but at the same time wages were pegged down to ruthless levels by the national wage agreements.
We have heard the usual chorus over recent weeks by bosses and Government in response to the increase in inflation – no change to the wage agreement, workers must not get compensation. In other words what they are saying is that landlords, racketeers, speculators, profiteers, house builders and the rest of them can carry on regardless, putting up rents and increasing profits at will, but workers may not seek compensation. The law applies in an entirely different way to them in terms of what is trying to be implemented at present. This is not partnership, to call it partnership is laughable. What kind of partners would put a working person out of their home for profit, increase rents to such a degree that they cannot afford them or increase homelessness? It is incredible that the leadership of the Irish Congress of Trades Unions would have led their members into this situation, that they would have such touching confidence in employers and Government not even to write a clause into the agreement a few months ago that workers would be compensated for inflation.
Service charges also are, according to the CSO, a reason for the rise. Indeed, refuse tax is becoming a major issue in a number of county council areas around the country, with £150, which is nearly a week's wages for many people, lashed on people, for example, this year in Dún Laoghaire-Rathdown.
The Deputy should conclude.
(Dublin West): The Government should abolish service charges, index link wages and bring payments to social welfare recipients up to £100 per week or more.
I am happy to be given the opportunity to respond to this important debate. As the Minister for Finance said in the House yesterday, the increase in inflation this year is disappointing and it represents a serious problem which we are tackling.
Our current problems must be seen in the context of our booming economy and the ongoing progress we are making in a number of different areas. The Government has delivered on commitments outlined in the Government programme and we have made progress in a wide range of areas since taking up office. The number in employment has increased by more than 200,000. Living standards for those in employment and those on social welfare have increased in real terms. Unemployment has fallen from almost 10% in 1997 to 4.3%. Consistent poverty has been reduced significantly and a record number of houses have been built.
The Government has produced the largest investment plan ever seen. Together with strong private investment, this is laying a solid basis for the medium and longer terms. We have reduced taxes in line with the mandate received from the electorate. The standard rate of tax has been reduced by four percentage points and the top rate is also down by four percentage points. We have also increased personal allowances and the standard band, while introducing tax credits and starting the first phase of individualisation. Notwithstanding that, we have turned the public finances around so that our children can look to a future less burdened with debt. We will continue to deliver on the commitments we have made.
Key elements in the Government's strategy on inflation are to improve competition and tackle supply problems and bottlenecks where they exist. More importantly, the Government is working to ensure that the successful social partnership model remains in place. We are consulting the social partners as part of the process of framing the next budget. We must clearly avoid policies which will push up inflation. Equally we do not intend to withdraw from our electoral and partnership commitments on tax and social expenditure. Notwithstanding the unwelcome increase in inflation, working together we can ensure that the PPF will deliver real improvements in living standards while maintaining competitiveness.
In tackling inflation, all aspects of economic policy regarding taxation, competition and the labour market are being considered. We recognise the need to improve supply in areas such as housing and child care. We have already taken a range of initiatives which are having an impact in these crucial areas. Competition is being encour aged in areas where there are barriers. This Government has always been in favour of more competition. The measures announced in June built on the progress made earlier. Many more houses have been built each year during our stewardship than during the previous Administration.
Improvements are taking place but clearly we have a long way to go before our infrastructure can meet the needs of our growing population. Dramatic improvements in the short-run are not feasible.
If the present difficulties were easily foreseen, as seems to be suggested, why did not the previous Administration streamline the planning system, put in place the plans and rezone and service land to build the housing we need? These things were not done and it was left to the present Government to deal with the problems we now have.
What is the Opposition suggesting we do to alleviate the bottlenecks on the supply side? It suggests we should set up a supply-side task force. I say "great" and we will have another quango, as seems to be the mantra of the Opposition.
The Government has a proud record of achievement. Sustaining economic growth to build on these achievements is our key objective. This is best achieved by tackling inflation within the context of the agreements that already exist. I am confident the Government can continue to deliver. There is no need to take my word on that. The OECD, the IMF and the European Commission all say the same. They anticipate Irish growth of 6% to 7% next year.
Given the views of these disinterested observers, I commend the Government's counter motion to the House.
I welcome the opportunity to contribute to the debate. I compliment my colleague, Deputy Noonan, on tabling the motion. The threatened removal of the ban on below cost selling is a major issue for small shopkeepers, small bakeries and those who have been the backbone of the country. I accept that one has to move with the trend of large supermarkets, large shopping centres etc. I come from a background of a country shop. I understand the difficulties and I am aware that many people in smaller shops went to the wall. Those who survived invested in their businesses. The removal of the ban on below cost selling would put many people out of business. The Government has a duty to ensure this does not happen. I have had many contacts from my constituents who are extremely worried. It is vitally important that the Government maintain this order.
There has been an increase in the price of petrol and diesel. I hope the Minister will take this into account in the forthcoming budget. Inflation is going as fast, if not faster, than the Celtic tiger. The people do not know whether it was inflation or the Celtic tiger that passed them on the road. The Government has it within its power to rectify this matter. That is its purpose. It is not there for photo-calls or to open this, that or the other. A man said to me the other night he would not be surprised if some of the senior Ministers were called in to open a tin of beans. No matter where one goes there is a photo-call for one thing or another.
Progress.
The Minister of State may call that progress. In the past 48 hours there was an example of his contribution to progress.
The Deputy should ask his party colleagues and the Labour Party what they think of the building. The Labour Party is very grateful.
The Minister of State knows all about parties.
I know all about what people tell me off the record. What they do in public is a different matter.
The Minister of State was in a few different parties in his time.
The Minister—
Nobody is impressed. I am not interrupting myself. I am being interrupted by an over-ambitious Minister.
I have been accused of many things but this is a new one.
There is light in the lifts.
If the Minister of State gets away from cameras and photo-calls etc. will he bear in mind what I have said?
I listened with interest to the speech of the Minister of State at the Department of Finance. It was like an extract from Bulfin's Rambles in Éirinn. What strikes me about the Government is that there is no sense of urgency. One would think the Government was in its first months of office. The Government has forgotten that the clock is ticking and the calendar is moving on and that it is well into its fourth year. As its goes through its fourth year and faces an inevitable election there is no doubt that inflation is the greatest problem facing the economy. The lack of urgency in the Minister's speech last night and the lack of urgency in the Minister of State's speech this evening shows a complacency for the majority of citizens against a background of serious problems which is beyond belief. One would not think we have a housing crisis or that old age pensions, the unemployed and everyone on social welfare will be worse off at the end of the year than at the beginning. Neither would one think those who negotiated 5.5% under the new national wage agreement would be worse off at the end of the year than at the beginning. One would not think that the savings of those on fixed incomes would be eroded month after month. There was no sense of urgency in anything said by either the Minister or the Minister of State. Is it any wonder the Government finds there is increasing dissatisfaction in the electorate. Is it any wonder that the increase in dissatisfaction with the Government was up by almost 10% when last measured by the opinion polls?
The lack of urgency about the real problems facing the people shows the Government is out of touch. There was an old IDA joke when I was in the Department of Industry and Commerce as it was then known. Somebody asked an IDA executive in the United States because of local difficulties in California if there was any word in Ireland which was the same as mañana which was used frequently among the workers coming in from South America to California. The IDA official was stumped and said we did not have anything in Ireland which suggested the same sense of urgency. The Minister's speech reminded me of that. There are numerous problems. Our constituents come to our clinics and list problems.
We are dealing with them.
Yet we have a minimalist speech tonight. Without giving offence to anybody in the Minister's Department or to any of his back-up staff it is what we would have called in the old days a "Board of Works" job. I said to my colleague "there is no way this was written by a civil servant. It would not be as bad if it was written by a civil servant". The Minister's speech last night was equally disappointing. He went through the usual ritual defence of Government economic policy as he has done for the past three and half years. Some of the paragraphs came off the word processor intact just as they were run into the record previously. He did not focus on the key to the debate. What is this Administration doing about inflation? Apart from some passing comments about reforming the liquor licensing laws and introducing price controls on drink the week after it had gone up, there was nothing else in the Minister's speech to suggest that the Government is even aware of the problems.
Many of the Minister's backbench colleagues put up the defence that everything is great because there is a great Government. They went on to say that the ESRI, the European Central Bank, the European Commission and the Irish Central Bank are talking nonsense and all the advice from these international experts is part of a loose conspiracy with the Opposition to do down a good Government. It is the same line of argument which urged the Minister for Finance to describe us as "left wing pinkos" and the Taoiseach to describe us as "creeping Jesuses", whatever that might be.
I wish to draw the Minister's attention to the quarterly report for the autumn from the Central Bank, the most recent analysis of inflation. If the Minister has not already read it he should take it home for bedtime reading. The report lays down its general concern about inflation. Although I keep a close eye on inflationary trends, I was surprised to see how rapidly things have changed. Last October, the annual rate of inflation in Ireland was 1.5%. By July it had reached 6.2%. Service inflation this time last year was 3.5% but by July it had gone above 7%. The Minister should reflect on the bank's comment that strong domestic inflationary pressures have been reflected in significant acceleration in the rate of inflation in the non-traded section of the economy. On a year on year basis it has increased to 6%.
The report talks about the elements which constitute the increase. Within the service sector the largest increases over the past year have been recorded in child care, hairdressing, education, training and medical expenses. It goes on to say that administrative service prices, for which the Government is responsible, have increased by 5.9% and the service index has averaged 7.4% in the three months to July.
Another serious measure of inflation is asset inflation. The most recent statistics from the Department of the Environment and Local Government show that average new house prices increased nationally by 17.2% year on year during the second quarter of 2000, compared with an increase of 12.9% year on year. Instead of the inflation in house prices reducing, it has jumped 5% in the first six months of this year. The statistics quoted by the Central Bank are from the Department of the Environment and Local Government. I am not making them up. The Minister is suffering from the misapprehension that house prices are reducing. They are not, they are going up again. Deputy Gilmore earlier quoted the price of an average house in Dublin. There has been an astronomical increase in the price of houses in Dublin and throughout the country since the Government came into office.
I have always conceded that some of Ireland's inflation is caused by rising oil prices. I have also always conceded that some of it is caused by the weakness of the euro, particularly due to imports from the United Kingdom. However, prices have risen all over Europe and the euro is weak throughout euroland. Why is our inflation rate running at three times the European average when those countries are subject to the same oil price increases and a weak euro? This is no explanation for our inflation of almost 7%. Looking at the figures comparatively does not explain why our rate is three times higher.
As I said last night, it is time the Government took this issue seriously. There are a number of aspects of inflation. First there are the root causes. They must be examined and measures must be taken to solve them. Then there are the symptoms of inflation. In one way, the symptoms are all around us. Every time one goes to a shop prices have gone up. When one calls the doctor the fee has gone up. If anybody in one's family looks at a house with a view to purchase, one will see many symptoms of inflation.
The third aspect which must be addressed is the effects or consequences of inflation. They are manifest. The 5.5% wage increase and the average 5% increase in social welfare announced in the budget have been wiped out, persons on fixed incomes are worse off and people's savings are being eroded. The Minister, obviously living in some type of bunker, told the Opposition we have come up with no solutions. Deputy McDow ell and I offered several suggestions last night for the Minister to consider.
With regard to dealing with the consequences of inflation, the review being engaged in by the social partners is timely. The social partners will have to examine a serious increase in social welfare payments and child benefit to restore what has been lost by the poorest people in our community and to take the many families who have again sunk into poverty out of poverty. They will also have to look at the manner in which the pay award will be applied for the rest of the year and look again at what tax concessions will be made to compensate people who have lost out due to loss of earnings.
It is not good enough for the Minister for Finance, in an arrogant fashion, to declare last night that like the Bourbons he has learned nothing and forgotten nothing since the last budget and that he will do the same again. The last budget was a fiasco. On this occasion, the Minister must address low paid people. He must put the bulk of his resources into taking people on the minimum wage out of the tax net. At present, every pound earned after £110 per week is taxed. The minimum wage, according to the projection of the Tánaiste when she introduced it, is moving towards £200 per week. What kind of taxation policy do we have when £90 of the minimum wage is subject to income tax and the Minister claims he has reformed the system? He has reformed it for people on good incomes but he has not reformed it in any way which suggests that fiscal and taxation policy is being used to manage the economy.
If the Minister seeks proof of our argument that the people who got the largest increases in the last budget were those who needed it least, he need only look at the inflation figures for agricultural land. Farming has not been great for the past 12 months or so but agricultural land prices, according to the Central Bank, increased by 22.2% on average during 1999 and by 53.4% year on year. That is an increase of 53.4% on the price of agricultural land in a year when farmers were in difficulty.
If the Minister wishes to measure the effect of his taxation policy he can see it in the price of houses, the price of assets and the price of agricultural land. The policy has been that much gets more and the devil take the hindmost. Reaffirming that he will do the same in the next budget is another recipe for disaster. I will remind the Minister of that should he follow the same foolish path in the next budget that he followed in the past. He must address inflation. Most people will end this year worse off than when the year started. Inflation makes people poorer. At a time when the country was never more prosperous the Minister and his colleagues are making the bulk of its citizens poorer than when the year began.
Amendment put.
A Cheann Comhairle, I understand the division bells may not have sounded in all parts of the House.
That was the fault of the Minister, Deputy Cullen.
Not this time.
Under Standing Orders 67 to 71 I give you formal notice that that may be the case.
The Chair has taken note of that. Before the division is taken the Chair must insist that Members should go behind the barriers in the lobbies to ensure their vote is properly recorded. The vote should not commence until all Members are behind the barriers. We will now proceed with the vote.
Tá
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Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, David.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.Brennan, Matt.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Cooper-Flynn, Beverley.Coughlan, Mary.Cowen, Brian.Cullen, Martin.Daly, Brendan.Davern, Noel.De Valera, Síle.Dempsey, Noel.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Healy-Rae, Jackie.Keaveney, Cecilia. |
Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael P.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.McGuinness, John J.Martin, Micheál.Moffatt, Thomas.Molloy, Robert.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Malley, Desmond.Power, Seán.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Mary.Walsh, Joe.Woods, Michael.Wright, G. V. |
Níl
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Allen, Bernard.Barnes, Monica.Barrett, Seán.Bell, Michael.Belton, Louis J.Boylan, Andrew.Bradford, Paul.Broughan, Thomas P.Browne, John (Carlow-Kilkenny).Bruton, Richard.Burke, Ulick.Carey, Donal.Clune, Deirdre.Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.D'Arcy, Michael.Deasy, Austin.Deenihan, Jimmy.Dukes, Alan.Durkan, Bernard J.Enright, Thomas.Farrelly, John.Finucane, Michael.Fitzgerald, Frances.Flanagan, Charles.Gilmore, Éamon.Hayes, Brian.Higgins, Joe.Higgins, Michael.Hogan, Philip.Howlin, Brendan. |
Kenny, Enda.McCormack, Pádraic.McDowell, Derek.McGahon, Brendan.McGinley, Dinny.McGrath, Paul.McManus, Liz.Mitchell, Gay.Mitchell, Olivia.Moynihan-Cronin, Breeda.Naughten, Denis.Neville, Dan.Noonan, Michael.Ó Caoláin, Caoimhghín.O'Keeffe, Jim.O'Shea, Brian.O'Sullivan, Jan.Owen, Nora.Penrose, William.Perry, John.Quinn, Ruairí.Rabbitte, Pat.Reynolds, Gerard.Ring, Michael.Ryan, Seán.Shatter, Alan.Sheehan, Patrick.Shortall, Róisín.Stagg, Emmet.Stanton, David.Upton, Mary.Wall, Jack.Yates, Ivan. |
Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Flanagan and Stagg.
Amendment declared carried.
Motion, as amended, put and declared carried.