I move: "That Seanad Éireann notes the OECD Economic Survey of Ireland, 1995."
OECD Economic Survey of Ireland, 1995: Motion.
I welcome the debate on the recent OECD Economic Survey of Ireland. I refer to some procedural points raised in relation to the distribution of the report. The report was published on 8 June and copies are available from the Government Publications Office at £16.50. We are prohibited by copyright law from photocopying the report, although summaries of it were made available. Following strong representations by the Leader of the House to my Department to make copies available, I understand a limited number were made available. However, there appears to have been some difficulty in distribution. Not every Member of this or the House will want to read the report, but some must do so.
For future reference, we should look at procedures within the relevant committee of the House for the distribution of these reports. It would cost £3,500 to give a copy to every Member of both Houses. Not even the Progressive Democrats would like me to be that flaithiúlach with the taxpayers' money.
What about the White Paper on Education?
It must persuade a much wider audience.
I presume a profit will be made on the £16.50.
The OECD is an independent expert organisation which commands worldwide respect for the quality and objectivity of its work. Its regular surveys of the policies and performance of countries provide authoritative, disinterested assessments of achievements and prospects of the 25 states which comprise its membership. The surveys are aimed at enabling members to stand back from day to day minutiae and to consider fundamental issues of policy. The purpose is to help member countries, by putting them under a microscope from time to time, towards a better future. The OECD goal, always, is to offer constructive insights so that the better aspects of policy can be built upon and any weaknesses highlighted for action. Of course, few countries will agree with everything the OECD may say. But commonsense indicates that we should listen hard to the disinterested commentary of experts.
I am particularly pleased that the Seanad has decided to debate this year's survey of Ireland. I hope that today's debate will strengthen the recognition of how well Ireland has been performing and — equally, if not more important — will focus attention on issues which are important to Ireland's future wellbeing. I know that good news is not attractive from the point of the media. However, we should as a people, take account of progress that has been made and the position within which we now find ourselves. This is not an occasion for political point-scoring but rather one for reflection about how we achieved what we have achieved and how we might, for the benefit of all, continue to make substantial progress.
Let me now turn to some of the main messages of the recent OECD survey. Looking back over seven years, the survey notes that: "Since 1991, Ireland has recorded the fastest expansion of any country in the European Union". Looking forward, it takes the view that: "the economic outlook for 1995 and 1996 remains favourable, with output growth projected to be near 5 per cent".
Senators may not be fully aware that this assessment, completed in March last as the survey was being finalised, has been superseded with a more optimistic view. The latest edition of the twice-yearly OECD Economic Outlook, which was published only on Tuesday and is based on assessment made during May, forecasts still higher growth. The OECD now believes that Irish output will expand by 5.75 per cent in 1995 and by 5 per cent in 1996. These are the fastest rates of forecast growth among all the 25 OECD countries. We should recognise the significance of this and take confidence from it.
The OECD indicates that Irish exports have captured an increased share of international markets in recent years and forecasts that we will continue to build market share. While the high technology sectors make the major contribution, the survey notes that other sectors are also doing well. It attributes our increased share of world markets to Ireland's "competitive strength" as well as to the improving quality of our work-force. Indeed, it attributes 0.8 percentage points of our average annual growth rate between 1960 and 1985, using economists' jargon, to "growth in human capital". Particularly from the latter part of 1993, it notes that growth has been broadly based, with strengthening business and household confidence boosting investment and consumption. More important, its view is that growth this year and next will be equally broadly based. It suggests that "continued growth in employment and disposable income should sustain personal consumption", that "activity will also benefit from increased exports, led by demand for traditional products from continental Europe", and that "business investment...should increase".
The survey note that "while employment fell in the EU in 1993, the growth of output in Ireland generated significant job gains"; and that "the continued rise in employment contributed to a decline in Ireland's high unemployment in 1994". Looking forward, it see "continued growth in employment", of 2.4 per cent in 1995 and 1.9 per cent in 1996. This, it says, "should be sufficient to ensure a further reduction in unemployment".
Our employment record over the past number of years merits greater attention. Over the seven years to April 1994, total employment has increased by 86,000, or by approximately 8 per cent. This compares with an increase of approximately 3 per cent in respect of the EU of 12 member states. Non-agricultural employment has increased by 110,000, or by approximately 12 per cent. Private sector non-agricultural employment has expanded by approximately 120,000, well above a 15 per cent increase over the past seven years. This is clear evidence that there is no question of Ireland experiencing jobless growth, and that on jobs we are far outperforming our fellow EU member states.
Whether one relies on the OECD expectations, which I have cited, or on those of my budget last February, the outlook is that this will continue. The OECD forecast for jobs in 1995 mirrors my own. I had suggested that total employment would grow by 31,000, or by approximately 2.5 per cent this year. Such indications as we now have suggest that employment is continuing to expand rapidly. For example, notified redundancies for the first five months of the year are 25 per cent lower than in the same period last year; employment related revenue receipts offer supportive evidence; employment in building and construction is approximately 7.5 per cent up on last year; and, according to the IBEC monthly survey, business employment expectations are now the most upbeat that they have been in over four years.
This robust employment growth is reflecting itself in lower unemployment. Last year the live register fell by an average of 14,000. At the end of May, total unemployment was 8,000 below its level a year earlier. Unlike previous periods of falling unemployment, employment growth rather than net emigration appears to be the main factor.
The Government, however, remains deeply conscious of the need to build on its considerable successes to date, to further increase employment and reduce the unacceptably high level of unemployment which we still face. We have a rapidly growing labour force. The natural rate of increase is approximately 24,000 per year and the continuing upward trend in labour force participation by women adds to this increase in the labour market. We therefore need very high levels of employment growth just to stabilise unemployment and avoid emigration. This is part of the reason why our unemployment levels are not falling even faster, given the strong job gains we have been achieving.
However, we should also view the fact of a rapidly growing young labour force as a major asset. It means that we can have higher rates of economic and employment progress without inflationary pressure and hence with lesser risks of setbacks. It also means that we face into the next century, when ageing populations will place major strains on pension systems and health care budgets in many OECD countries, with less exposure to these kinds of problem. While we will eventually have to face up to the consequences of an ageing population, it would appear that we will have more time to plan for this eventuality than others and will have had the opportunity to learn how best to meet this challenge from the experiences of others. Indeed, ongoing work in the OECD on this issue will be of great assistance to us in planning for the future.
I now propose to turn to some issues of policy which the survey mentions. It touches on exchange rate developments over the period it covers. As Senators will be aware, the Government's Programme for Renewal makes it clear that a stable exchange rate for the Irish pound within the exchange rate mechanism will remain the cornerstone of monetary policy. Price stability — reliably low inflation — remains the objective of exchange rate policy. This is not a theoretical concept. High rates of inflation impoverish the weak and vulnerable in our society. They also attack our competitive position in our external markets and so reduce real employment opportunities. It is also the objective of interest rate policy. This is a matter for the Central Bank, which is independent from the Department of Finance and the Government. The OECD survey comments positively on interest rate developments over the past two years.
There is a widespread international consensus that focusing exchange rate and interest policy on price stability represents the best contribution these areas can make to the overall objective of achieving the maximum sustainable economic growth. This stability oriented stance must be supported by the other areas of policy, and especially by sound management of the public finances. Ireland has a very good record in this respect, as is shown by the fact that the EU Commission has, both last year and this year, deemed Ireland to be among the small group of EU member states not to have an excessive deficit under the Maastricht Treaty excessive deficit procedures. The Government's firm determination is to keep achieving a low annual deficit and to maintain downward pressure on our debt-to-GDP ratio.
The OECD notes that inflation, which has been moderate, remains under control. Doubtless this prompted its comment that our growth and employment performance reflected Ireland's competitive strengths. However, while recognising that inflation is currently under control, the survey, in considering the risks to the positive outlook which it forecasts, remarked that:
...one possible risk to the economic outlook is an acceleration of inflation... The continuing decline in the number of jobless might put upward pressure on wage rates, and consequently on domestic prices...
This should be seen as sound advice regarding desirable future cost developments rather than as a risk that the OECD believes is seriously threatened. The evidence to date is that the terms of the Programme for Competitiveness and Work are being adhered to. While the consumer figures for mid-May 1995 showed some pick up in headline inflation, this reflected the springtime increase in mortgage rates rather than any underlying upsurge in prices. Indeed, excluding the effects of the rise in mortgage rates, inflation was a little lower at mid-May than at mid-February. Eliminating an inflationary psychology from our economic landscape has been one of the great success stories of Irish macroeconomic management in recent times. It is a success story for which all parties of this House and the other House can claim credit.
However, we should especially recognise the pivotal role played by the social partners and the three national agreements in this regard. Indeed, an eminent Irish economist, Joe Durkan, acknowledged this fact on "Morning Ireland" on Friday, 9 June, when he conceded that his fears about the inflationary effects of such agreements have turned out to be wrong. I wish that some of the right wing commentators, both inside and outside the House, and economists who get such media space would recognise this point. It is my intention that we remain a low inflation economy so that we will continue to garner the benefits of a stable price environment and remain comfortable within the inflation criterion for European Monetary Union membership. The OECD confirms this as an appropriate stance. It goes on to state that "if such developments are avoided, the economy would be firmly ensconced on a high growth, low inflation path that might well continue until the end of the decade".
There are balancing comments in the survey which must be taken into account in interpreting views which may appear critical of our social partnership approach to incomes development and to broader economic policy formulation — to the Programme for National Recovery, the Programme for Economic and Social Progress and the Programme for Competitiveness and Work agreements. The survey argues that these agreements have exerted upward “pressure on public expenditure”, that the Programme for Competitiveness and Work“...commits Government to boost social welfare spending and to reduce the tax burden on workers” and that “it constitutes also a constraint on fiscal policy which could in the long run undermine the priority attached to reducing the public debt”. However, it would be misleading to look only to these comments. The survey also acknowledges that the “budget position has remained under control” and that such commitment as these arrangements might entail have to be “within the limits of the authorities' fiscal goals”.
A further critical comment with regard to centralised agreements is that "by reducing the responsiveness of wages to shifts in the relative demand for labour, the centrally determined pay increases implied by such agreements may tend to introduce further rigidities into the labour market". Again, looking elsewhere in the survey, one finds acknowledgement that "this type of agreement proved to be successful in limiting inflationary pressure and promoting social cohesion" and that "inflation remains under control" and, of course, there is the recognition, of which I have already spoken, that Irish employment growth has been much stronger than elsewhere.
It is noteworthy that the survey does not advocate an end to the social partnership approach. The various pay agreements have balanced the employment needs of the economy with rising living standards for the average worker. They have brought a stability and calm to industrial relations. The competitiveness of the economy has been improved through moderate pay increases, facilitated by reductions in the income tax burden on workers. They have helped to build up a more trusting and responsible relationship between both sides of industry and Government which help us to define and pursue common goals more confidently.
The survey acknowledges that the "budget position has remained under control" and notes that the "actual deficits in 1993 and 1994 [were] lower than initially envisaged". It could say no less, since the annual borrowing of the Government has remained well below 3 per cent of national income for several years now. However, it is critical of the pace of expenditure growth, noting that the "overall Government expenditure increased by 17 per cent in the past two years despite an increase in the price level of only 4 per cent" and commenting on 1995, that the budget deficit "suggests a somewhat pro-cyclical stance of fiscal policy". It also indicates a preference to use any additional budgetary resources arising from growth over the medium term to further reduce the level of debt to GDP rather than to increase spending or reduce taxes.
Since 1990, current supply services spending has increased by about 5 per cent per annum on average in real terms, that is above the rate of inflation. Spending of this magnitude allowed little scope for any reduction in the overall burden of taxation and was clearly unsustainable. The upward trend in public expenditure has to be contained. All the benefits of economic growth over the past five years have been fully absorbed by higher spending.
On the other hand, the comment on this year's budget is accompanied by positive recognition of the approach of this Government. Indeed, the importance which this Government attaches to strict control of public expenditure is manifestly clear in the commitment which we have made in A Government of Renewal, where we have agreed to limit the growth in current supply services expenditure to 6 per cent in 1995 and to an average of 2 per cent in real terms over 1996 and 1997.
We want to ensure that benefits of future growth are used in substantial measure for tax reform which would favour the incentive to work, tackle the poverty trap and encourage enterprise development and employment growth. The OECD makes special note of this commitment. Indeed, it says that "the current expenditure targets are consistent with reducing the debt ratio towards 60 per cent [of GDP] by the end of the century".
The Government has already demonstrated in this year's budget and Estimates its commitment to respect the tough spending limits set out in its programme. The increase in gross non-capital supply services expenditure this year will be 6.9 per cent. I hope Senators on all sides of the House will accept that figure and not some of the crazy figures — as high as 11 per cent — that were mentioned by commentators. Indeed, the leader of the main Opposition party was using an 11 per cent figure on a radio programme last Sunday. The correct figure, taking one year with another, is 6.9 per cent.
This is, admittedly, about 1 per cent over the increase of 5.8 per cent provided for in my budget last February. The increase since budget day is due almost entirely to the addition of £140 million for equal treatment payments on top of the £60 million provided for in the budget following the Government's decision to accept the judgment of the High Court on the entitlements of women under the EU Equal Treatment Directive. I can assure this House, however, that meeting these liabilities does not indicate any weakening of the Government's resolve to contain public spending. The House will be aware that the extra equal treatment costs will not count in determining the spending ceiling for 1996.
We took advice following the High Court judgment and were told that if we appealed the decision, in all probability we would lose it and that the full cost, instead of being £260 million, would be closer to £340 million. When we had ended and exhausted the legal route, the court may have directed us to pay that money in full and immediately. Therefore, the impact on our budgetary figures for the year in which that judgment would finally be delivered would have been far more damaging than our decision to take the responsibility to pay out the additional £140 million on our budget position of 8 February and I make no apology to anybody for making that decision.
Barry Desmond, the great financial wizard, should answer for that.
I regret that we did not argue our case as forcibly then as I am now.
I have mentioned that the OECD noted the "somewhat pro-cyclical stance of fiscal policy" for 1995, which decoded from its jargon means that we are pushing the accelerator a little faster than we need to because we are coming down the hill with the wind at our back. Their comments in this regard are both guarded and circumspect. It is important that I emphasise that our approach to fiscal policy is not designed to temporarily lift the economy. The challenge we are addressing is to ensure that the fruits of growth are shared in a way which is as supportive as possible of continued output and employment growth into the future. In this context, the OECD comment with respect to 1995 is that "the principal changes to tax and expenditure are all oriented towards improving work incentives at lower income levels". This point made by the OECD has been ignored by many ill-informed attacks upon the budget, some from within parties represented in this Chamber.
While one goal of the ongoing strategy is, as I have said, to ensure that the benefits of growth enable pro-employment reform, a second goal is to ensure that, when the time comes, we will be able to participate in the final phase of Economic and Monetary Union. This involves maintaining a current budget deficit within the Maastricht limit while reducing the level of our debt to GDP ratio at a satisfactory pace towards 60 per cent. Our recent decision in ensuring that we maintain our expenditure target in 1996 is an indication of our willingness to take early corrective action and it is a clear demonstration of our commitment to fiscal responsibility over the medium term as one key to remaining within the Maastricht criteria. I should mention, of course, that we are only one of three countries deemed to have met these criteria last year by the EU Commission, the other two being Germany and Luxembourg.
The OECD survey indicates a preference for making greater use of any additional budgetary resources arising from growth over the medium term to further reduce the level of debt to GDP rather than to increase spending or reduce taxes. While the choice of reducing the level of debt at a faster pace is, of course, a desirable one, the use of resources in this way must be weighed against the potential benefits of alternative uses. The choice of how to use the "fruits of growth" must be considered in the context of the overall priority of Government policy, which is to sustainably reduce the level of unemployment.
In deciding on the allocation of resources, it is necessary to strike a balance between reducing the level of debt on the one hand while also committing appropriate resources to other desirable objectives. I will listen with interest to views on this issue. As I have already noted, the OECD assessment of the limits we have already set ourselves on spending is that they are consistent with substantial further reduction of our debt burden over the period ahead.
The OECD recognises that unemployment, particularly long term unemployment, is a serious problem facing our economy. I share its view. It argues that:
...the rate of long term unemployment in Ireland is indeed partly related to the lack of incentives, particularly for young people with low levels of education, for the unemployed to take low-paid employment.
There may be some element of an incentive problem of the type described here by the OECD, but essentially that lack of incentive is for married persons with large families of four children or more. If there is an overall problem, I doubt that it is widespread. I also doubt that young people lack incentives to take up employment, low paid or otherwise, although given our high unemployment, I would be slow to deprecate low paid jobs per se, even though one would wish that all jobs could be more productive and hence capable of supporting higher earnings.
I consider that our long term future lies in creating a high productivity economy which offers well paid employment to all who wish to work. This is something which will not happen overnight; it involves investment in education and training by workers themselves, employers and the Government. It also involves creating and maintaining an economic environment which is conducive to high levels of investment and entrepreneurial activity.
There is a more fundamental problem, however, that of structural unemployment, not just in Ireland but within the whole of the European Union. I have written and spoken about this at length and on different occasions. I refer Senators to the contribution which I made to the NESF last autumn, when I was Minister of Enterprise and Employment. Conventional economic models in our mixed market economy will not solve this growing problem, but neither can national Governments deal with it in isolation, having regard to the common labour market within the European Union. Accordingly, the framework of an effective and lasting solution can only be designed by the European Commission in the first instance.
Conscious of the need to improve work incentives, the 1995 budget adopted a more integrated approach to improving the position of families on low and middle incomes. The significant reductions in the levels of income tax and social security charges were coupled with a first step in the reform of the way the State provides income support for dependent children. Entitlement to the wide range of child supports in the social welfare code has traditionally been based on the employment status of the parent. In the past these conditions have been a major contributory element to the unemployment trap. Improvements in the supports for children were concentrated this year on the universal system of child benefit rather than the child additions to weekly welfare payments. It is our intention to refocus our approach to one which provides that support on the basis of family income, regardless of the source of that income, rather than on employment status. The survey recognises this as one of the steps "oriented towards improving work incentives at lower income levels".
The EU White Paper on Growth, Competitiveness and Employment noted that employer social security contributions in Ireland were among the lowest in the European Union. However, they remain higher than those in the United Kingdom with whom we have shared a single labour market for many years. This places considerable pressure on labour intensive indigenously owned Irish companies in particular. Government policy nonetheless accepts that reducing indirect labour costs will assist employers in maintaining and creating employment. The 1994 budget provided for a restructuring of the employer contributions with the introduction of a new lower contribution rate of 9 per cent in respect of employees earnings less than £9,000. This measure was designed to assist employers in the low paid labour intensive sectors and was partly financed by increasing the contribution ceiling in respect of employees generally. The policy was continued in 1995, with the earnings threshold for the lower rate being increased from £9,000 per annum to £12,000 per annum.
Other measures taken to reduce indirect labour costs include the removal of the obligation on employers to pay the health contribution — 1.25 per cent — and the employment and training levy — 1 per cent — in respect of employees holding medical cards. Employers are also exempted from making social insurance contributions in respect of additional employees taken on from the register of unemployed persons. The unemployment condition for this exemption was removed in the 1995 budget in respect of employees under 23 years of age. These measures, together with improvements in income tax and employees' social security contributions, form part of the Government's policy aimed at rewarding work, promoting enterprise and strengthening social solidarity.
The prospects for a continuation of strong employment growth, assisted by measures of the kind I have just outlined, and of further declines in unemployment, are good. The Government is aware, however, that economic growth alone will not be sufficient to solve the problem of long term unemployment. Additional efforts, particularly aimed at reintegrating the long term unemployed back into the labour force, are also needed. This Government's policy agreement contained a proposal that an intensive guidance and placement service for the long term unemployed be established. Provision was made to set up such a scheme on a pilot basis in this year's budget. Since the budget a task force on long term unemployment has published its recommendations. The Government will base its final decisions for a nationwide integrated local employment service to meet the needs of the long term unemployed on these recommendations.
The OECD survey acknowledges the progress we have made on taxation reform. However, it calls for more, arguing that further reductions in taxation would improve work incentives and, implicitly, the pace of jobs growth. Of course, all reductions require financing. The OECD suggest that resort be had to base-broadening, and in particular suggest that:
...a wider tax base could be achieved by reducing the scale of schemes designed to favour investment in certain enterprises, which have proved costly to the public finances.
In this regard, the policy document, A Government of Renewal, gave a commitment to review the “economic efficiency of all tax expenditures including BES, section 35 and section 23 and others”. However, I suspect that we are somewhat ambiguous when it comes to base-broadening. We are pleased to reap its benefits but unhappy to face its burdens.
The OECD country surveys always devote one chapter to a special topic. In this survey on Ireland the topic is education and training. I should say at the outset that the survey represents a welcome contribution to the ongoing process of building an education system for all, a process to which this Government is committed. It should be noted that the survey was prepared before the publication of the White Paper on Education on 12 April last by my colleague the Minister for Education, Deputy Bhreathnach. As the House will be aware, the White Paper —Charting Our Education Future— represents the culmination of several years of consultation among all the partners in education and will form a blueprint for progress for many years to come. In my view, the most interesting aspect of the OECD study is the degree to which its analysis and recommendations are in harmony with the considered principles and priorities set out in the White Paper.
The main theme of this chapter in the survey is the central role of education and training in the process of economic growth and the reduction of social inequality. The OECD points out that:
...one of the essential components of fast economic growth in Ireland over the past three decades has been a rapid improvement in the average level of education of the work force.
It is fair to say that successive Governments have allocated considerable resources for education over the years. The proportion of GNP devoted to education is well up the international league table. This Government is committed to maintaining a strong education system in order to underpin continued economic growth and employment creation. In addition, the Government is determined to prioritise our educational resources to reduce inequalities and improve social solidarity. It is our firm belief that these twin objectives are not just compatible, they are dependent on one another. The OECD has endorsed this position by stressing that improved access for low income groups to high quality education, especially at third level, is essential to sustain economic growth and combat unemployment.
It is pertinent to note at this point that. 30 years on, we have benefited considerably from the major study undertaken with the help of the OECD entitled Investment in Education. Most of the recommendations of that report have been implemented and the results are now manifest. It is to be hoped that the White Paper will have a similar, positive effect in the future.
There is broad agreement between the OECD and the Government on measures required to further strengthen the role of the education system. The White Paper is a very comprehensive document, setting out a clear agenda for progress across all aspects of the system. My colleague, Deputy Bhreathnach, will spearhead the implementation of the White Paper. All of us who are concerned with developing a strong and positive educational system for our children may take heart from the general endorsement provided by the OECD for our current policies. For our part, we in Government will continue, within a prudent fiscal strategy, to work proactively through the education area to strengthen the foundations for continued economic progress in the years ahead.
In conclusion, I will reiterate what I said at the outset. This report is to be welcomed. It is a favourable report that recognises our achievement, which cannot not be stated often enough, as "the fastest growing economy in the European Union" and the prospect that we will continue to experience substantial economic and employment growth over the next number of years. Of course, it urges us to do even better, particularly in the area of expenditure control and debt reduction. I have dealt at some length with our concern to better balance our use of the benefits of growth.
With macro-economic policy credibility well established and the prospect of lasting peace on our island becoming more of a reality with each day, we can look forward with greater optimism than, I would hazard to say, at any time since the foundation of this State. We still have problems to overcome, particularly that of long term unemployment and its attendant social consequences. The acknowledgements in this survey of our progress and prospects suggest that we have in place the policies appropriate to tackling these problems.
I want to put on record my appreciation of the Oireachtas Library staff for having made available to me a copy of the report. That gave me an opportunity to look through it quickly yesterday. The report is broken down into four main divisions and underlines that despite the good performance in the economy, we still face the twin problems of high levels of debt and, of course, high unemployment.
It also reviews the monetary and fiscal policies, which reminds me of a nursery rhyme that went:
Arithmetic just makes me sick, said little Mary.
The figures never act the same, they're always so contrary.
I can never really come to grips with these complicated monetary figures. Somebody told me once that money is made wrong to go wrong, but it seems to me that anyone doing an assessment can come up with any kind of conclusions. We need to have firm Government policy and in this respect there are some indications in the report that the Government needs to be vigilant.
Part III analyses the progress in structural reform, or perhaps we should say the lack of such progress, because while quite an amount of structural reformation needs to be attended to, for one reason or another it has been slow to develop. Part IV, as the Minister outlined, looks at the special study of the Irish education and training system.
The survey we are discussing today is probably the most favourable report on the Irish economy that we have seen for some time. However, recent trends under the new Government are a cause for some concern and have overtaken this report. I am sure that if the review committee was reporting now they might have some critical remarks to make about present Government policies. However, the report of the Economic and Development Review Committee gives a very clear picture of the present state of the economy and its conclusions highlight the favourable trends which should help to reduce unemployment levels.
The review concludes that our economy has achieved the fastest growth in the European Union over the past three years. Output increased by almost 4 per cent in 1993 when the rest of Europe was into recession and it increased by a further 5.5 per cent in 1994.
The expansion in activity was led by exports from the modern manufacturing sector. Confidence in the building and business sectors following devaluation in January 1993 facilitated a recovery in domestic demand in the second half of 1993. As a result of these and other measures the unemployment rate declined, but it is still the third highest in the OECD. In spite of the favourable economic indicators, unemployment is not being reduced significantly or substantially.
The high unemployment level is a major cause for concern and must be addressed by the Government as a matter of the highest priority. The inflation rate of 2.5 per cent was mainly due to wage moderation and appreciation of the currency which took place after devaluation. Even though the inflation rate was stabilised, its stability may be eroded — there are already indications that it is — by the type of stop-go policy decisions we are getting from the new Government. The Government should take note of this. The Minister indicated the necessity to stabilise inflation and the devastating effect it would have if this did not happen, but the indications are that the Government is not taking this into account in some of its decisions.
The report concludes that the economic outlook for 1995 and 1996 remains favourable and it expresses confidence that growth in employment and real disposable incomes should sustain personal consumption even though higher interest rates might slow down development in the house building sector. The fact remains, however, that a huge number of people are still out of work, and an economy that cannot resolve this central issue is not a successful one.
The report also indicated that the budget position had remained under control, with lower deficits in 1993 and 1994 than had initially been envisaged. It did, however, indicate the necessity, for various reasons, to slow down the increase in Government expenditure. The recent panic measures by the Government are no substitute for sound planning and financial management. The people, and in some cases many politicians, suffered severe pain and hardship to gain control of Government finances from 1986 to 1992. It would be suicidal if the Government were to let the situation slip back into that kind of trap with the disastrous and devastating consequences such a failure would have on the economy generally.
In numerous references the report draws attention to the high levels of long term unemployment. It concludes that our rate of long term unemployment, the highest in the OECD, is partly related to the lack of incentives for the unemployed, particularly young people with a low level of education, to take up lower paid employment which may be available. Many young people find it more advantageous to stay at home rather than work. This lack of incentive needs to be addressed by the Government.
The necessity to improve the level of education for young people should help to make a more effective and successful transition from school to work, thus minimising the risk of unemployment. I am disappointed by the Government's performance in this regard. It has sufficient reports but shows no sign of activity to resolve these issues.
In my experience of dealing with these matters for a long number of years, the transition from school to working life is an area of activity that has not been fully researched or examined. That transition should be eased by the provision of career guidance counselling and other expert professional advice in those critical years, but this is something which has been neglected. It should now be dealt with urgently.
The most critical time for many young people is the period immediately after finishing their second or third level education when they must make critical choices. Unfortunately, there is a marked absence of the type of counselling and career guidance that is so necessary in dealing with this matter. Even in the White Paper on Education this area has not been given the attention it deserves. The successful transition from school to working life is one that will chart the future course of many people in the labour market. Currently, it is a market where employers have the benefit of a variety of young people leaving schools and colleges seeking employment opportunities.
There is evidence that many young people are being exploited by employers. I do not wish to divert from the purpose of this debate, but I had personal experience of exploitation last weekend. A young person was asked to work from 6 a.m. to 6 p.m. on Saturday and Sunday every week as part of his normal week's work at a very basic minimum wage. This is scandalous and should not be tolerated. Employers who behave in that fashion, asking young school leavers to work from 6 a.m. to 6 o'clock at night on Saturdays and Sundays every weekend, should be brought to the notice of the Minister for Enterprise and Employment as well as the Minister for Justice.
The expansion of higher education has made Ireland second only to Japan in the proportion of young workers with a scientific or engineering degree. This is a very positive trend. Unfortunately, however, as has been found in many cases, some of these young graduates are leaving Ireland not so much because of the lack of opportunity here but because of the high levels of personal taxation, especially in the early years after graduation when they must repay university loans or whatever. This forces many of these young graduates to seek employment opportunities abroad. This is a big loss to the economy and there should be some mechanism whereby young graduates, with huge burdens of debt for their education, could get some concession in taking up their first employment. The Government are moving in that direction according to some recent indications.
The report acknowledges that education in Ireland has improved significantly over the past 30 years. Public expenditure at or around the OECD average indicates the efficient use of resources devoted to education. However, the report indicated that there are structural and policy changes required urgently which we are not getting from the Government. It concludes that the Irish education system lags behind that of most advanced countries. Almost 25 per cent do not complete a full secondary education. Children from the lower socio-economic backgrounds are almost five times as likely to leave school with low qualifications and face a 50 per cent probability of being unemployed one year after leaving school. Resolving these weaknesses in the education system should help Ireland to boost productivity and incomes to levels comparable to those in continental Europe. That is broadly what the report states.
The Minister indicated earlier that the report was prepared before the publication of the Government White Paper. In my opinion, the OECD would have been in touch with the Department and would have been fairly familiar with the proposals for the development of the White Paper. Nevertheless, there is a clear, strong link demonstrated now, both internationally and nationally, between long term unemployment among young people and the lack of a proper education system to help them. The problems have largely been identified in the Government White Paper on Education. I would like to see the Minister for Education adopt a more progressive attitude to resolve these problems and press ahead with the recommendations in the White Paper on Education. We want action now, not platitudes and good intentions.
I fear, however, that we have a lazy Minister for Education who is not making any significant impact in that Department. Without in any way giving any credibility to the tabloid newspaper assessments of the performances of individual Ministers, we saw in one of the Sunday newspapers that the present Minister for Education got probably the lowest rating of any one of the present Ministers; she got something like three out of ten. Now I do not place any significance on this type of media speculation; my own marks used to be pretty low when I was a Minister in Government. Nevertheless, I think it indicates a clear message from the Department of Education. We do not see action there. This White Paper has been talked about by Deputy O'Rourke and Deputy Séamus Brennan. So many Ministers for Education have announced this White Paper that it must be a pale shade of blue at this stage. The fact is that there is no action in it. I would like to see some of the proposals — especially in relation to training in education which is so important — implemented even though there may be tedious legislation to be prepared before effect is given to some of these areas. We did have a vocational education system that operated successfully for about 20 years without the required statutory legislative framework. In my view, there is nothing to prevent the Minister and the Government from pressing ahead with some of the important decisions in relation to matters identified in the report and following on with legislation in due course. It is not necessary in some cases to have the legislative framework set down in tablets of stone before one takes action to deal with some of the problems that have been highlighted, not only nationally by numerous reports but again by this OECD report.
The report indicates a trend which is a cause for some concern. It states, in page nine, "when measured in a common currency Irish wages fell 4.4 per cent relative to the other OECD countries in 1993". I hope the Minister may be able to give us some explanation of this phenomenon because it seems to be a contradiction of what appears to be the situation. Wage levels, we were led to believe, were increasing and improving. This looks like a reversal and I would like to hear some explanation from the Minister about how that is happening.
It also indicates a trend which needs to be addressed — the negative growth in export markets in the traditional manufacturing sectors as distinct from the high-tech industries. Almost all of the 10 per cent growth in total exports in 1993 came from the high-tech sector. The fact that there has not been any great expansion in traditional markets is something which needs to be examined.
The report does not go into any great detail in relation to the fall off in agricultural employment. This is an area which now needs to be studied. I am not aware of any detailed study having been carried out in recent times of the huge job losses in the agricultural area and whether some of this fall off in jobs could not be slowed down. In this age of organic farming there is the prospect of many more jobs. It has been accepted in every circle, economic and political, over the past number of years that the fall off in agricultural employment was a trend which was inevitable and could not be reversed or halted. At a time when new opportunities are opening up for us in the areas of markets and commodities, we have an agricultural industry which could sustain quite a sizeable number of people in employment but they are being forced from agriculture and are seeking employment opportunities elsewhere. The time is opportune to conduct an in-depth, detailed study of agricultural employment and to come up with recommendations which might halt or slow down the decline in agricultural employment.
The report indicates housing investments also fell by about 4 per cent in 1993. These were mainly discouraged by the high interest rates in the first half of 1993. However, housing investments recovered in 1994 but this does underline the volatile nature of the building industry and the urgent necessity to keep Government finances in order so that interest rates can be stabilised. In stabilising interest rates, we could see a further boost in the building industry.
The success or otherwise of the building industry has often been used as a measure to determine the success or failure of the economy generally. There were significant gains in employment in building construction in 1994 which, to some extent, offsets the fall off in the agricultural area. Nevertheless, in maintaining confidence and expanding the building and business areas it is imperative that the Government watch its expenditure so that we will not have a repeat of the previous situation.
The report states the number of employed jumped by 30,000 in 1994. New jobs were concentrated in the services sector where employment increased by 40,000 over the two year period. Unemployment was down to about 14.6 per cent by the end of 1994. Although this improvement in unemployment is welcome, an unemployment rate of 14 per cent is excessive; it is not acceptable and must be reduced in a meaningful way.
In the report net emigration was estimated at 6,000 in 1993 and 10,000 in 1994. Of course, it was well below the 1988 and 1989 levels when it exceeded 40,000 per year. However, there is no room for complacency here. The flow of young people into the labour market has been reduced by Government employment schemes, rising emigration figures and, of course, more young people staying on in higher education and despite the reduction in total unemployment, the proportion of long term unemployed has continued to increase. That is a disturbing trend. The long term unemployed now account for almost half the total of unemployed and the shortcomings mentioned in this report underline the urgent necessity to deal with their problems. Nevertheless, the report projects Ireland's GNP will expand by 5 per cent in 1995 and by 4.5 per cent in 1996. The growth is expected to be led by private domestic demand. Continuing employment growth and low inflation should ensure real wage gains.
While the report is welcome and encouraging, it underlines basic shortcomings in the economy which should be addressed. I am not convinced this Government has the courage to take the decisions necessary to get the economy on the road to real prosperity, offering the prospect of employment to the many people urgently seeking indications from reports like this that they have a prospect of a job at the end of the next period of planning.
I welcome the Minister and Minister of State to the House and I welcome this debate on the OECD economic survey. The Irish economy has achieved the fastest growth in the EU over the last three years. Output increased by almost 4 per cent in 1993, while the rest of Europe fell into recession by a further 5 per cent during 1994. The expansion and activity was led by exports from the modern manufacturing sector, which offset depressed conditions in the domestic market in the first half of 1993.
The report points out that a second ingredient in the growth was the removal — following the 10 per cent devaluation of currency within the EMS in January 1993 — of exchange and interest rates associated with the disruption of European exchange markets in the autumn of 1992. This allowed a rapid easing in monetary conditions which boosted household and business confidence, thus facilitating a recovery of domestic demand in the second half of 1993, led by the consumption of and increased investment in housing. As a result the unemployment rate declined significantly in 1994, although we still have a high rate compared to other OECD areas.
The economic outlook for 1995 and 1996 remains favourable and output growths are projected to be nearly 5 per cent. Continued growth in employment and real disposable income should sustain personal consumption. Although higher interest rates may slow the growth in house building, interest rate development over the past two years suggests monetary policy has helped establish confidence in the markets and the stability of the new rate of the Irish pound.
As the money market rates fell from the peak of over 40 per cent at the beginning of 1993 to just over 6 per cent at the end of 1994, the differential between German and Irish short term interest rates has come back to the level seen prior to the currency market reductions in the early part of 1992. Likewise, by the end of 1994 the differential between the Irish and German long term rates had fallen to below the level observed in the middle of 1992. However, Irish long term interest rates remain more in line with UK rates, rising faster than German rates in the early part of 1994 before stabilising in the second half of the year despite further upward pressure in Germany.
I commend the Government and the Minister for Finance on the way they are handling the economy. The Minister said recently in the Dáil that the economy is in good shape and I have no doubt that it is in good hands as well. He stated business and investment in structures and buildings should increase, that the expected growth should be sufficient to ensure a further reduction in unemployment and that Government borrowing should remain lower than the debt to GDP ratio; it is projected to fall to 85 per cent by the end of 1995. The current expenditure targets are consistent with reducing the debt ratio to 60 per cent by the end of the century. Continuous growth in employment and real disposable income should sustain the personal consumption category.
The Minister mentioned three factors which should keep the economy on a sound footing. First, the OECD survey noted that inflation, which has been moderate, remains under control. He said the one possible risk is an acceleration of the inflation rate. No one wants this country to return to the inflation and interest rates we had in the early 1980s, which were disastrous for business, employers, workers and the economy.
Second, the Minister said the report was favourable about the social partnership approach and said it should continue. I also believe it should, because the social partners have done great work in stabilising the numbers employed in the economy. Labour relations have been excellent in the last number of years, which is a credit to everyone concerned.
Third, the Government is committed to the long term unemployed. However, as the Minister said the Government is aware economic growth alone will not be sufficient to solve their problems. It is up to us all, as employers, workers, tax payers and public representatives, to take the measures and put in place the processes necessary to tackle long term unemployment. It is a growing concern and I extend good wishes to those who take on this task. Any possible initiatives should be taken with haste because it is a growing concern.
With the peace process and the expansion in the tourism industry, the Irish economy will expand in coming years. There is enormous potential for expansion in tourism. The only worry is that the Irish pound is not in a favourable position against Sterling. This could also affect exports to the United Kingdom.
I ask the Minister for Finance to check the commission levels tourists and other visitors are charged by the banks and other agencies. Recently I was told by one institution that I would get less than £8 Irish for £10 Sterling. That is discouraging to any tourist from Britain or Northern Ireland. Those are our biggest tourism markets and they have been the best tourists here for many years.
Strict Government control of public expenditure is important. The Minister has stated the Government is firmly committed to ensuring the fruits of economic growth are not fully absorbed by the higher public spending which has occurred in recent years but will be used in substantial measures for tax reform which will favour the incentive to work, to tackle the poverty trap and to encourage enterprise, development and growth.
Under the Programme for Government commitments were given to limit the growth in current supply services expenditure to 6 per cent in 1995 and an average of 2 per cent in real terms over the years 1996 to 1997. I hope the Government rigidly adheres to those figures. I am glad we must stay within the Maastricht Treaty guidelines.
I welcome the OECD Economic Survey of Ireland, 1995, which was published recently. That report stated that Ireland was the fastest growing economy in the OECD from 1990-94. This was based mainly on job gains in the country and a decline in our unemployment rate. I welcome comments which are favourable to this country's economy because too many bad ones were made during the 1980s.
I do not know where to start.
Does the Senator know what we are talking about?
The Minister for Finance, Deputy Quinn, apologised this morning for not having the report ready. He also said it was illegal to photocopy it, but I got a copy approximately five minutes ago. In answer to the Minister's question, I am not sure I know what I am talking about.
At least the Senator is honest.
The OECD report is timely and its conclusions are positive in a number of areas. However, they also warn us that if we are not careful, the benefits which have accrued over the past number of years as a result of the way the economy has grown could be eliminated in a short period of time.
There are deficiencies in our education and training systems and anyone who has examined our unemployment situation over the past number of years knows that they do not provide for the needs of a large number of young people. It is great to look at this report in macro economic terms and say everything is all right in Ireland. However, when one looks at any town, village or country area, one will see that unemployment is not decreasing at the rate it should. This shows that for various reasons, mostly economic, there are too many people in this country who are not able to avail of the benefits of education.
The report shows that those who are educated are more likely to get jobs than those who are not. Unfortunately, the person who photocopied the report missed pages 53 to 101 and educational matters were discussed on page 67. The report shows that approximately 18 per cent of those who leave the educational system at second level will be long term unemployed. This compares with 1.5 per cent of those who complete third level education. The report also shows that people from the lower socio-economic classes are unlikely to get into third level institutions, while those from the higher socio-economic classes will if they have the educational qualifications because they have the money to further their education.
An attempt will be made over the next 12 months to alleviate this situation, but it is a negative step. Fees for the next academic year will either remain the same or increase, but parents will only have to pay half the fee charged by the university. However, fees do not dictate whether certain children can get third level education or not. A number of people will be kept out of the system if their parents have no income or cannot get benefits from the State to keep them in college, although the fees have been reduced. We must address the issue of funding for those who need second and third level education in order to get sustainable jobs.
There is a growth in the number of jobs for untrained people, particularly in the leisure sector. Many people downgrade these jobs by saying they offer low wages. However, they are part of the economy. It would be better if those with plenty took less in order to ensure that those who need more can get it. This is not only a problem in Ireland, but also in the Third World and the western world, which is always fighting for a bigger share of the economic cake. This means that people in the Third World are left behind. We all hear people suggesting that the World Bank, the IMF, the UN and the EU should help the Third World. The trade between northern and southern countries is greater than that in the opposite direction. People in the western world are looking for better standards of living, while leaving the Third World behind. If this trend continues, the next major threat will not be an east west confrontation between the USSR and the west, but an attack on the western world if it does not stop its economic gains at the expense of the Third World.
We should not say that everything is all right when it is not. The unemployment situation is terrible. The report states that 14.5 per cent of our population are unemployed, which is the third highest level in the OECD. We cannot boast about that, because although the standards of living in Ireland are superior to those in most places in the world, those who are unemployed are not benefiting from the so-called fastest growth in the European Union over the past three years. Although economic outlook remains favourable, with output growth projected to be approximately 5 per cent, Government spending has increased rapidly over the past 12 months. The Minister for Finance has recognised this and is now trying to redress the damage done over the past few months, but if he tries to take £70 million out of the allocations made to Departments, that will create problems. I do not know how he will do it without creating further unemployment. There is a need to control spending in the public service, but we must be careful that the control of spending is not allied to an increase in unemployment.
There have been fears over the past few months that interest rates could rise due to world problems. Apparently, however, there has been a slowing down of the US economy and a restatement of the economic situation in Germany. It is suggested that because of this, long term interest rates will fall or remain static. This will be of benefit to anybody who has had to borrow. For anyone planning in the long term it is essential that interest rates remain low rather than have a return to fluctuating interest rates, which generally meant interest rates increasing.
It is not enough to say that Government borrowing remains low; it is still much to high. It is projected to fall to 85 per cent at the end of 1995 from 97 per cent in 1990. That is not something of which we can be proud. It is essential to slow down the rate of Government expenditure. There has been an increase in demand in the domestic market and this is shown in the increase in the number of new vehicles sold. The more new vehicles sold the greater the pressure put on our foreign debt in that we do not manufacture motor vehicles in Ireland. Therefore, the more that are sold the more currency goes out of the country to purchase them.
Incomes in the public service have risen much faster than those in the private sector. The private sector is the most productive in the economy. There is no productivity in the public service. The service given by the Garda, the nurses or the teachers is essential to the running of the country. It would be unfair to suggest that teachers do not play a major part in the creation of employment and they are, therefore, more productive than others in the public service.
The rate of long term unemployment is far too high. We do not have riots from the long term unemployed because they have, to a degree, been cushioned by reasonable social welfare benefits to date. It is unfortunate that the level of increase of benefits this year has been the lowest for many years.
Education is an area of concern. We must examine the expansion of proper training. There are few who would suggest that the FÁS training schemes have been anything but a success, but there has not been a monitoring of the numerous available schemes. If anybody decides to set up a training scheme and applies to FÁS they will be allowed to run that scheme. I do not think any monitoring has been done of the long term benefits of the majority of these schemes.
It might create problems initially but if it is not examined now in a cohesive way huge amounts of EU and national moneys will have been wasted with no productive jobs or long term employment created. That matter should be dealt with in the near future; it should be a priority for Government in the next couple of months. If the OECD can examine the matter and conclude that the training schemes have, in the main, not worked, it will not be long before the EU and others will examine them and cease their funding.
The report states there are a lot of weaknesses in the area of scientific education. Not enough emphasis is placed on research and development in our educational system. There is very little research and development training taking place in our colleges and universities. We have an excellent third level educational system, but we are not benefiting to a large degree from it. There are many who have had to emigrate having got their degrees as they could not get jobs in Ireland. That is far too high a waste to the Irish economy. We must examine the courses done in universities with a view to increasing the number of courses which carry with them the probability of getting jobs in Ireland so that the economy can benefit from the huge amounts spent on our third level system.
One is not supposed to say it, but the standards of teachers in schools, universities and regional technical colleges should be monitored. It does not appear to many that there is a proper monitoring system. It seems to many that one can not do anything about a bad teacher in a school or a bad professor in a college. This gives rise to major problems, especially with a view to getting jobs after third level.
We in Kilkenny have found a great growth in small craft industries which, in the main, are small in terms of the numbers employed but they stay in business and generate other businesses. It is an industry which FÁS or the National College of Art and Design should examine with a view to developing training in that field. The reports states that such industries should be examined in order to improve the job opportunities of those who might not be cut out for universities.
The vocational education system has proved to be important in the past and provided for education in crafts and other such skills, which have to a large degree gone from the system. It is time these skills were brought back. It is hard to come by the skills of the carpenter, plumber or mason nowadays. If an effort was made to get back to education in those skills, jobs opportunities would arise. People who would not have the capacity to attend college could get work and do a good job for Ireland.
It is an optimistic report and it is nice to see that somebody can come in from outside and give a reasonable assessment of what is going on. Nevertheless, we have to be extremely careful in the areas of inflation and unemployment. We have to be more than careful because we are in a fragile situation, depending so much on foreign trade. We must also ensure that public spending, which has started to go out of kilter again, does not force us back into the situation that we were in during the decade prior to 1991. The facts are that we now have a relative chance of achieving economic growth and achieving growth in employment, which is the most important thing to me. The one thing that Europe has been more successful at in the last 25 years is unemployment. If we do not take unemployment into account and eliminate it as much as possible, we are facing social unrest at a level we have not seen before. Educated people can become more uneasy than people with lesser education and they will not put up with Governments who will not provide the basic needs for them. Employment in the most basic need that people have.
I welcome the Minister to the House, along with the Minister of State, Deputy Doyle, who was here previous to him. It is often said that economists are exponents of the so-called dismal science. However, the recent OECD report on the Irish economy does not exactly make for dismal reading. Having said that, there is no room for complacency as far as our economic performance is concerned. I welcomed aspects of the Minister's speech this morning, especially where he said that the report recognises our achievements as the fastest growing economy in the European Union. I come from the town of Letterkenny, which has been described over the last five or six years as the fastest growing town in Europe, so I have a double achievement when I read reports like the OECD report. They are most welcome.
According to the OECD's latest report, Ireland's economic growth rate this year will be the highest of any industrialised state. The OECD has forecast GDP growth of 5.8 per cent this year and 5 per cent in 1996 compared to GDP growth of 3 per cent in the EU and 2.75 per cent in the OECD group of countries during a comparable period. As a result, demand in the Irish economy will grow further this year. This growth, combined with this year's budget changes in tax and social contributions, will translate into significant income growth. In short, more people will have more money in their pockets and purses. Against a backdrop of such good growth figures, it is only fair to compliment the Government's management of the economy over the last number of years. Our sound fiscal management of the economy is now beginning to pay dividends for the people of this country, which is most welcome.
I reject suggestions that our economy is overheated or that there is any evidence that there are inflationary pressures at work. The OECD report is positive on this particular point. Having said that, the Department of Finance and the other monetary institutions should be watching for the slightest blip on the inflation graph. I am fully confident that the Minister for Finance will take the necessary corrective action. However, it is not necessary at this point in time.
Good growth and a falling GDP-debt ratio are one thing, but if one is unemployed they mean little because one is outside the system. Men and women without jobs will not benefit from increased growth in incomes because they have been marginalised and in many cases excluded. One finds it annoying to see situations whereby young unemployed people, who are getting £52 per week on the dole, are refusing to go onto community employment schemes, which will net them something like £80 per week. It is rather disappointing to see this kind of an attitude and I have come across it around the country on a number of occasions. It is imperative that the Government concentrates on increasing job creation and employment. We cannot close our eyes to the fact that there is still a massive black economy in this country which has to be tackled. We cannot close our eyes to people fiddling the system day in and day out. We are losing millions of pounds because of it. I agree with the sentiments expressed by Senator Lanigan in relation to our attitude to the Third World. We see some of it at home also. We have a situation where people seem to want more at the expense of others. It is hard to have it both ways and these are areas we have to keep a strong eye on.
I wish to assure the House that the Labour Party is committed to ensuring that job creation will remain at the core of this Government's activity. It is complete nonsense to talk about the economy doing well unless this extra wealth is shared among all people and more jobs are created so families can benefit from increased wealth. Job creation is the central plank of Labour's economic philosophy. I have no doubt that, come the next election, it is our achievements in relation to job creation that we in Government will be judged on. Indeed, the OECD has forecast that unemployment will fall to just below 14 per cent this year and to just over 13.5 per cent in 1996 and inflation is forecast at 2.5 per cent in 1995 and 3 per cent in 1996. These unemployment rates are still too high. They are scandalous and must be brought down. There is no acceptable level of unemployment either — we must create enough jobs to ensure that all those who wish to work have an opportunity to do so.
In this context it is wrong for us to depend on the market to create jobs. Market forces are not sufficient to solve unemployment. We in Donegal have been lucky in that a group like Fruit of the Loom International have come into that county and now see themselves as the fourth or fifth highest employer in this country. The benefits that have accrued from Fruit of the Loom International providing 4,000 jobs in one county must not be ignored and must be commended. The State must play a role in creating employment if we are to really confront the jobs crisis. Many commentators in banks and stockbroking houses talk about the health of our economic fundamentals — low inflation, high growth and falling debt — but unless we radically reduce the level of unemployment, good economic fundamentals are of benefit to no one.
I commend the members of the Government who went to Washington recently, including the Minister for Finance, the Minister for Enterprise and Employment and Ministers of State. The work that they did there was extremely commendable and I have to comment on it. They did not leave any stone unturned in their attempts to meet with the correct people in Washington, to see what the Government could do to possibly improve the situation in this country and I commend them for it.
I am confident that over the next number of years the Government will ensure that high economic growth is turned into new jobs and extra wealth is generated. One of the main ingredients of this process will be the National Development Plan, which will be a major boost to the Irish economy as a whole. However, the plan is of even more importance to economically developing areas around the country such as County Donegal and the northwest in general. I have no doubt that the peace process has helped the situation. We have seen a marked increase in tourism in both Northern Ireland and the Border counties due to the peace process. It is important that we work on this and see that it lasts.
Finally, the OECD report should undoubtedly be welcomed, but it should also remind the Government of the necessity for sound fiscal management while it pursues policies which improve Ireland's economic strength and, most importantly, create extra jobs.
I wish to share my time with Senator Dardis. How much time do I have?
Twenty minutes — ten minutes each.
I will not need ten minutes.
I will hardly need it either. As the Minister has said, this is an opportunity for all of us to review the performance of Ireland in recent times and also to analyse the current fiscal strategy and the outlook for the future, based on the projections which are established in the budget and in the fiscal parameters. There will be no disagreement that the OECD's analysis of the performance of the Irish economy in recent times is very positive. It makes plain why it reached the conclusion that not only have we recorded the fastest expansion of any country in the European Union but that our fiscal policy in controlling budget expenditure, particularly current budget expenditure, and reducing the level of inflation is a key component in the achievement acknowledged. That clearly makes the point that it is essential to adhere to the same disciplines which brought about the happy position in which we find ourselves.
The key to this has been the control of current Government expenditure and the consequent reduction of the deficit, linked to the overall reduction in Government borrowing. These three elements are interrelated. I join with others, including the Minister, in acknowledging the role of the trade union movement, particularly the Congress of Trade Unions, and the disciplined, responsible and positive approach they adopted in a partnership programme with Government since 1987.
The Programme for National Recovery, the Programme for Economic and Social Progress and the Programme for Competitiveness and Work were examples of disciplined, mature and courageous responsibility on the part of the trade union movement. It enabled the Government in 1987 to set about laying a solid foundation on the basis of those commitments which, I am very glad to say, were fully honoured. They were not just understandings; they were commitments. After all, the trade unions would be under most pressure to seek what they would see in the normal course as justifiable increases in the public sector employment bill and in general terms. However, they took a responsible, restrained approach and the result is there for all to see.
Their priority was the generation of employment which could not be achieved without a favourable climate. The records show, as the Minister mentioned, a growth rate of 8 per cent in employment, which is about 86,000 extra jobs since 1987. I was in Government for those negotiations and it is a tribute not just to Government foresight but to the responsibility of the trade union movement in helping us in partnership to achieve that desirable pattern.
During the periods when we had high inflation and patterns were very different. I had many discussions at European Council level, in Bremen and elsewhere in 1978, 1980 and 1981, with the then Chancellor of the Federal Republic, Helmut Schmidt. He always made the point that he based his economic policy on reaching agreement in advance with the trade union movement on a disciplined approach which would in turn react to their benefit. That was the basis of the German economy under all Governments. During the period of the Social Democratic Government and the alliance with the Free Democrats, they were able to maintain the consistent pattern of discipline and growth. That is the pattern from which we have benefited in the analysis the OECD makes.
Having said that, we must note a slight worry that we will not adhere to that discipline and pattern. The first trend emerged in the economic expenditure arrangements of the Government when, at a time when inflation was running at about 3 per cent, there was a deliberate Government decision to increase Government spending, on the current side particularly, by 6 per cent. There was a 3 per cent differential between the inflation rate and Government expenditure, while in the years that brought about the success the OECD survey acknowledges, current Government spending was, if anything, below the level of inflation. Apart from the problems it would cause in the economy itself, that is the wrong signal.
There is no case for Government action increasing the pressure on those parameters, be it the rate of inflation or interest rates, which are directly linked, although, obviously, external factors will affect interest rates to a considerable extent. From 1987 to 1989, when international trends and interest rates were running higher than in this economy, our small open economy was in a position to pin down its inflation and interest rates. This was contrary to the adverse trend abroad. It was very much in contrast with the position that obtained in the mid 1980s when the trend outside was benign, low interest rates and low inflation, while we were experiencing quite the opposite. There is a clear message. The discipline we impose on ourselves and consistency in applying that discipline are most important rules and guidelines which we should continue to follow.
I wish to address the Government's attitude to public expenditure, both in the allocations at the beginning of the year and more recently in the adjustments to Government public expenditure. The OECD makes reference to what they call a somewhat pro-cyclical stance on fiscal policy. That is a euphemism for a lack of total and constant consistency. The last thing we need is a cyclical stance. We need a permanent, consistent and strong stance. It must be noted that the comment was made before the expenditure allocations for this year were fully available. The 1995 report is based on the 1994 performance. If it were to be written now, one would find a more vigorous comment on that pro-cyclical stance in public expenditure.
If we are to draw any message from this, it would be to adhere to what was proven to be disciplined and correct, with all the beneficial consequences we experienced. We should avoid any temptation, particularly on the Government side, to inject any inflationary element into the economy. I agree with every Senator about the priority of jobs and opportunities for our young people, but the reality is that in order to achieve that, one must take other difficult decisions first. Not every mother whose children are waiting for jobs will see the relevance of that. Her first priority, and that of the young people themselves, would be to get a job as soon as possible. They will not necessarily appreciate the importance of fiscal discipline, but the truth of the matter is that one can never respond to their rightful demands for the dignity of work in their own place unless one adheres to those disciplines. There are worrying trends and I would endorse the actions of a Minister for Finance who decided, even in midyear, that adjustments were necessary. However, in the context of giving signals to the outside world, the OECD comment next year or the following year on this move will be interesting.
Within a short time of generating the extra public expenditure ourselves, it is necessary to come back and reduce the Estimates, rather than the actual out-turn, for public expenditure. If that is not an example of what one might call a pro-cyclical stance of fiscal policy, I do not know what is an example. Surely the Government which introduced the expenditure allocation at the beginning of the year knew at that time the impact its decisions would have on public expenditure. Surely it knew then it was essential that whatever projections were made would be adhered to throughout the year since these would be seen externally and domestically as evidence of consistent effective management and control. However, the opposite happened.
The Minister understandably seems irked by what he calls media comment and right wing commentators. This is the lot of most Ministers for Finance, but the Minister will accept that the views of commentators, whether they are economists or media personnel, are received in the world outside. There is no point complaining about the interpretations of others who take an independent stance of the economic performance or economic discipline when it is within our hands to ensure there could be no cause for such complaint.
I ask the Minister to go back through the records of comment, either by the media or independent commentators, from 1987-90. He will not find any evidence of what he considers unfair and unwarranted criticism. There was only one area of which there was constant unfair and unwarranted criticism regarding control and discipline. It came from this House and the Minister's party in particular. I was one of a number in the Dáil who were criticised for taking what were considered very stringent, unfair and unreasonable attitudes in terms of reducing public expenditure on the current side in the Department of Agriculture by obliging reductions in various expenses or commitments for bodies such as ACOT and the Agricultural Institute.
This was not easy and nobody has a greater awareness of the importance of agriculture to our economy than I. However, having achieved that, despite criticism from the Opposition but not from the trade union movement which was very responsible in its co-operation, we now find the numbers are almost the same as they were then, before I was able to bring about that rationalisation. For the first time farmers were prepared to pay for services being provided on the basis that a service worth getting is one worth paying for, as I put it to them. They eventually accepted this point. No element in our community benefits more from low inflation and low interest rates than the primary production sector in agriculture. This was the case I continually made to the farm organisations and they eventually accepted it. They have reaped the benefits ever since. However, I am concerned about this area.
I am prepared to acknowledge that we have much to learn from the manifesto days of employment through public sector injections. This is not the basis on which an open economy such as ours can perform. The risks of undermining the positive climate for growth must be on the mind of every Minister. However, it would be reasonably acceptable if the indications were not that the underlying trend in public expenditure may be well above 7 per cent at the end of the year. How can one hope to maintain a low level of inflation, by which we are judged in terms of international competitiveness, while injecting public expenditure ourselves? Much is in the hands of Government, even in a small open economy, but I have serious reservations about Government action in relation to public expenditure at this stage.
I endorse all the comments in the report with regard to education. If we prioritise our investment in the added value of knowledge, for the benefit not just of the young people themselves but the overall economy in the future, the objectives as outlined in the report will be achieved. In itself it will generate not just employment but also effective competitiveness.
I welcome the Minister to the House and I thank him for his earlier contribution, which I followed with interest. The elusive document had surfaced by carrier pigeon, post or whatever on my desk when I returned to my office this morning. However, I stand by my criticism that it is a little unreal to debate an issue without having the document before us. Even taking the point about public expenditure into account, a good dinner in Tinakilly House for the Cabinet or senior Department officials would pay for this. Members of the Oireachtas should be circulated with matters if they are to debate them in any meaningful way.
This is particularly so in the context of the Minister for Education spending several hundreds of thousands of pounds on the circulation around the country of her glossy document. I stand by my criticism and I will not withdraw it. It is difficult to analyse the document, given that we had such a limited time in which to read it in depth. The conclusions were circulated yesterday evening at 4 p.m. and if the Minister's remarks about copyright are to be believed, I do not understand how the conclusions could be circulated by way of photocopies but the document itself could not be circulated in that way.
Aspects of the report are worthy of self-congratulation from the point of view of how the economy has been managed over the past several years. However, it is not all rosy. The central question is: who will benefit from the growth which is documented in the report? It is orthodox economic theory that the unemployment level should fall by a corresponding proportional figure when there is growth of that particular dimension. In other words, if growth increases by more than 1 per cent, unemployment should fall. However, that connection does not exist.
Assuming a static labour market.
I accept the Minister's point. However, that direct connection has not been very evident in our economy in recent years. Why is this the case? Aspects of the report point to why that connection is not there; this is to do with public expenditure and other related matters. I endorse Senator O'Kennedy's point about public expenditure, although I do not have time to go into it in detail.
The 17 per cent increase in public spending over the past two years is alluded to in the report. The introduction states that, despite its good growth performance, the Irish economy continues to face high levels of public debt and unemployment. It also states that buoyant tax revenues and the fall in debt interest payments kept the general Government deficit at about 2 per cent of GDP in 1994 and consequently there has been a significant decline in the debt to GDP ratio to 90 per cent.
This is a long way from the Maastricht figure, but we accept we must go in the right direction and this is what we are doing. The introduction goes on to state that tighter control on public expenditure appears to be necessary in order to sustain progress in reducing this ratio, as specified in the Maastricht Treaty, and to make room for a further reduction in the tax burden. These points are elaborated on in the report. I agree with some of the remarks made about education and there are substantial criticisms about this area.
One disappointing aspect concerns agriculture, an area where things are not so rosy. The impact of GATT and what it will do to us is covered in the report. Chapter 3 states:
The GATT agreement should lead to a significant reshaping of the Irish economy moving it further away from an agricultural base towards industry.
It continues, in words that are somewhat depressing if one is from a rural background:
Although there may be a gain on the industrial side, this will not be the case for agriculture.
It talks about what CAP reform has achieved and its effect on reducing output and prices. It continues:
The remaining changes from the reform of the CAP and the implementation of the GATT agreement that come into effect after 1995 may reduce agricultural output by some further 3 per cent, leading to a fall in agricultural employment of about 4,000 people and an expected fall of about 7 per cent in agricultural incomes.
There is not much in that to encourage people living in rural Ireland. It is significant that when the survey looks at growth and discusses where it has originated, particularly in exports, it is seen to originate in the high tech sector. Nearly all of the growth that took place in exports was in the high tech sector. That is welcome. It is good to see those companies locating here. However, that indicates the vulnerability within the economy — our basic indigenous industries cannot flourish and grow. That is a wide ranging and difficult issue but it must be addressed by this and successive Governments.
I thank the Acting Chairman and Senator O'Kennedy for allowing me to make this brief intervention. I would have liked to have discussed it in more detail but perhaps we might return to it on another day.
Acting Chairman
Senator McGowan has about four minutes because the Minister requires about five minutes to conclude the debate.
I would be the last person in this House to obstruct the Minister as I have a great deal of respect for him. I welcome him to the House and, to some extent, I sympathise with him in his present position. All of us are affected by his difficulties.
The OECD's perception of our economy is important for all of us and particularly for the Minister in his negotiations at European level. I have confidence in the Minister's ability to conduct those negotiations. However, one aspect of this issue concerns me. It is terrible that the Minister is in shackles and that he is forced to do certain things that actually damage the country's economy. Speaking honestly and sincerely and without waving a political flag, I urge the Minister to stand his ground and do what is right for the country. I have a gut feeling that he will do that.
Unfortunately, there are people in the Government who have other priorities and that is a matter of concern. I could speak for an hour on this topic. I was talking to somebody last night who advertised in the newspaper for a housekeeper. Over a period of four or five days nearly 20 people were interviewed. Not one of them was prepared to work legally. All of them wanted to sign on for the dole and draw rent subsidy for their flats while working. This practice has reached the stage where it is affecting the economy and its cost is a problem for the Minister. Rent subsidy now costs this country £44.8 million. Mortgage subsidy costs £54 million. The cost of rent subsidy increased from £6.1 million in 1989 to £44.8 million in 1994. I am not blaming the Minister for this but I am indicating my concern about it.
If such trends are appearing in other areas such as social welfare, health or education and there is an element within the Government which wants to make political capital out of urging people not to pay water rates and other charges — in effect, saying that one is entitled to a free society — I sympathise with the Minister. He is also expected to perform in the mainstream of the European economy. The Minister has a tough job. He has our understanding despite the fact that we are obliged to oppose where it is necessary in the interest of the country. We must express ourselves.
The Minister for Finance must stand firm regardless of the political price he might have to pay. That is my honest conviction. There is a serious situation and the Minister is carrying a heavy responsibility. There are those who would want him to continue down the slippery slope of giving everything to all for free. However, there is no end to that because it is contagious. The taxpayer will never get relief and the job creation policies we would like to see implemented will be impossible. It is a tragedy——
Acting Chairman
I ask the Senator to conclude.
It is a tragedy to see my county sustaining a cutback of £1 million for county road repairs. I could talk about this until 6 o'clock this evening. I am speaking sincerely and not for any political gain. Basically, I am a supporter of the Minister. I sympathise with him in this difficult situation.
Acting Chairman
I must call on the Minister.
I urge him to stand firm regardless of the political price he might have to pay.
I thank the House for this debate. I apologise for the difficulties we had. We will address that in the future.
I wish to concentrate on a number of points. The report is good but we have no reason to be complacent. Senator Dardis and others have clearly pointed out that while our economy is growing, our expenditure is growing faster than our income. That is simply not sustainable. However, a false impression is being created about two matters: first, that this Government's control of public expenditure is lax and is therefore out of control; and, second, there is an implicit suggestion in the criticism of Senator O'Kennedy and, to a lesser extent, of Senator Daly that the problem started in January this year. That is not the case. I will not discuss the history of Senator O'Kennedy's party. When a chronic alcoholic gives up the booze and stays off it we should not remind him of the horrid days when he was drinking. I welcome the conversion of Fianna Fáil and its abstinence from political alcoholism so I will not berate them.
All of us can take some degree of credit for our current situation. The question is: where do we go from here? The real increase in public expenditure is not about increases in public pay per se but increases in numbers. Numbers have been increasing since 1990 by an average of about 3,200 per annum. That is not sustainable. How do we respond to this? We must find ways in the public sector — and I invite Senators from all sides of the House to engage in this debate — of doing more with less in exactly the same way as has been achieved in the private sector. How do we increase the productivity of teachers, civil servants, gardaí, nurses and others? It requires change and the embracing of change. It is a painful exercise. People in the private sector who have done this have survived. The people who did not do it are now unemployed workers for companies that have gone into liquidation. That is the major challenge implicit in this report.
It is wrong to say, as did Senator Lanigan, that public expenditure is out of kilter. I wish to refer to two points. Our type of agriculture has serious problems. However, I am sure the Progressive Democrats, of all parties, do not want us to return to the gross distortions of a market economy which the Common Agricultural Policy was. There are other ways of addressing that issue but they are not without pain. The numbers, regrettably, are likely to follow the trend in Denmark, Britain and other European countries, excluding the continental countries.
Acting Chairman
Does the House agree to allow the Minister a further three to five minutes to conclude? Agreed.
The report gives some attention to education. All independent studies clearly show that there is a strong correlation between education and employment. They do not say that people who graduate obtain the jobs they want or which are as well paid as they would like. There is a clear correlation between a leaving certificate qualification and employment prospects. People without such a qualification are seriously disadvantaged. In 1980, 60 per cent of school pupils completed the leaving certificate. In 1994, the figure was 79 per cent and it is our intention to increase it to 90 per cent by the end of the decade.
This will address the problems of those entering the labour market but will not address the problem of people in it with poor qualifications and we will have to deal with this. We should come back to consider the analysis of FÁS and the relationship between it, the employment market and education and training. I agree with Senator Lanigan that there is a need for an additional study in this regard.
I recognise the unique wisdom, skill and experience of Donegal Senators and the people of that county when it comes to the operation of the black economy. I suspect there is no county better fitted to give lessons on how that economy works. Employment cannot be found for people in many cases in Letterkenny and County Donegal. There is possibly full employment in Donegal in one sense. Yet, official statistics demonstrate that unemployment there is high. The vigour and health of the Donegal team is denied by the fact that the proportion of people in Donegal with medical cards is 50 per cent higher than elsewhere. There is a clear mismatch between the economic performance of Donegal and official statistics.
Senator Maloney is absolutely right. We have our cultural attitude to the black economy. There are approximately 80,000 people employed in the construction industry. Only 19,000 of them are in the Construction Industry Federation's pension scheme. The unemployment sector and the general support system about which the Senator spoke are ripped off by the black economy to an enormous degree and we must change our attitude.
Every 1,000 people on the live register cost the taxpayer £3.4 million a year. The savings which would result from taking 10,000 people off the register are potentially enormous. I am not talking about taking people who cannot get jobs off the register but about people who are working and drawing unemployment assistance at the same time. It is partly because of these problems that we are not getting the kick-in effect to structural unemployment which we should.
The report is good, we have made progress, but we still have a long way to go. This Government is committed in its programme, A Government of Renewal, and I am committed, as Minister for Finance, to suffer the political pain in ensuring we meet the target of a real increase in spending of no more than 2 per cent next year and no more than 2 per cent in 1997. This will be an achievement from which all of us will benefit.
Question put and agreed to.
Sitting suspended at 1 p.m. and resumed at 2 p.m.
An Leas-Chathaoirleach
As the Minister has been delayed for a few minutes, I ask the Acting Leader of the House to suspend the sitting until 2.15 p.m.
I so move.
An Leas-Chathaoirleach
Is that agreed? Agreed.
Sitting suspended at 2.5 p.m. and resumed at 2.15 p.m.