I read this plan some weeks ago, when published, with a sense of great dismay. Any further analysis or discussion in which I have engaged in the intervening period has, if anything, intensified that feeling. Like all planning documents published here over the last 20 years it seems to me to be virtually valueless as a prescription for coming to grips with our economic difficulties. Senator Dooge, the Leader of the House, put his finger on the matter this morning. This plan relies on some form of deus ex machina. Certainly there is nothing in it leading one to expect that the targeted outcomes will come to fruition. Like all similar Government publications during that 20-year period it seems to me that this plan has more to do with politics than with the requirements of good political economy and of society at large.
In saying what I have to say about the plan I want to make it clear that nothing I shall have to say should be interpreted as being supportive of the main Opposition party. I am as aware as everybody else in this House that that party contributed massively to the creation of the present economic and financial crisis during the period 1977 to 1981. I am aware also that, since 1981, right up to the present day, that party has demonstrated no sign that it has the first idea about how this economy can be retrieved from the precipice. As far as I can tell, it has no policies on the subject beyond opposition for opposition sake or beyond the requirement of a cynical opportunism, a characteristic central to its political nature and which is not confined to economic matters alone, as evidenced by its contortions on, for example, marital breakdown, contraception and last year's Constitution amendment campaign, not to mention Northern Ireland. I regret to say that I believe Fine Gael now manifest the same cynical characteristics as Fianna Fáil, and on the same issues. Their contortions on the liberal issues I have mentioned are well known. Their cynicism on economic matters was evidenced by their Election Manifesto of June 1981 and, in particular, by the stark contrast between what was said in those manifestoes and what that party are actually doing in Government.
In that context, in addition to the crises of Northern Ireland and the economy I believe that we, in the Republic, now face a crisis of political alignments as potentially de-stabilising of our democratic system as the other two I have mentioned. This belief arises from the fact, recognisable since the late seventies, that the country now contains two "catchall" parties at the centre, each roughly equivalent in size and professionalism, each similar in ideology, following a virtual convergence on Northern Ireland policy, each now in effect pursuing broadly the same short and medium-term economic policies with some difference in emphasis dependent on whether they happen to be in government or opposition at any given time. In this connection one need only peruse The Way Forward published by Fianna Fáil, in Government, to see the similarity in thought and prescription between them and the policies put forward by Fine Gael in the period since 1981-1982.
It is my view that as long as our political system is dominated by two centralist "catch-all" parties we will never face up to the other crises in our society I have mentioned, because both those parties stand paralysed on the same electoral ground incapable of acting in the national interest, even if perceived by themselves in their less cynical moments, by the fact that they can compete only on the basis of unfulfillable promises on the one hand or of failing to act on the other. Therefore I believe that Deputy John Kelly is basically right, that the time has come for all serious politicians to seek to force a realignment in Irish politics between left and right so that the electorate can be spared the present form of politics, which amounts to image without substance, promise without fulfilment.
It appears to me that the alternative to such realignment is continuing cynicism at both political and public levels together with a continuing drift towards the breakdown of the democratic system itself against a background of intensified crisis in the economy and in Northern Ireland. Let me give one example which is both simple and important in the macro-economic sphere of where the cynical competition provoked between the two major parties has brought us. Since 1977 successive Governments have operated pro-cyclical policies in our economy which began in the 1977 budget, compounded by Fianna Fáil in the implementation of their political manifesto of that year and pro-cyclical policies now endemic in the system we have because of our accumulated debt, or at least endemic on the basis of conventional economic analysis.
We are now at a point, thanks to the competition provoked by the two major parties and the cynicism with which they have acted, when counter cyclical policies which are essential to economic management are no longer a viable option. That, at one level alone, is the point to which our former level of politics has brought us and it is why realignment is necessary.
Turning to the plan document itself, the first comment I would make about it is that it is not a plan at all in any sense that I would recognise. One reasonably could be expected, given the scale of the present economic and social crisis as well as our historically poor economic performance, some significant restructuring of economic policies and a radical redistribution of incomes, wealth and opportunities in society. One could justifiably have expected a serious analysis of and response to the consistently high unemployment level. One easily could have expected some proposals designed to increase output and to ensure that the benefits of output growth would remain in the Irish economy, which they largely do not at present.
These questions are not even addressed in the plan, never mind answered. Instead, the plan is no more than a rolling together of three years' budgets with the entire edifice built on some notional idea of what the current budget deficit and the public sector borrowing requirement should be in 1987. I do not deny the importance of those variables and I do not share the Fianna Fáil view when in Opposition that they are irrelevant. Far from it, but to construct a plan which in essence is content with attempting to create and to meet targets on these variables alone and to do nothing else is unacceptable.
In relation to the current budget deficit and public sector borrowing requirement I would ask the Minister who will be replying what he intends to do, either later this year or next year, should it become clear that the Government's financial targets are not being met. In that situation, what is to give way? Will the financial targets be modified or will we be asked to accept further cuts in public spending, on public services and employment? That is not an academic question. It is one that can justifiably be asked and must be asked because it is not answered in the plan. I hope the Minister wil see fit to reply to it at the end.
The targets for the current budget deficit and the public sector borrowing requirement constitute the only substantive policy decisions in the plan. Everything else is built around these. The possibility of meeting these targets depends on two critical assumptions in particular, given the nature of the planning exercise. The first is that the US dollar rate and the dollar interest rate will fall significantly and that such limited US-led recovery as we have had will continue until 1987. What does the Minister intend to give way on if the first and second assumptions do not materialise to the extent predicted in the plan? As I understand it, the plan envisages a very significant fall in the dollar and the dollar interest rate in 1986 and 1987. If these do not happen to a sufficient degree and if the world economic recovery pans out and the world economy turns down, will employment and public spending be reduced further or will the public sector borrowing requirement be modified? The answer to this question is important to the Labour Party because the outcome in relation to unemployment, for example, predicted for 1987 is unacceptable. However, if it turns out that the financial predictions in the plan are wrong for 1986 and 1987 will the Government modify these or will we have to bear more unemployment?
The second principal assumption in the plan is that public sector pay and public service job numbers can be tightly controlled over the period, particularly in 1985. Indeed the public sector pay bill constitutes the principal means of adjustment, in 1985 in particular but throughout the period of the plan. I wish to make a number of points about this.
I have no objection in principle to a tight public sector pay policy in the present circumstances provided it is part of an overall incomes and tax policy and that it is intended to use the resources saved to generate output and employment. The fact is that there is no incomes policy or tax reform policy in this plan. I will refer to taxation later, but the absence of a policy on incomes, and I mean all incomes, not just PAYE, is both inequitable and unjustifiable in economic terms. Instead of a comprehensive incomes policy designed to meet output, employment and social objectives, we have pay restraint in the public service for financial reasons and no incomes policy for the rest of the economy, including the owners of capital. The absence of an incomes policy in a comprehensive sense and the failure to link such a policy to taxation reform will mean that the real incomes of public sector workers will fall gradually over the period of the plan and the real incomes of most employees in private indigenous enterprises will fall rather more rapidly while the real incomes of employees in multi-national enterprises will rise, perhaps significantly. At the same time, the incomes of companies and the owners of capital will remain uncontrolled. This multi-tax system is patently unjust, and in my view it is a central flaw in the plan.
Similarly, the failure to link pay moderation in the public service to employment creation in that sector is misguided. The overall effect will be deflationary and will lead to further job losses in the private economy as well as in the public sector. In this regard I fail to see the logic of shedding 8,000 to 9,000 full time jobs, on my calculation, in the public sector during the life of the plan while at the same time creating 10,000 part-time jobs largely in local authorities. The net saving to the Exchequer will be negligible if not negative, and the net consequences in the labour market can only be highly negative.
I should like to turn to three areas of policy that should have been central to the plan but which, unfortunately, are not. Two of these, output growth and employment, are treated as residual or irrelevant. The third, tax reform, is avoided for purely political reasons, all having to do with the political requirements of Fine Gael and their political constituency and all of which, equally, would be shared by Fianna Fáil for the reasons I mentioned earlier.
I will start with the question of output growth. Since the late fifties the conventional wisdom has been that growth in the economy could best be achieved by attracting foreign investment through the conventional IDA industrial policy. The idea behind that policy was that foreign owned companies would generate high levels of employment and at the same time contribute significantly to growth, both directly and indirectly, through sub-supply industries and services and through the normal multiplier of income expenditure and re-investment. The potential for utilising foreign investment in this manner has diminished substantially for external economic reasons. First of all, the accession of Greece, Spain and Portugal to the European Community will mean that Ireland no longer will be as attractive as it has been for multi-national company investment. In any event, and this is not peculiar to Ireland but to the whole of Europe, the world economic axis has changed away from Europe to one based on the US and the Far Eastern economies. One way or the other, I am suggesting that multi-national investment will tend to fall in the foreseeable future.
In any event, IDA-style policy has not lived up to expectations in either the employment or the growth sides. The industries set up have been more capital intensive than expected while rapid productivity increases have reduced employment numbers. In addition, sub-supply industries and linkages with the main economy have not materialised on the scale expected. In addition, given the absence of an effective corporate tax regime and the failure of multi-national companies to re-invest here, the principal benefits of their output have accrued abroad in the form of repatriated profits, a phenomenon central to social economic theory but one which has been discovered only recently by conventional economists following the so-called "black hole" controversy. The plan and the White Paper on industry policy implies some understanding of the failure of the foreign investment strategy in this regard but fails to act on it. The White Paper strategy states: that policy will seek to retain within the economy wealth generated by industrial development. That is a fine sentiment and an appropriate one, since all we are getting now from industrial policy based on multi-nationalism, is low numbers of expensive jobs because profits are repatriated and linkages to the domestic economy are minimal. Neither the plan nor the White Paper on industrial policy provides a policy solution to give effect to the worthwhile sentiment which I have just mentioned.
There are three adequate means of securing the wealth generated by industrial developments for the domestic economy. The first is to increase corporate taxation, secondly, through public ownership of industry and, thirdly, through domestic private ownership. The value of the last of these is dubious. A priori, in a free capital market, private capital owned and based in Ireland should not view investment in Ireland any differently to investment elsewhere, assuming there is no geographic constraint implied. The State should expect to have to pay the same price to Irish owned and based capital as it does to foreign owned capital to encourage investment or reinvestment in Ireland. In practice, the large investment overseas of indigenous Irish companies in recent years underlines the ability and the willingness of these companies to re-invest overseas rather than at home.
A shift from foreign to indigenous private industry can only significantly affect the intention of industrially generated wealth in the economy if Irish private capital is effectively constrained by exchange controls, so that profits must be retained in Ireland. While the present operation of exchange controls constrains investment institutions it has a much reduced effect on industrial companies and private individuals, a matter which is not addressed at all in the plan.
As for the other two methods I mentioned by which industrially generated wealth can be retained in Ireland, corporate tax reform is ignored in the plan despite the fact that we now know that the combination of grant and tax incentives to foreign industry is excessive while the public ownership issue is effectively ridiculed. Increased corporate taxation of industry is an obvious means of increasing the linkages between industrially created wealth and the rest of the economy. Recent trends in industrial output, productivity and employment indicate that most, if not all, of the real increase in value added by industry will accrue to capital rather than labour. Virtually nonexistent corporate tax, has, therefore, been the major factor in the very low multiplier effect of industrial export growth within the economy.
At present Irish taxation is preponderantly based on employee incomes and on the expenditure of employee disposable income. Therefore, the total tax take in the economy is directly linked to the growth of employment. However, GNP is now growing significantly faster than employment so that there is a strong built-in tendency for the tax take to decline as a percentage of GNP while, of course, the tax will continue to be loaded on the PAYE sector. In other words, we can expect a decline in tax revenue over time as a percentage of GNP while the PAYE sector will remain buried under that tax. The obvious answer to this serious problem is to substantially increase direct taxation on non-invested business profits. The fact that we are a small open economy model makes it all the more important to tax the profits of the tradeable sector, since a significant proportion of these will leak away in imports or capital outflows otherwise. In this regard a tax rate can be chosen which is competitive with other EEC countries. But, as I have said, the matter is not addressed at all in this document.
Greater public ownership within the industrial sector as a means of retaining a larger share of industrially created wealth in the economy is effectively ridiculed in the plan. The role of the State in directly generating wealth is ignored on ideological grounds, despite the fact that we know from experience that no matter how much grant aid is thrown at the private sector it will not create output or employment on the scale required.
The ridiculing of the potential role of the State in industrial wealth creation on grounds of ideology is wrong-headed and potentially disastrous. If the Telesis analysis is correct, as I believe it is, who else but the State, with the information it has accumulated through the work of the IDA and CTT among other public agencies, is in a position to pick winners in the sense of large scale industrial projects which are domestically controlled or to fund their development? Who else but the State is in a position to see to it that, for the first time in our history, we set about achieving high value added in our natural resources of land, sea and other natural resources?
The fact is that the days when we could expect to rely on foreign investment for development are gone, if they were ever here. Similarly, the days — short lived though they were — when we could stagger through on the basis of non-earmarked borrowing have gone too. We are now left in a position where we must rely on our own resources and talents to generate wealth and employment if we are to survive. There is no recognition of this basic reality in the plan. There is no recognition that in these circumstances the State's role cannot be confined to regulating the current budget deficit or the public sector borrowing requirement.
The State, in our present position, cannot adopt simply a regulatory role in fiscal matters and a passive role in developmental policy. I would have thought that by now we would have learned that supply side economics do not work and that in so far as they do work, for example, in the United States, they do so because of the large scale self-reliant nature of that economy and a price — in terms of human misery — for those who cannot get employment or whose employment future rests in Kentucky Fried Chicken outlets or in McDonald's hamburger joints.
It is because Labour understands the nature of the Irish economy and the essential dynamic role which the State must adopt in development that we have proposed consistently the creation of a well funded national development corporation. This proposal is also, in my view, treated with derision in this plan. The purposes we conceive for the national development corporation are twofold. First, it is to create a means by which the wealth created and manufactured in Ireland is retained in the economy. I have dealt with the importance of this already. Secondly, it is to identify and develop — either by itself or in joint venture with the private sector — large scale manufacturing enterprises, while at the same time getting politicians and bureaucrats off the backs of the commercial State sector.
I do not imply that the commercial State sector has not made mistakes, and sometimes serious mistakes. Of course they have. Where they are culpable, the board and management of these companies should pay the normal price paid in the commercial world as individuals. It must also be said that these companies have been subjected to interference by politicians and administrators, both in terms of day to day activities and in terms of long-term planning. In this regard, I refer to the Sugar Company's experience in relation to its mandate to keep the Tuam factory open. There may well be social reasons why the Tuam factory should be kept open. If there are, then the cost of keeping that company open should not rest with the Sugar Company to the point where it puts the whole operation of that State enterprise at risk.
One can look at many examples where commercial State enterprises have been interfered with, have had decisions imposed on them which were not in their commercial interest, and have not been allowed to carry on as normal commercial enterprises should. It is for this reason that we suggested a means by which politicians and bureaucrats would be taken off their back. The institutional means we have suggested is the creation of a national development corporation which would be a holding company for all State commercial enterprises, which would comprise and be staffed by commercially efficient people and which would be immune to interference from Government except within the context of a broad national economic plan where targets and guidelines for the entire economy were set down. The national development corporation which provides, in my view, the only means by which we can rationally organise the State to engage in wealth creation has been effectively undermined in this plan and in the White Paper which preceded it. It is hoped that it will be possible to get that particular idea back on the rails again when legislation in relation to the development corporation comes forward.
The plan proposes that by the year 1987 we will end up with approximately the same level of unemployment as we have now. That is based on optimistic assumptions within the plan itself both in relation to manufacturing, employment growth and growth in private services. It is notable that total reliance in the plan for the creation of employment rests with the private sector. So far as public sector employment is concerned there will be a fall in the plan of 5,000 jobs, a minimum of 7,000 to 8,000. Why is it that the private sector is, in the midst of recession, going to produce these significant numbers of new jobs? In the case of manufacturing the plan suggests that there will be 12,000 to 14,000 net new manufacturing jobs during the period. In the case of services the plan talks in terms of a net increase of 13,000 a year. What reason is there for this to happen on the basis of past experience particularly in relation to manufacturing or on the basis of IDA projections? I do not understand the basis of these figures. They are, I suspect, what Senator Dooge described as being to do with some deus ex machina, some lucky break which we cannot foresee at this stage. Yet we are going to go through years of continued recession, continued depression, continued tightening and cuts in the public sector area and at the end of it all end up precisely where we began. In my view it is not good enough. I would not mind going through the kind of period that we are going to go through in the next three years if I felt there was some plan for employment and reducing unemployment at the end of the whole thing. If somebody said that under this plan we are going to increase rapidly value added from agriculture, to increase rapidly the value of agricultural output itself, or that we were going to do something serious for the first time in our history about the fishing industry, or that there is something serious to be done to make tourism viable as a growth sector for employment, my attitude would be different. Tourism, which provides a real possibility for employment growth, is dealt with in three lines in the plan.
Unemployment and employment are treated very much as residuals in the plan. There is no policy towards them nor any suggestion as to how we take down this massive unemployment figure. I do not believe that the answer will be easy. I have suggested some approaches. It is true also that we will have to face up to creating a new policy in the area of jobs, taxes and welfare payments to do with job sharing, not just sharing work but sharing incomes and taxes. We are going to have to devise a package that will give worthwhile employment to people in the period ahead.
I consider the emigration figures proposed in the plan to be understated. If emigration is very high in the period ahead, the projected unemployment figure may turn out to be somewhat right but that will be because of emigration.
On the question of taxation, it is here one feels the most outrage in many ways, because it is in this area that something can be done easily and effectively by taking a decision to do something. The proposals in relation to taxation are such that they freeze the present taxation profile. Let us be clear that the indexing of tax allowances and tax bands is no more than freezing the present tax profile within the PAYE system. Similarly, there is no sign of any redistribution of tax out of PAYE across into capital, property, self-employed schedule D incomes or into farm income taxation.
The farm tax is too little, too late. The reality is that if farmers paid the same proportion of tax as they paid in the mid-seventies they would be paying £85 million this year instead of £30 million. Under this proposal they may or may not pay £65 million in tax under the farm tax in 1986-1987. There is no significant gain there.
In relation to capital taxation, if the owners of capital paid the same levels of taxation now as they paid in the mid-seventies, which were not seen to be particularly radical years, they would be paying £85 million a year instead of £30 million. The failure to reform tax is a failure of political will. It seems that that failure is politically based. It seems that Fine Gael will not take on the farmers, but I am not picking farmers out in particular. Fine Gael will not take on the onus of capital or the onus of companies who pay very little tax on their profits. They will not take on the self-employed in the schedule D category, many of whom are professional people and most of whom support that party at elections. We are not talking about a technical difficulty or about some very difficult task like reducing unemployment, we are talking simply about a failure of political will. I do not know why the PAYE sector or why the labour movement should be asked to put up with it. Despite the best efforts of the Labour Party in Government, in a minority position, we are about to waste three years in addition to the seven years wasted already.
If one looks back over the last 20 years one finds that we have tried foreign investment as an answer to our problems and that we have tried borrowing but we can try neither any longer. We are back to ourselves, and that means new policies, new methods of restructuring the economy, new methods of redistributing incomes, wealth, opportunities and jobs, but there is no sign of any of these things in this plan. Despite the best efforts of the Labour Party, which indeed were significant in that they managed to preclude the elimination of this budget deficit by 1987 which would have destroyed the economy altogether, despite our best efforts as a minority in Cabinet it is a dismal failure.