I shall, therefore, turn to the question of the national economy, a review of which is certainly proper to this debate. When I spoke here last year we had announced to us that there was an economic difficulty. The word "crisis" was not used, but there was a serious economic difficulty. In our debate we endeavoured to disentangle the causes of this and to establish what the difficulties were.
At the time I made a number of suggestions of what the causes might be. It was difficult at that time because we were very close to events and little information was available about what had happened in the immediately previous months. It was difficult to be dogmatic about it. A number of causes seemed to me to have contributed to this situation—among them temporary worsening of our external payments situation, which I felt was not in itself intrinsically serious but which had been seriously aggravated by all the inflationary pressures. Among the deficiencies of government policy which I referred to then was the lack of a credit policy up to May of that year, failure to control hire purchase and failure to control the development of the building industry, failure to control the Government's own current expenditure, the fact that the capital programme appeared to have got out of hand, and the failure to evolve an incomes policy.
I think that, on the whole, events have shown that this partial and premature diagnosis was reasonably sound. If I had to do it now I would switch the emphasis a bit. I am inclined to the view that I underestimated the direct responsibility of the Government in this matter. Now that we can look back over this period and see the full development of the situation, with accurate statistics for most of the period, it becomes increasingly clear that in 1965 we had an economic situation which was not serious in itself but which was seriously aggravated by the situation which was created by an imbalance within the country between the public and private sectors. To an unusual degree our difficulties have, in fact, been attributed to deficiencies in Government policy. I am not saying that because it is my job to get up and criticise the Government. Direct political responsibility for these matters was limited. I suspect it is true, though it may not be wise to say it, that the Government as such had as little to do with economic difficulties as they had with our economic progress in the previous years.
Nevertheless, the Government have political responsibility. They took the credit for the development of the economy in the previous years and they now have to accept the blame for what has gone wrong in the last two years.
The NIEC was asked to report on this situation. Senator Quinlan has already gone through the report and has emphasised some of the points made. There are, however, a few points I should like to make because I think this report is an important and valuable one and while I would disagree with it in some minor respects and feel that certain things were not stated adequately or could be enlarged on, I think it is a good analysis of the situation and of the problems to be faced.
The first point made by the report is the need for an incomes policy. That is now a platitude because everybody says there is need for an incomes policy, but it is none the less true. Much of our difficulties were started by the excessive ninth round scale in 1964. As I shall suggest later on, I do not think that this one round in itself was fatal. It was the Government's failure to control the situation thereafter and their insistence on inflating still further the dangerous situation, that created our difficulties in 1965. But certainly the ninth round started these difficulties.
This question of an incomes policy is something which has been put forward for some time past. The House will recollect that emphasis was placed on this by the Fine Gael Party during the election of 1965 when it was stated:
In the past the government has, when a crisis has been reached, and only then, attempted to act in the role of mediator. We intend to ensure that the government's role is not merely that of mediation in time of crisis, but that it plays a positive part in helping to bring about an orderly and sustained growth in wages and salaries and in maintaining harmonious industrial relations ...This wages policy must be supplemented by a policy for non. wage incomes...firstly by means of an active price policy and secondly by means of a policy in terms of total incomes.
It went on, having suggested a lead for "guide posts" for price behaviour as against the rigid price control the Government established, to say:
if despite this prices policy profits nevertheless rose faster than wages and salaries, taxation should be employed to ensure that such profits are brought into relationship with the general growth of wages and salaries.
That was the policy adumbrated at the time of the last election. It was perhaps timely and the suggestion of dealing with industrial relations problems before the difficulties arise rather than when the crisis is upon us, was particularly timely in the light of subsequent events.
On the question of an incomes policy, it is worth recalling that the suggestion of a plan to control the growth of non-salaried income is one which has been endorsed by the NIEC in its Report. That is something the Government should consider further. I shall at the end pose a number of questions to the Minister on the action he is taking in regard to the matters in the NIEC report. In fact, out of the report I have extracted 20 questions. The number is just fortuitious. They are all matters relating to recommendations made in the report in respect of which the Government have not yet taken clear action. The Minister will probably be able to tell us what he intends to do.
The report is concerned, in connection with incomes policy, about the evasion of taxes by business and professional earners. That is something we should do more about. It is suggested that where professional people have been suspected of evasion, and many of them are honest in their tax returns, but there is evidence that some others are not, this can be got over by giving to the consumer of the services provided a tax rebate if he submits receipts from the professional man concerned. These receipts could then be analysed by computers or calculating machines to determine the income of individuals providing these services and this might partly solve that part of the problem of evasion.
In this country we also come against the fact that very many people excuse themselves from the payment of taxation and return false incomes on the dubious grounds that the taxation system is ineffective because it permits evasion and because farmers are not subjected to income tax. I do not think either of these things justifies the evasion of taxation. But this opinion is widely held and it is something which forces us to realise that our tax system may not be equitable and very certainly there is a strong case for removing the exemption of certain groups from income taxation. This is something to which all political Parties will have to give their attention. I can quite see that no political Party is going to lightly adopt such a policy, but in my own opinion, and not speaking on behalf of any Party, this system which gives people the excuse that taxation is inequitable is one that we should think twice about.
The report emphasises the need for a consensus on differentials. This is our biggest problem of all. I do not believe that an incomes policy is our major problem in this country or that there is an insoluble problem as regards wage rounds. The trade unions have shown themselves, within the limits imposed on them by reasonable pressure from their members, to be reasonable and responsible people, and when it comes to a wage round, if both sides are prepared to negotiate effectively, out of it will emerge, on the whole, with the increasing realisation of economic realities, increased wages or salaries not impossibly beyond what the country can afford. We are moving towards a reasonable view on these matters, and the responsible action of the Irish Congress of Trade Unions, which I welcomed last year, in introducing the £1 a week limitation, has helped considerably in this direction.
Our real problem now is in the attitude which different groups take in addition to getting their share of the national cake arising from increased productivity and getting their share out of a national wage and salary round they must get something extra because they ought to be paid more than somebody else. In individual cases this view may be justifiable. It would be quite absurd that everybody's remuneration should go up in complete harmony without regard to changing responsibilities or past neglects. Nevertheless the extent to which people can convince themselves of the validity of two mutally conflicting conclusions, and the extent to which two groups of our people can convince themselves that each of them should be paid more than the other by just selecting arguments to suit themselves—the extent to which this happens and the extent to which there is a total lack of consensus on these matters, is dangerous and damaging. We have the mass of clerical workers determined to hang on to old privileges and past differentials and not to permit any catching-up by manual workers. We have the farming community who take the view that whether or not they produce more, they must be paid more, equally with all the other workers who are producing more. And we have the manual workers who are determined, as they are entitled to be, to improve their position from that which has traditionally been theirs, that of the underdogs. As between all these groups, not all of them can be right at any given time. I have my own views as to which is most right, which is of no importance, but unless people are prepared to accept some common view, not necessarily one imposed by compulsory arbitration, but to accept the common view of the community in these matters in some way, and give up their particular grievances and insistence on privileges, we are not going to get any kind of stable society.
There is a real danger that the clash between these three forces in the years ahead could disrupt the country in a way that nothing else could, and that a struggle involving the farmers, the clerical workers and the manual workers in which each section is seeking to improve its own position at the expense of others could lead to a clash of opinions which could undermine our institutions. The Taoiseach has recently, and rightly, warned about this problem, but the question of what concrete action is to be taken is one on which we will not all be in agreement. Certainly it is our major problem. The possibilities of economic growth are there, in the country, though there may be temporary setbacks, and we have the undoubted potential for expansion, but we can destroy these possibilities if we are going to become involved in a civil war about who is going to get new privileges or to hold on to old ones.
The report in dealing with this matter placed great emphasis on the undesirability of making distinctions between different kinds of workers. This is in paragraph 68 which says that some of the dissatisfaction with the present personal distribution of income "may be a symptom of a deeper sense of grievance about unnecessary and undesirable social and economic distinctions or about inequalities in opportunities for advancement. There are, for example, marked differences in the degree of economic security as between wage earners, salaried workers and the self-employed. There are marked differences in the incidence of incremental scales, the arrangements for sick pay, pensions and compensation for loss of employment and in the size and range of fringe benefits generally. Many of these grievances and inequalities in treatment could, with the application of imaginative thought, be removed and their removal would undoubtedly result in a sounder basis for the successful implementation of an incomes policy." That is something that we should turn our minds to. Many of these changes can be effected without any great cost, and the sense of grievance which would be removed would reduce tensions in our community.
There is one other suggestion, however, in this section of the report with which I am not entirely happy. This is the suggestion which relates to the disclosure of incomes in paragraph 61. It says "There is already available detailed information on wage rates and on many salaries, especially those paid in the public service. It may be desirable that this should be supplemented by adequate information about other personal incomes. One step in this direction would be to extend the present practice relative to disclosure of directors' remuneration in public companies to the total remuneration, including fringe benefits, of the top management executives."
The latter suggestion is one which I would be willing to endorse, and I would see no problem about it—that is that there is justification for more information about the aggregate incomes of company executives, but the suggestion that there is need for more disclosure about personal incomes individually is another matter. There is pressure, I know, from trade unions for greater disclosure of individual incomes, and this idea is supported by the argument that people have the right to know these things and that uncertainty about them creates rumours and dissatisfaction. I think that the evidence is all the other way. If you set out to disclose everybody's individual income you will get the kind of situation which was created here recently by the disclosure of the pension of one individual. We are a country whose besetting sin is against the tenth commandment, the sin of envy. That is the commandment which obliges us not to covet our neighbour's goods. This is very deep rooted in this country. We all have a tendency to tear down others and to try to bring people down to our own level, and this pressure to disclose individual incomes is really something designed not to avoid uncertainty but to arouse people's envy and to increase demogogic pressures of that kind. We have had the recent instance of the disclosure of the pension to be paid by the Government to a public servant, and the reaction which that created has confirmed me in my view that there is nothing to be gained by this disclosure of personal incomes. The reaction in that instance has been indefensible. Dr. Andrews has served this country well for a period of 40 years, a man with strong political convictions which I do not share and on which I disagree with him completely, but who has given devoted service to this country, and the pension which he has got is a normal proportion of the salary which he was earning at the time of his retirement. Proportionate to his final salary, the gratuity and pension are in line with those of any individual who serves in one of the State companies or in one of our large private concerns and had worked with them for a period of 40 years. If there is to be any criticism expressed in this case it should not be related to the pension and the gratuity. It should have been levelled long ago against the salary paid for the position and it should have been publicly uttered in Dáil debates. The salary was mentioned in the Dáil on several occasions and nobody queried it, and to complain because he has got the pension appropriate to the salary that he was being paid is something which I think is indefensible. The agitation which has arisen on this matter would suggest to me that this pressure to disclose personal incomes is designed to cause more trouble and not to minimise trouble.
The NIEC report moves on from the question of an incomes policy to a credit policy, and here it must be said that we failed completely in 1964-65. I am still somewhat puzzled as to the reason for the failure.
In 1958 a guideline for the control of bank credit was published by Dr. Whitaker. It was accepted and applied and it was to the effect that there should be a broad ratio of 30 per cent between the net external assets of the commercial banks and their deposits. In retrospect, to fix a definite figure like that seems to have been a mistake but it stood as a guideline for years and the Central Bank and the Government never made a move to change it. By early 1964 it had fallen seriously below the minimum ratio Dr. Whitaker had suggested. The correct thing then to have done was for the Central Bank to have said: "We believe the correct figure for the first half or the second half of 1964 is 25 per cent or 24 per cent." Some figure like that would have been reasonable. Instead, they let the matter go by default.
This is something to which attention has been drawn already. I referred to it in an article in 1963 and there was an OECD recommendation on it in their 1964 report on the Irish economy but no control or guidance was given as regards bank credit throughout 1964 or into 1965. The Central Bank has since issued a series of thoroughly confusing accounts of the action it finally took, each of which seems to disclose a slightly different picture from the previous one. From these it is clear in any event that nothing was done until 11th May, 1965, at which stage the crisis, if one likes to call it that, had reached its peak. This was indefensible. I do not know why the original figure was allowed to be dropped without being replaced by anything else. It has been suggested that the reason was that the Central Bank had no power to control credit and that each commercial bank has its own particular external assets. In order to get them to limit credit, by applying moral suasion, it would have been necessary for the Central Bank to have talked to the individual banks and to have differentiated between them which they would not accept until they were in real difficulties.
I do not think that is the way the Government should operate or the Central Bank should operate on behalf of the Government. To allow a situation to worsen, to refuse to act to control credit until things got so bad that people were asking to be helped out, is indefensible. In this instance, also, the Fine Gael policy put forward at the last general election was soundly based. At the time I had doubts on this point. I was not convinced wholly that the policy was correct in suggesting that the Central Bank should be given power to control credit. I was inclined to think that moral suasion was sufficient. It is now obvious that moral suasion was inadequate.
The Central Bank did not seem capable of exercising moral suasion and the result was that we had an expansion of credit which contributed, as the NIEC pointed out, to our difficulties. Now that the Central Bank have plucked up their courage and the commercial banks have got into such a mess, in future moral suasion might be adequate. But it was not adequate at the time of which I am speaking and the Government, in the circumstances, should have taken the power to control credit or to give the Central Bank power to control it.
The Taoiseach's reaction to the Fine Gael proposal in the general election campaign was to my mind irresponsible. He has not been in the habit of acting in that way or of speaking irresponsibly in recent years but his reply to the Fine Gael policy on this matter—to well thought out proposals for the control of credit—was to say that Fine Gael were threatening the depositors' rights to withdraw their deposits. It was an irrelevant remark which had no foundation at all. That was a lapse from judgment on the part of the Taoiseach of a seriousness that, fortunately, we do not often find him guilty of.
The third area in respect of which the NIEC have a great deal to say is the question of the public capital programme and, indeed, capital investment generally. They speak of the need to prevent an excessive growth of aggregate demand and they stress that this must be the responsibility of the Government. They put particular emphasis on this point. They say we need priorities here because there are no longer the resources available for all the different projects we want to undertake. They say there is need for a system of ranking and priority as between the different types of investment. It is quite clear to all of us now that we have not got the resources necessary to finance all the projects we want. Therefore, priorities are necessary, choice is necessary between alternative economic investments, some of which may be more effective than others in bettering our national output and employment. We have to choose also between social investment and economic investment. Heretofore we have had no system of choice in our capital programme as set out in the Second Programme. The system was a simple method of asking everybody how much money they wanted and then adding it up. The extent to which a control mechanism was operated was minimal.
Under the system operated, anybody looking for money was asked to justify his demand but, having justified it as being a reasonable demand, there was not attempt to establish priorities or to prune the programme. As a result, we got a mosaic of bits and pieces of investment which people in the public sector propose to undertake in the years ahead, without any ranking, any choice, any priority. A great deal of our difficulties have come from this source. The NIEC have said that the Government must establish a system of priorities in public investment and that the Government must publish a system of such priorities and review it from time to time as the need arises.
One of the great weaknesses of the First Programme was that the forecasting of public investment was extraordinarily inaccurate. The margin of error was as high as 500 per cent in the case of transport and I do not think that any of the capital programme forecasts were less than 40 per cent off target. Of course, in addition to trying to control and discipline the Programme, to have a system of priorities and choices, we must ensure that we expand the resources available to the maximum extent. We must apply to investment the proportion of our GNP that is necessary. In 1964 we applied only 19 per cent of our gross national product to national investment. Other countries at a similar stage of economic development, Italy and Austria for instance, applied 21 per cent and 24 per cent respectively, the European average being 25 per cent.
We are not investing anything like what we need to invest and our labour surplus problem is one which can be solved only if we achieve a certain average rate of growth. Some people think the percentage of gross national product invested will have to rise to about 30 per cent. Certainly we should not be satisfied until we have achieved 25 per cent.
We can also learn something from other countries in the distribution of our investment as well as thinking about the ranking of investment in an order of priority. Our distribution of investment is notably different from that of other European countries. In 1964 only 3½ per cent of our gross national product was invested in dwellings as against a European average of 6 per cent. In fact, there is no country in Europe which gave dwellings such a low priority as we did in 1964. I do not think that even with the increase in output which occurred in 1965— and certainly not since the decline in 1966—we have significantly improved on that peculiar position. Moreover, it is worth noting—and I think there is a lesson here—that whereas in Europe as a whole only 31 per cent of total fixed investment is in building other than dwellings, in this country it is 41 per cent, so that not alone are we not investing enough in dwellings but it can be said that we are going overboard on every other kind of building. It is not so much that we are allocating too much of our resources on building as a whole, although it could be argued that a slightly greater emphasis on plant and equipment than on building could be a good thing, but that the money is going on the wrong kind of building. Other countries have a better sense of priorities, putting dwellings higher on their list of priorities. Here, I think, we can learn something from the experience of other countries.
The NIEC Report has a good deal to say about building. It suggests that the growth of building in the last couple of years was one of the factors leading to over-strain in our economy and it suggests the need for some system of notifications of housing starts. One cannot emphasise this too strongly. Our experience in the last year in regard to the building industry and the Government's reaction to it has been a thoroughly disappointing one. The building industry and the Government had a consultation at the turn of the year and the building industry documented its case very well, was able to show what was happening at that time in the building industry and that a situation had arisen in which there was likely to be a downturn in building. There may or may not be money in the country to prevent that happening but the first thing any State should do in running its country properly is to face the facts and I am sorry to say the Government did not face the facts here. They were not prepared to accept the facts put forward, they insisted against the evidence that there would be a levelling-off in building but no worse this year, they refused to accept the view of the building industry and committed themselves firmly to the statement that in fact the level of activity in building would be maintained. That statement is included in the Progress Report on the Second Programme for Economic Expansion published in March last year where it was stated that the level of house-building in particular would be maintained in this country.
In fact, we now know that the building industry was perfectly right; there has been a decline in the number of private houses notified as being completed. There was a decline of 12 per cent over the period from November last to May of this year. In other words the Government's representatives were talking of a levelling off when the decline had already started. Moreover, it must be emphasised that these statistics on completions are subject to a time-lag. The figures for completions for any given month really refer to houses actually completed about three months earlier. As the building industry knew itself, the private housing sector has been declining since the end of last summer and yet in March of this year, so ill-informed were the Government on this, and so determined not to face facts, that they committed themselves to the view that there would be a levelling-off and no worse in the completion of houses.
Moreover, in February and March there was a sharp decline in the completions of local authority houses and although they recovered somewhat in April there was a significant decline over these three months as a whole. The fact is that the building industry is now running well below its rate of activity last year and this is something which the Government should have seen coming and, if they could not see it coming, they should have at least seen it when it had happened and done something about it.
The reason for their failure to do so is, first of all, a reluctance to face facts but also the fact that the statistical material is defective in a number of ways and that nothing has been done about remedying this. But what is particularly disturbing here—because it strikes at the whole root of the whole control mechanism in the public capital programme—what misled the Government was that they are paying out this year slightly more money for building than they paid last year. They were so proud of this achievement that they would not face the facts. Even when it was put to them again and again with concrete evidence, they would not face the fact that a very high proportion of the money for this year would be needed to pay the unpaid debts for last year's building. That statement was put to them by the building industry; it was rejected and yet we know now in the SDA loans that 90 per cent of the amounts allocated this year are in respect of commitments already entered into and in many cases for houses already completed. It may be that that cannot now be avoided but there are a number of things to be said on this.
First of all, the Government ought to know what is the relationship between the money it provides and the investment activity which this money is related to; no Government should be in a position of purporting to believe that because it was providing as much money, that this money was reaping the same benefit this year, nor should they be unaware of the fact that a large part of this money was in respect of building already completed. That local authorities had got deeply into arrears in regard to paying off the bills of the previous year is a serious reflection on the whole control mechanism for the capital programme. The control mechanism is one which is simply an accountancy mechanism, when they agree to spend so much and somebody merely certifies that it has been spent. If any private industry had such an extraordinarily haphazard and incompetent system of controlling its capital investment, it would be subject to Government strictures. But the Government itself in operating this control mechanism has been thoroughly inefficient and this is something which must be remedied. I believe something is now being done, belatedly, about rectifying this situation but it will not be effective until something has been done about improving the building statistics.
Again, the absence of statisticians in the Government Departments has been a serious problem. The fact is that there is ample material available from the building inspectors who go out inspecting foundations being laid, roofs being put on, and so on, but nobody has ever bothered to extract this information from their notebooks so that the so-called starts and completions are not related to the physical activities involved. We are still without any information now because of the serious problem of getting adequate statistical data. The building industry is very important to this country. Instability in the building industry communicates itself to other sectors and the fact that we should not have available to us statistical data and that the Government should make statements about building activities which have been out of date for some time, is a deplorable position to be in. It all goes back to the lack of expert people and people of expert knowledge in Government Departments capable of handling these figures.
It is worth saying something about what, in fact, went wrong with the capital programme this year. I think I heard a speaker earlier on asking the Minister about this but in any event I should be glad to have explained to us why there is not sufficient money available for capital investment. There is an explanation for this and I think it is a great pity that the Government, for their own sakes and for the sake of the country, have not attempted to explain what has been happening to our finances. It would be better that the Government should give a full and frank explanation for it even if it will then be seen that part of the trouble is their own fault.
The lack of confidence in this country at the moment and in the economy is a most disturbing feature of the situation. Some of this is inevitable but not all. If the Government were doing their job for their own sake and for the country's sake they would be maintaining confidence. In fact, our economy is sound. Mistakes have been made and those have involved trouble for a lot of people but, fundamentally, our economy is sound. But nobody listening to Government speakers would realise this.
I shall, if the Minister does not mind, do what he has not done and he can correct me if I am wrong—that is, tell him what has gone wrong with the economy. The whole problem started in 1964 when the public capital programme was increased by a somewhat abnormal amount. It was increased by £18½ million as compared with £14 million in the previous year and £8 million in the year before. The problem was not so much that the increase was very large but that such a high proportion of the increase had to be provided by Exchequer financing. Apart from an increase of £5 million which was for government building and had to be got from Exchequer borrowing, the remaining £13½ million was for local authority and state enterprise investment and a good deal of this should have come from local authorities and State bodies but was not got from them. This meant that in one year the Government had to find £15 million in Exchequer borrowing for increased investment. The previous year the increase in Exchequer borrowing had been only £5 million.
You suddenly had this jump from £5 million to £15 million in the amount of money the Government had to raise. This is an increase of 30 per cent in one year. That is something which should have sounded a warning note. The fact is that such an increase could not have taken place in this country at that stage except through inflation.
The Government got the money in 1964. It is a great pity they did. The fact is that that year, because of an abnormally inflationary situation, for which it should carry some of the blame, the Government were misled into thinking that the country could be carried on in that way. Small savings jumped in that year abnormally from £7 million to nearly £10 million. Departmental funds were able to contribute £4 million extra because in the inflationary conditions of the time they were not needed to support the market value of Government stocks. And because of lack of credit control exercised by the Central Bank the Government were able to raise another £9¼ million in Exchequer bills. In that way it got the amount of money it needed but that kind of abnormal circumstances could not continue.
In the next year, 1965-66, in fact, there was only a small increase in the capital programme. This is what has puzzled people. The crisis came in 1965 but the real trouble went back to 1964 when there was this vast increase. The real problem in 1965-66 was that the capital programme was too high to begin with, having been raised to an impossible level in the previous year and a level which no country in normal circumstances could finance.
On top of this, foolishly, the Government, instead of raising taxation to pay for the £2¼ million Market Development Grants, decided to finance these grants by borrowing. Moreover, in that particular year the current deficit doubled from £4 million to £8 million. As well as that, we had to contribute another £4 million to the International Monetary Fund and similar agencies. The Government also found themselves, because of the credit squeeze in this country, having to repay £3 million which State bodies had raised by borrowing and it also happened that £5½ million was required for repayment of money borrowed from the public by way of Exchequer Bills. They thus found, that because of the credit squeeze, a lot of demands were made on them by people who wanted money back which they had lent to the Government. In that situation when at the same time small savings dropped and the Departmental Funds provided less money because they were now needed to support Government Stocks, the Government found that they needed £22¼ million more but had £12½ million less available. They thus had to find £35 million extra suddenly from other sources.
This situation goes back to the failure to recognise inflation in the first instance in 1964. It goes back also to the size of the capital programme. We have here defects in planning which we can watch in the future. The first economic programme ended in April, 1964, and Part II of the Second Programme which contained the capital programme, was not announced until July, 1964. Therefore, this particular capital budget for 1964-65 fell between the two programmes. I suspect that what may have happened is that whoever was compiling it had no programme guide-line to go on and as a result we fell between two stools. Our capital requirements jumped to such a level that it was beyond the means of any normal year of the mid-1960s. That is what has caused us to be in the difficulties we are in today.
These difficulties arose because the capital programme targets were set too high. This grave situation was caused by our falling between two programmes, and by our failure to recognise inflation when it was on top of us and not doing anything about it. We have a lot to learn from this for the future as regards our planning. We will have to rethink the whole question of capital programmes in our programmes for economic expansion. In the first instance it was not appreciated what money could be raised under normal conditions, because the programme was drawn up in conditions of inflation. This should have been recognised. Secondly, the capital provisions of the Second Programme only provide for capital investment. In fact, what went wrong last year was that so much capital was needed for non-investment purposes. There was no provision in the Second Programme for money for such things as a Budget deficit. No provision was made for subscribing money to the International Monetary Fund when increased subscriptions were due. No provision was made for having to repay debts when people wanted their money back. When we are thinking of a future economic programme we will have to think not only of money needed for investment but for those other matters which I have mentioned. We cannot regard a programme as being pretty well on the target and yet be £23 million out because we did not know of some things we would need money for. We need to think about this in the future.
Our difficulties are not only on the capital side, but the difficulties on the capital side are such that they have forced the Government to extreme measures to avoid a Budget deficit. In other circumstances the Government might have been justified economically in incurring a small deficit that could be financed by borrowing. But the Government simply cannot afford that at present. It cannot borrow enough for the capital programme. It is that stringency which forced the Government at the cost of two Budgets to raise taxation to a disproportionate level in this country. The Government dare not risk the possibility of a budget deficit which it could not finance from borrowing because it would not just be able to get the money as things are.
The current Budget is something which also needs to be looked at. Here the programme has been ignored. On the capital side what went wrong was that the target was too high for the early years of the Programme. On the current side I do not think that targets were inappropriate. They were reasonably well worked out in total, although I would disagree with the allocation under different items. But the total level of money to be raised for current expenditure was quite reasonable. What has gone wrong is that the Government have totally ignored their own programme.
The extent to which it has ignored it is something about which I am very curious. In no Government publication so far has there been any reference to the extent to which taxation or Government current expenditure are in line with the targets of the Second Programme. There are two possible explanations of this. One is that the Government know they have ignored the targets and are trying to hide this fact and the other is that they do not know and have not even looked to see. I have a suspicion, and I am open to correction, that the Minister has not kept in touch with our progress in relation to these targets, that he may not be aware of the extent to which our current expenditure is running far beyond the level it ought to be running at if we were on target according to the Second Programme.
I would ask the Minister by how much we are beyond the target this year on the assumption that our current expenditure and taxation should be running steadily up towards the 1970 targets. Does he know? I suspect he does not even know. I suspect that tables showing the targets each year are not produced and that the current figures are not matched against these targets. If they are not, they ought to be. That is something the Government has not published but which it ought to mention in its Progress Reports.
I can tell the Minister what the answer is, at any rate I can tell the Minister what my calculations are. They are difficult calculations and I may of course have gone wrong. They involve converting current figures into the 1960 money values.
We should be spending this year £210 million on public authorities' current expenditure in 1960 money values but the Government now intends to spend a figure of £230 million including the extra buoyancy of revenue referred to in the Minister's second Budget speech. That is £20 million more. We are ten per cent above target. The burden of taxation should have risen annually by a small amount each year from 24¾ per cent in 1963-64 to 26¼ per cent at the end of the period. The burden of taxation has thus rocketed and in the first three years of the Programme we have seen a greater increase in the burden of taxation than what the Minister had proposed to impose in the whole of the Second Programme period. This is now absorbing over 26¼ per cent of our GNP, and I suspect in 1960 money terms it is nearer to 27 per cent. The burden of taxation has thus risen two and a half times as rapidly as was forecast in the Programme. I am prepared to hear the Minister in defence of this but what is indefensible is that these targets are never looked at and that the Government seem to be unconscious of the fact that targets have been ignored, as indeed they have been ignored by the Government which has never said anything in public or in published progress reports on this subject. The Department of Finance say a lot about the targets of other Departments in the Progress Report but never anything about their own targets for taxation and current expenditure. I hope the Minister in next year's Progress Report will ensure that all the targets will be shown and that the position as it should have been in 1966/67 according to the Programme will be shown and the actual figure beside it and that the Minister will say why the two figures are different.
I am not suggesting that departures from the targets are necessarily wrong. These targets are guidelines and everyone recognises that we will depart from them in some respects. But unless we accept them as guidelines and unless we examine how we depart from them and face up to the facts and to the implications of these facts, and in particular to the fact that each bit of the programme is interdependent with each other bit, then the programme at this stage falls to the ground.
The programme at this stage is something from which we have departed so far in so many directions that it has in fact virtually fallen to the ground. Employment is below the starting point instead of 35,000 above it. National output is also below the point we should be at. Taxation is 10 per cent higher than it should be. The amount of current Government expenditure on borrowing is £20 million above what it should be. All these figures are out of line in some cases by amounts which are not just temporary fluctuations. It is no good saying that the present level of taxation is a temporary fluctuation. We have shot ahead of the 1970 target already in the level of taxation. The Minister cannot insist that this is a temporary fluctuation. The fact is that these deviations have occurred. These deviations are serious. Their implications have not been examined and their effects on other aspects of the economy have not been looked at. It is these failures that have got us into difficulties. If it had been possible to maintain the programme it would have given a pretty steady economic growth over the period. Things went wrong but when things go wrong adjustments can be made. What is wrong is that we have a programme and certain things are being adhered to and certain things are being ignored. The whole thing has got out of gear and out of focus and is inconsistent one part with another and the failure to treat the programme as a framework for planning has given rise to our present difficulties.
I suggested a few moments ago that the Minister was not aware as to why we were £20 million out in the level of current taxation. I would like to help him by telling him. There are three reasons fundamentally. First of all, due to the economic difficulties we are going through our national output is below target level and, of course, where a given level of taxation is imposed on the national output if the national output is below target, taxation revenue will be correspondingly down. The Minister is short £5 million because we have not achieved the target for national output. That is a temporary fluctuation but it means the Minister is £5 million short. In order to spend the same amount the Minister has to tax more heavily. Secondly, he has to face the £10 million extra for the status increase in the public service. The Minister has tried to defend this increase and I am not going to attack it but I shall pose the proposition that either those increases were justified, in which case they should have been provided for, or they were not justified in which event they should not have been paid. What is unjustifiable is to do what the Minister did, to make no provision and then when the civil servants look for an increase to have to give it to them. This is the antithesis of planning. I am prepared to take the Minister's word that this increase was justified. My own feeling is that civil servants had fallen behind other sections of the community and if the proposition is accepted that civil servants must always maintain their lead over others in the community who had been catching up with them, then I suppose on that basis the increase can be justified. I am only saying that if the Minister takes the view that this increase was justified he ought to have provided in the Second Programme the £10 million needed for it. No provision was made and he is now faced with consequent difficulties. He is £5 million down in revenue as compared with the target level and he has £10 million extra expenditure because of the status increases. The other £5 million of the £20 million disparity vis-a-vis the target arises I suspect because he has allowed expenditure on subsidies to run away ahead of targets. Here we look like being in serious difficulties if we continue to expand subsidies at the rate at which we have been doing.
There is one further complication in this, and that is the most undesirable practice of Ministers—I am not particularly blaming the present Minister, it goes back to earlier Governments also—of introducing Budgets in which a large part, and indeed even the majority, of the extra expenditure imposed by the Government has to be found in the following financial year. This system of bringing in social welfare benefits and, in order to give a bigger increase in the year than you can afford, to postpone it to later on in the year and give a larger sum, like, say, 10/- a week in January of the following year, because you can only afford an average of 2/6 over the whole year, has got us into difficulties. We are in the position in which the Minister finds himself in now, that in order to meet commitments entered into under a previous Budget, the money has to be found in the next financial year, and before he can do anything in the new Budget he must increase taxes straight away to meet the previous commitments. That is most undesirable, and though I know that it may have been done by other Governments, and that a Fine Gael Government could no doubt be tempted to do it also under pressure, it is still a bad, undesirable and dangerous practice. It worked in this country for some years because we had a buoyant economy and the Government could rake the money in, but then came the day of reckoning when the economy slowed down and the Minister found himself committed to very substantial sums to be found in the present financial year not because of this year's Budget but because of last year's, and to which he had committed himself in the hope and the belief that the economy would be buoyant this year, but the money was not there and taxation has consequently had to be imposed at a much higher level than it ought to have been. This is a defect in our financial management which has led to a significant aggravation of our difficulties.
Our whole taxation burden in this country is very odd when looked at in an international context. For example, we raise in direct taxation 5½ per cent of our national output while in comparable countries it is 17 or 18 per cent. In indirect taxation there is no country in Europe with as high a level as we have. The figure here is 16½ per cent—it was that in 1964 and I cannot say precisely what the figure is now after the last three Budgets we have had in 15 months but it is certainly much higher, but in any event at that time it was the highest figure in Europe. We must consider this. I know the attraction of indirect taxation, of broadly based taxes like turnover tax and selective wholesale tax, which have advantages where nobody is prepared to impose income tax on the whole community, but the situation in which our tax burden is completely different to anywhere else, with direct taxation less than one-third of what exists in comparable countries, is so peculiar that it seems to be something that we must look at.
