This Bill reflects another stage in the downward track of the present Government's handling of the economy. I was interested to read the Taoiseach's speech in the Dáil yesterday on this matter when he referred back to the January budget. I thought the nomenclature was rather significant. There was a time when we referred to budgets as annual matters. One referred to the 1965 budget or the 1975 budget or the 1974 budget. We had the Taoiseach yesterday in the Dáil talking about the January budget. We have here the July budget and apparently we are also going to have an October budget if the social welfare and other commitments made in regard to the July budget and, in particular, the January budget, are going to be met. Then presumably we will have to have the December or January budget to deal with the problems of the early months of 1976, and we will probably have an April or May budget.
When is the rake's progress going to stop? There has been no clear intimation yet from the Taoiseach or the Minister for Finance or any Government spokesman as to when we are going to have the next budget. Has any thought been given to it or will there be an explanation conveyed to the people that will make apparent what exactly our financial situation is as of now in regard to the fundamental areas of the budget deficit and our capacity to meet budget deficits, the balance of payments, situation in regard to exports, particularly industrial exports, and the downward trend that is now evident with regard to industrial exports?
The situation in regard to unemployment is self-evident, unfortunately. Will the pay-related benefits that will be falling due after nine months in September or October be financed continually, to a large extent, out of employer contributions? Can employers pay for an extension of the pay-related benefit scheme? Is the employment premium scheme in any way going to help that basic situation?
I take the view that giving grants in the way of premiums, as they are called in the Bill, to help certain employers to give employment is a negative approach to this matter. A far more positive approach would be by way of cutting employers' costs and overheads, giving tax incentives, rather than giving grants under the employment premium scheme that are likely to be abused if put into operation at all. You have there a whole panoply of trouble as far as the future development, in a practical way, of the economy is concerned.
It seems to me quite unreal to be advocating, on the one hand, grants to employers for taking on employees and, on the other hand, taxing employers in the sense of asking them to continue paying pay-related benefit indefinitely and to continue paying income tax indefinitely at an undue rate in regard to the employment they give. You cannot have your cake and eat it. I would like to see the Government taking a positive policy direction in regard to industry and employment, and the way to proceed in this direction is surely by way of incentive towards enterprise, be it enterprise at investment level or enterprise at employee level.
It is only through an injection by way of positive reliefs to encourage employment at employer and employee level that the economy can be lifted off the ground. The economy will not be lifted off the ground by handing out grants to employers to take on men who have been made redundant. That, in my view, because of the drag on the Exchequer, is negative while at the same time you have a burden of taxation on the very same employer through various forms of social welfare contributions, in particular, pay-related benefit, and through income tax bearing, as it does, on industrial employers.
In this Bill there is a niggardly attempt to cope with a situation that has got out of hand. I am not going to go back on the various ways in which the Government were advised by us over the past 18 months on how the situation could have been put in hands. That is water under the bridge. I am not going to engage in any sterile debates of that kind. What I am saying is that now the job can be tackled and it will not be tackled by gimmickry. There is no point in bringing in a measure of this kind that is only designed, to quote what the Taoiseach said in the Dáil yesterday, to cope with the consumer price index. It is horrifying that the Leader of the country should regard himself as being subservient to the consumer price index. I quote from column 1, page 8 of The Irish Times this morning, July 24th:
Because of continuing insistence on using the CPI, inclusive of tax on luxury items, as a wage index, the public service wage bill has been shoved up by £9 million.
I will omit the following sentence. I can assure the House it is not relevant. He says:
In the absence of agreement to detax the CPI for income assessment purposes, the Government was obliged, albeit reluctantly, to increase income-tax rates to provide the revenue for essential expenditures. Demanding total compensation for taxation created a viscious circle, which we could not allow continue if we were to bring our alarming rate of inflation under control.
The Leader of this country, responsible for the overall economic management of the community, declares there that he is the creature of the consumer price index. But surely that is irrelevant. Surely we are not engaged there in a game of cosmetics with the trade union movement or with anybody else who may quote the consumer price index. Surely that is not what leadership is about or management of the economy is about. We must not become complete slaves of the consumer price index, which everybody agrees has flaws in it. That is why we have income tax here—the particular surcharge of 10 per cent on income tax, upwards from a certain rate of pay—because the Government was obliged, albeit reluctantly, to take cognisance of the consumer price index figure.
I am trying to be realistic, but that sort of language is totally unrealistic. The language of Government and the language of leadership should not imply that you, albeit reluctantly, have to change policies, adapt policies, adopt policies, introduce legislation because of the consumer price index number. If the consumer price index number was so vital in the Government's mind, petrol would not have been increased last December, and in the January budget; spirits, beer and cigarettes would not have been increased. If the consumer price index number was still in the Government's mind, the pay agreement of April of this year would not have been looked at in the benign and removed fashion in which it was looked at, and the Government would not have been forced into the situation of finally waking up to the realities in June of this year.
These are plain unpalatable facts. There is no point in talking now about consumer price index number motivating the leadership of the country in the handling of our economy. That is a cosmetic side show designed to ensure that this particular Bill that we have before us will in some way motivate the Labour Party in Government to motivate the trade union leadership to motivate their members to accept a withdrawal from the pay agreement wrongly entered into in April of this year, now seeking to be reneged upon, all in the interests of the consumer price index number, vastly enhanced by deliberate Government policy in the December budget and the January budget.
Again in the first column, page 8, of The Irish Times the Taoiseach refers to the January budget continually. He does not refer to the December budget that also put up the consumer price index number, and now we have the June/July budget. This is a classical case of the dog or the cat going around in circles chasing his own tail. At this stage the country is not interested in cosmetics. The country is not interested in reducing an inflation rate from 25 per cent to 21 per cent and not interested in a vast charade of exchange of views in order to achieve that.
The National Economic and Social Council was there at an early stage to give the right advice, and did give the right advice to the Minister. The right advice was quite simply the very practical, old-fashioned advice of facing up to realities. Where were the realities in the Government's mind as of April of this year, when the pay agreement was concluded? The national pay agreement system is an admirable one. I am very proud to have been a member of the Government associated with its initiation, in conjunction with the trade union movement, and I would hope that, despite the blow that it has recently been dealt it will be a continuing factor in our economic life. From social and economic points of view I do not have to elaborate on the importance of having a stable incomes increase system, a voluntary arrangement between the social partners in our community. It is so obviously a beneficial way to handle things. This is what we thought in 1970 when we were party to its initiation, and its merits do not have to be argued. But what is disturbing, apart from the erosion of our currency and the erosion of our standard of living, is the erosion of the principle of freely-entered into bargains as to pay awards across the board in our community. Between April and June, two short months, we have a large part of a bargain freely entered into withdrawn.
I can understand the economic compulsions involved in the Government having to take that decision and the reason for this Finance Bill, but I do not understand the thinking of democratically elected people who are charged with the basic responsibility of managing the economy and who, as the major employer in the State—apart from their own function as the guardian of the interests and welfare of the community—enter into and are a party to a pay agreement in April that is seen in June to be fruitless, nugatory and because of inflation not worth while. I would regard the pay agreement as being sacrosanct, and that was the thinking on which the trade union movement, the Government and the employers entered into this whole area in 1970, that it would be regarded as a two-year agreement looking ahead into the future with annual checks for various modifications within the overall scheme. The original thinking in 1970 of course was that you could plan at least for a year ahead. The thinking now is that you plan for a month ahead, and it is the erosion and the damage that is being done to the whole system of voluntary pay agreements by the Government's recent stand that I abhor.
Surely the Government and the trade union movement will in the future enter into pay agreements with some degree of circumspection and attention to the basic economic facts of life. I would hope that the employers similarly would enter into pay agreements with that attitude in mind. It would be preferable by far that we have one big stand-up row on a pay agreement and have a real disagreement on the issue rather than enter a pay agreement situation in a blasé manner one month and two months later seek to renege on the pay agreement entered into.
What is now being sought to be done under this Bill is to patch up the sort of situation I have just spoken about. It is very much a kind of closing the stable door after the horse has bolted situation. The Government are trying furiously now to rectify the situation by trying to cover up the fact that the stable door was not open in time, and trying to convey the fact that there is a horse inside when there is not.
We have got an official compiling of the consumer price index figure which really dictates the game and decides what pace is to be set, because alcohol, cigarettes and tobacco are part of the consumer price index. I happen to be one of the people who think that drink, cigarettes and tobacco could bear more taxation, but one cannot touch those items because the consumer price index is sacrosanct. Trade unions and employers and everybody else must, in negotiating pay increases have regard to the consumer price index. One can induce an artificial reduction in inflation by reducing the consumer price index. The Government taxed beer, cigarettes and petrol in January and December, but they are not taxing them this time because that would increase the consumer price index. Therefore one can artificially reduce inflation from 25 per cent to 21 per cent and say, "Hey presto! Inflation is going down by four per cent". Will not the little boys from the various trade unions in the country—the trade union leaders—trot in and say, "Hey presto! The Government have reduced the cost of living and reduced inflation by 4 per cent because they have not interfered with the cost of living". This increase in the consumer price index number is not the cost of living increase because the equation between the consumer price index and the cost of living is not really the situation, and everybody knows that is so. But the Taoiseach is slave to the CPI, to use the new in-phrase in the Taoiseach's speech. For short I will use it any more and we can remember it. It is the new in-phrase in regard to inflation and who dictates the play of the game in the Irish economy and in Irish society. The CPI is now the boss.
Because the CPI is the boss and really dictates the show, and because one can artifically reduce the CPI from 25 per cent to 21, then the trade union leaders of course if they agree to it, despite warnings from their members, are being given an "out" by a reduction of the CPI, and the main way in which the CPI is being reduced artificially and cosmetically from 25 per cent to 21 per cent is by not including any tax in the June-July budget on beer, cigarettes and petrol in the hope of securing a withdrawal from an agreement entered into in April. It is months we are talking about now, not years, and in that context the Government hope to secure the withdrawal during August and, by reason of that, then, to bring in the appropriate budgetary taxes on the CPI items in October and, of course, December or January depending on the monthly mood.
We have here in this Bill before us a cosmetic performance. I dealt with the first cosmetic performance because I am quoting deliberately and positively from the Taoiseach who says with his hand on his breast how sorry he is that, in the absence of agreement to detax the CPI for income assessment purposes the Government is obliged reluctantly to increase income tax rates to provide the revenue for essential expenditures. In the unfortunate situation of being governed by the CPI, the Taoiseach decides not to detax the CPI and instead to introduce section 1 and increase income tax by 10 per cent over a certain level. That is the explanation of section 1.
I do not think I have unduly wronged the Taoiseach. I think I have correctly quoted him. He at least is an honest man. At the Fine Gael Ard-Fheis earlier this year he was the first man to fire a warning shot. Fortunately he can control the troops, because he said that our inflation was largely caused by domestic sources. He fired the first warning shot across the bows of a rampaging irresponsible Government of which he is Leader. It is a rather secretive kind of leadership of which we have seen visual signs on occasion. Why the warning shot should have been fired across the bows in the public gaze, at the Ard-Fheis, and for the benefit of the media and not fired at Government meetings defies my understanding. His performance does not measure up to what he is saying but at least one can quote from his consistency in that he is saying the right thing.
Section 2, in an inflationary situation, is unreal. I have checked this out. It is the removal of VAT from clothing, footwear, electricity, and fuel. That type of subsidy, at very serious cost to the Exchequer, is of no help in my view in an inflationary situation. The purveyors at all levels, from the manufacturer at production level right through the distributor and finally the retail level, will look after that themselves in their own way in an inflationary position. This has happened before when some years ago the Coalition Government, to the detriment of the Exchequer, did the same thing in regard to food. They harmed the Exchequer and put an albatross around their own necks in that respect. They did not reduce the cost of living on the food items concerned. The same situation will arise here.
Here again, there is a situation designed for cosmetics. The cosmetics in regard to section 1 relate to the non-taxation of beer, wines, spirits, tobacco and petrol. The cosmetics in regard to section 2 arise from making an attempt to persuade the trade union movement that the cost of living will be improved by a certain percentage by reason of the removal of VAT from these items. It is all part of a massive confidence trick designed to persuade the trade union movement to renege on the agreement which they entered into freely on behalf of their members, with the Government and with the employers, last April.
Sufficient for the day is the evil thereof: if it gets the trade union movement out of a hole in which they find themselves in the month of July, if it gets the Government out of the hole in which they find themselves in the month of July, may be August will not be a wicked month—perhaps something will happen in August: perhaps we can come back here in September and October and put a better face on matters.
It will not be like that. All the economic experts—I do not like purveying suggestions that may indicate that things will not go well—and the recent report from the European Commission, to hand in the past two days, bear out a very factual statement on our economic position. It will be 18 months before we get the ship right. We can get the ship right if we follow proper budgetary policy, if we have a reasonable deficit on our budgetary account, not a £241 million deficit looming up—probably £300 million by the end of the year.
If we have a reasonable situation in regard to our balance of payments, things will work out right. I agree there must be a deficit running there as well but provided there is a reasonable degree of inflation—there must be some inflation in the present world situation but not 25 per cent; bring it back to 10 per cent: most of our partners in the EEC are bringing it down to about 6 per cent —we will be in a situation to put the economy back on the right road.
The most interesting factor emerging from the Commission report is the serious view being taken of the proportion of foreign borrowing on which this Government were increasingly dependent at the time. This is another warning signal. The Government cannot continue at the rate of progress of a £250 million or £300 million budget deficit accounting indefinitely. They cannot continue with the 25 per cent or 26 per cent inflation rate, cut down to 21 per cent for cosmetic purposes. That will not wash. It will not do to be so dependent on foreign borrowing.
The Minister for Finance is going helter-skelter around the world seeking foreign credit. I do not remember any other Finance Minister having to travel from Iran to take in the EEC countries and Britain and Switzerland as well. No other Minister for Finance was forced into a situation like this. Those to whom he is talking are by no means fools, in case anybody here thinks they are. They will look at the economy before they decide on any credit to prop up the faltering budgetary situation.
We have had no indication yet from the Minister for Finance as to how the current and mounting budget deficit, officially estimated at £241 million—I would think it will emerge by next month at £300 million—is to be met. Where will the foreign borrowing be obtained from? Will it be EEC credit or Arabian Gulf States' credit or Iranian credit? It will not be got from the overloaded Irish public. The Irish banking system cannot yield that amount of money.
How will it be sold to those people? How can we prove that we are to be trusted in the present situation? This is the sort of area into which the Government have walked themselves. There are various basic measuring rods that I have mentioned that any banker will adopt. The Gulf States and Iran all have advisers in the money market in London from which we have been told to sever ourselves. Basically, it is the money market in London and the institutional advisers in the money market in London that will tell these States in the Middle East where their money should go and how it will be recycled. There is no point in talking about totally irrelevant peripheral issues of nice, esoteric, academic, parlour-pink discussion items such as breaking the link with sterling in this situation. Breaking the link with sterling is no way to talk to the Arabs who have all their money in sterling and in the market in London. They are the people from whom we are seeking the money, who we wish would recycle money to us.
It is the sterling market advisers in the institutions of London who will advise the Arab states how, where and when and in what manner to recycle Arab money into whatever European countries these advisers think fit the money should be utilised. That is a basic economic fact of life. There is no point in talking about tinkering with that machine—that is the way the machine works. It happens ironically in the present daft situation into which the Government have got themselves, where they have to get international credits and international loans to finance deficit situations which they have created, that it is an advantage for us, and it is a poor sort of advantage in this day and age—I should like to break the link with sterling in a time of stability and progress—to have links with sterling and to have links with the London money market because of international connections, for the simple reason that the Arabs have invested their finances in the London money market.
That is where the money is and that is where the money has to be recycled. It will not be got by any trips to the Persian Gulf or elsewhere. It will be got by proving our credibility with the hard financial advisers in London whom the Arab states have employed to assess, on very strict banking criteria, where and how and in what manner they should invest both in the private and public sense. In the public sense we will be looked at on criteria that are not cosmetic. Cosmetic criteria are all right for the lads. They are all right to get the trade union leaders in and persuade them that because artificially the CPI has been reduced from 25 to 21, because the CPI says the rate of inflation is now 21 instead of 25, "you boys will forego your rightfully secured pay awards."
That is all right for internal consumption. That is not the sort of thing that will influence the financial advisers to the Arab states on whom this Government are dependent to secure the required finance to remedy their budget deficit. They will look at the state of our economy in a very hard-nosed manner, and cosmetics will not work. They will look on us strictly on the criteria. I have mentioned—the rate of inflation, the budget deficit position, the balance of payments position, the other criteria relating to the drop in retail sales, relating to the drop in industrial exports.
All of these factors will be taken into account by the hard-nosed advisers to the Arab world who now control the sterling finances basically because the Arab moneys have been converted to sterling. Those people are going to decide whether this Government are to survive.
From the point of view of the country, I hope as a reprieve that the required finances will be secured. I am talking in the country's interest now, I do not care who is in charge of Government. I hope the finances are secured. But the Government have put this country into the very serious position of going with a very weak bargaining hand to secure the finance. They are in a situation where one is going to the bank manager on an ad misericordium basis with open hands saying “Please give me a last chance”.
It is that type of situation into which this Government have pushed this country. I hope, from the point of view of the country, that the last chance argument will work. I hope that the persuasiveness of the Minister for Finance and the Minister for Foreign Affairs who can help in this area as well, works. I hope that the recognition of the basic strength of our economy is acknowledged by the people who will be delivering finance to deal with the situation in which the present Government find themselves.
I am talking now totally apart from politics and I am going to finish on this basis. I hope very seriously and sincerely that what is recognised by people who have finance to invest in this country, whether in the private area or the public area—to the Government or in the way of private investment—is that there is a basic strength in our economy, rooted as it is in agriculture and in the industries stemming from it. This gives us a tremendous position of strength in the world in which we live today where food resources are diminishing and where there will be an escalating demand for food. That fundamental area of strength resides within our economy and makes us, in my view, a viable long-term proposition for any investment, be it private or public, be it directly through private enterprise or directly through the Government. There is no question about that.
I hope that foreign investors, whether through IDA activity or through direct Government activity in the way of investing in Government bonds or credits, will recognise fully, despite the mismanagement, the rake's progress, of the past two years, the petty attempts at cosmetics and patching up, that this thing is so basically superficial that it would be regarded as such by foreign investors and that they will see the present Government as essentially birds of passage who have made a small scribble or a small bit of graffiti on what is basically a sound structure; that the sound structure of our economy will survive despite any scratches or despite any petty graffiti that may be written on it and may give a cosmetically damaging appearance to it in terms of international credit.
I hope those people will recognise that the fundamental structure of our economy is sound and that it cannot afford to be damaged or mismanaged indefinitely and that our credit basically abroad will be maintained. I hope, from the point of view of the country that the Government have been given a fool's pardon in that regard. Again it is a last chance.
I hope those people look at it in that way, that this is the last chance that will be given to a Government seeking help to remedy their own blunders and failures and that on the basis of giving them a last chance and on the basis of the fundamental underlying soundness of the structure, the economy and the country will get out of the appalling mess in which we find ourselves. I will finish on that note because I take no joy out of talking in a debate of this kind. I will certainly take no joy out of talking in a similar debate in October, and a similar debate in December, a similar debate in February-March. I feel it is time for the Government to go. A lot of people are saying this. As I say, I enjoy being in Opposition but I am afraid that in order to restore credibility to the State and to the nation it is time for this Government quietly to pack up the tent and steal away in the night.