Tuesday, 26 November 1985
Dáil Eireann Debate
Ireland at the end of 1985 faces a bleak, economic and social situation that has no parallel since the 1950s. There is no sign of any real recovery. In most material respects the economy is in a much worse state today than it was three years ago when the Coalition took office. We now have mass unemployment, crushing levels of taxation, and a hugh national debt that has grown from £12.8 billion to over £20 billion in three years. Living standards have been grievously  depressed, but the fall in living standards has not been matched by any increase in jobs or healthier public finances. No Government in recent times have been guilty of such a appalling record of failure and mismanagement or presided over so much damage to the national economy.
This motion deals with Government economic policies and it is necessary, therefore, to try to follow the path of those policies since the Government took office. First there was the Joint Programme for Government. A great deal of that document was abandoned within a few weeks of the Government's taking office. Despite election promises to pursue “a more flexible approach” to our national economic problems, deflationary policies were embarked upon immediately with the 1983 budget. This comprised a set of savagely deflationary measures which took immediate effect. Later, in October 1984, after the Government were subjected to severe criticism from many quarters about the mismanagement of the economy and document Building on Reality was announced with a massive build-up of publicity.
In effect Building on Reality set out to maintain existing policies but with greatly scaled down targets. In particular, it offered no improvement on the employment situation. By this autumn it had become clear that Building on Reality and its projections are so far off course that they are no longer relevant. Unemployment is much higher than even the very high peak predicted in the document, public service pay and current budget deficit targets have been massively breached. By its own standards Building on Reality has failed in its primary purpose. There are now no attainable policy objectives left in the document. The Government point to the rate of inflation, to interest rates and to the balance of payments as evidence of the success of their policies. But in fact inflation and interest rates are doing no more than reflecting international developments and the improvement in the balance of payments is simply a reflection of the totally depressed state of the economy.
In one of his characteristic economic  U-turns the Taoiseach stated recently at the IFA special conference that “the economic strategy of stimulating growth is the only realistic approach to job creation and to the improvement of our national finances”. But in May 1983 the Taoiseach claimed that “the maintenance of public solvency requires action diametrically opposed to that which the employment situation demands”.
The Taoiseach's recent statement must be looked at against the background of a serious falling off in economic growth this year. It is now calculated to be 1 per cent as against 2½ per cent in 1984. How can a growth rate, a miserable almost non-existent growth rate of 1 per cent, do anything for job creation or improving our public finances?
In the Joint Programme for Government the Coalition promised “firm and decisive action” to halt and reverse the growth of unemployment. Unemployment was then 170,000. Today it is 226,000, and will no doubt in the next couple of months revert to an even higher figure. The Government's only argument now is that the rate of increase in unemployment has slowed down. But even if it were true what hope or solace does that offer? It is in fact an admission that unemployment is still rising. It is no great consolation to someone wearily answering ads, for employment to tell them that, even though there are more and more people unemployed, the rate of increase is less than it was. Furthermore, in the last three years unemployment has, in fact, risen twice as fast in Ireland as elsewhere, and we have been doing significantly worse than our EC partners.
Another aspect of these appalling figures is the degree by which the real level of unemployment is now masked by temporary training schemes and by high emigration. There are a number of alarming indications that emigration is reaching very large proportions. It is accepted that the CSO figures on passenger traffic to and from this country are not a very accurate guide. Nevertheless, in 1984 an astonishing 39,000 more people left this country by air, sea and across the Border  by public transport, compared with 13,000 in 1983. There is other circumstantial evidence of a big surge in emigration. Increasingly as all Members know local authorities are finding themselves left with houses on their hands as happened during the massive emigration in 1956. We all know from personal experience and observation at local level that people are going away and going away in large numbers.
Earlier this year the Taoiseach claimed that at least employment would begin to rise again this year. The Central Bank rejects this claim. In its latest report the bank points out that the average level of employment in industry will show a somewhat larger decline than previously forecast, that there will be further declines in employment in the building sector and in the public service and an overall fall in agricultural employment.
The Government have taken no serious employment initiatives. On the contrary they have taken a number of measures in successive budgets, such as cutbacks in capital investment, the public service recruitment embargo, the liquidation of State companies, which were clearly going to increase rather than reduce unemployment. Employment is clearly not a priority of the Government.
The decline of the construction industry has been accelerated again this year. The index of employment in September shows a 15 per cent decline compared with an 8 per cent decline in September of 1984 vis-à-vis the previous year. The recently announced measures for the rehabilitation of older dwellings, while welcome, will not have any serious impact on the situation, compared with the flattened out state of the economy and the continuing sharp decline in capital spending by the Government. There are no major construction schemes being undertaken at the present time. The submission of the construction industry in September 1985 states that “the most critical factor facing the economy and the construction industry is a total lack of confidence” and that “there will be no improvement until there is positive Government action”. The increase in  VAT from 3 per cent to 10 per cent between 1983 and 1985, the abolition of the residence related tax incentive scheme, the abolition of section 23, and the residential property tax are listed as factors that have greatly accelerated the decline in the industry. The decline in output was 15 per cent in 1983, 8 per cent in 1984 and an estimated 6 per cent in 1985.
The Government's positive discrimination against the building and construction industry has puzzled and dismayed many thousands who have relied on that industry. The absolute neglect of the industry is as clear and as definite as it is inexplicable. The positive contribution which the building and construction industry has made in the past and is capable of making to overall economic development cannot be questioned. It is a valuable part of the overall economy in the employment it gives, in the infrastructure it provides and in the fact that in the main, it uses indigenous materials and resources.
What has happened is that the industry has been brought to a situation from which many of those fully conversant with it in all its aspects believe it may never recover. It is not simply a matter of activity slowing down. The very fabric of the industry is disintegrating. The industry had a network of expertise and skills which covered the whole country and it had an organisational structure and management and professional services which enabled it to undertake projects of any size, from the smallest to the largest and of any complexity, from the simplest to the most advanced. The structures which existed and which could be mobilised to undertake any new project are disappearing. Old established firms are being liquidated.
We heard on the news this evening that another old firm, Roecrete, have gone into liquidation. Professional partnerships are being dissolved, valuable building and construction skills embodied in a trained workforce are disappearing. The industry is now in such a state of disorganisation and demoralisation that it will take a long time to put it back into its  former capacity and to re-establish its structures and restore its capacity. There are many things in the Irish economy today to be deplored and regretted, but there are none more heartbreaking than the state to which this once reasonably prosperous, well organised industry with such enormous potential has been reduced.
The last three years have also seen a serious decline in investment. Up to 1982 the level of investment in the Irish economy was always a surprising source of encouragement and particularly the manner in which it held up even in the worst circumstances. Despite a modest increase this year compared with last year, investment in manufacturing industry is far below the levels of a few years ago. This is beginning to be reflected in a tailing off of growth in industrial production and exports. Industrial production actually declined in the first seven months of this year. The slowdown is particularly pronounced in the chemicals, metals and engineering sectors — in other words, these sectors where there has been a heavy concentration of foreign investment. Export growth has also slowed down, with exports in the second and third quarters down on the first quarter. The ESRI commentary observes: “This pause in export growth was due mainly to a failure of the modern industries to maintain their previous rate of growth”.
It must be a cause of serious concern for the future that, export growth is now tailing off. Balance of payments problems could well re-emerge. The ESRI point out that the deficit will be the smallest proportionately since 1975, but that, also was a year of deep recession, and add: “However, it should be recognised that it (that deficit) is being achieved at a time of continuing recession in the home market, and would be liable to rise sharply if there were to be a vigorous recovery in domestic demand”, in other words, confirming my thesis that the balance of payments improvement this Government are claiming credit for is in fact nothing more than a clear-cut reflection of the depressed state of our economy and the  low level of consumer demand and expenditure. The ESRI also remark with regard to next year: “There is not expected to be a vigorous recovery in demand during 1986”.
Now, I do not know how the Taoiseach, the Minister for Finance or any member of the Government can claim that they see light at the end of the tunnel, or that we are the healthiest economy in Europe when those simple facts are considered. In my view, this Government have a close down mentality. This applies in both the public and private sectors. When difficulties arise, their first instinctive reaction is to send for the liquidator. Attempts are rarely made to formulate a reconstruction package of proposals, or to make some effort to maintain the enterprise and preserve the employment. The results of all this, the accumulation of all these actions can be seen in the lengthening dole queues and in the thousands of shattered lives of men and women who have given a lifetime of service to an organisation only to find themselves suddenly and brutally thrown aside, often, unfortunately with no adequate provision for their pension and other entitlements.
In my view it has become increasingly important also that we look a great deal more closely at the role played by the commercial banking system in these situations and in the economy generally. In the case of many recent closures both in the public and private sectors, banks have and had a lead role in closing down a number of enterprises. If we are to blame the managements of the enterprises in question for allowing them to get into financial difficulties, can we completely exonerate their bankers in all cases?
The commercial banking system currently is compelled to make enormous provision for bad debts. This is a very serious aspect of the economic and financial situation. That bad debts have arisen on this scale is almost certainly a result of the continuing decline in the economy and the loss of markets, both domestic and overseas. Again, however, the question must be asked, can the banks themselves be completely exonerated? Have  there been errors of judgment of major dimensions on their part, either by advancing too little or indeed, equally unfortunate in some cases, advancing too much?
For some considerable time now, the Irish commerical banks have, in effect, negatived the whole principle of limited liability. This has arisen from their widespread practice of demanding personal guarantees from proprietors and directors of limited liability companies for advances made to those companies. These personal guarantees have operated, in effect, to completely set aside the protection that limited liability is designed to afford to the entrepreneur. At present, there are a number of instances of this kind in cases where limited liability companies have failed and directors are being called upon to forfeit all their personal possessions. Is it legitimate for bankers to pursue directors personally in this way for their most personal possessions, to the extent that they are left totally destitute?
This is a whole aspect of the economic and fiscal situation that will have to be looked at very carefully indeed. There is no point in this Legislature enacting legislation providing for companies and their activities and, in particular, enshrining in the legislation the principle of limited liability if the banking organisations, the commercial banks are, in effect, going to operate in such a way that there is not really limited liability because of their insistence on personal guarantees. Apart from the humanitarian aspects of these actions by the commercial bankers, I believe they are detrimental to enterprise and act as a disincentive in the economy.
In my view, one of the major defects of the economic and financial policies of this Government was their total commitment to high levels of taxation. The very first thing the Taoiseach, Deputy FitzGerald, did when he came into office in July 1981 was to impose a budget of crushing taxation which has since been recognised by most economic experts to have been a major mistake.
 In subsequent budgets, taxes were substantially increased in practically every area, direct personal taxes and indirect taxation. It is now clear that these drastic increases in taxation have been totally counterproductive. Their inevitable outcome is the size of the current budget deficit that we face this year and the prospect of another major current budget deficit next year. These levels of tax have killed incentive and depressed economic activity to such a level that we are now experiencing diminishing returns in many areas. For instance, VAT this year has failed to reach the targets set by the Minister in his budget. As I have said on another occasion, what the Government have been doing is adjusting everything downward. Higher and higher taxes are now bringing in less while, at the same time, they have completely depressed economic activity and made recovery impossible as long as they are maintained.
I have already publicly committed Fianna Fáil to the lowering of tax levels as an essential element of an economic recovery programme. A major change is needed. The monetarists have had their day. Their policies have failed. They have reduced this economy to what can be described only as a devastation level. Because the economy has been so depressed, it no longer has the capacity to generate the necessary levels of resources to finance public expenditure at present levels and, as a result, we have had this explosion of Government borrowing in the last three years — as I have already pointed out, £12.8 billion at the end of 1982 to approximately £20 billion at the end of 1985.
In their manifesto for the June 1981 general election, Fine Gael and the present Taoiseach promised to reduce the standard rate of personal tax to 25 per cent. That was their specific election promise going into that general election campaign. Of course, that promise has not been heard of since. Again the Joint Programme for Government promised that the proportion of tax derived from PAYE on wages and salaries was to be  reduced and indirect tax increases minimised in order to help to reduce inflation. It is important to repeat that: in the Joint Programme for Government that they drew up coming into office this Government promised that the proportion of tax derived from PAYE on wages and salaries was to be reduced and indirect tax increases minimised in order to help to reduce inflation. Yet the first Coalition budget in 1983 gave no income tax relief of any kind and imposed unprecedentedly high rates of VAT, up to 35 per cent.
Total taxation was slightly under 36 per cent of GNP in 1980. In 1984, due to measures put forward in successive Coalition budgets since July 1981, it is now 42.5 per cent of GNP. Therefore, total taxation has increased from 36 per cent of GNP in 1980 to 42.5 per cent of GNP. This is actually a high tax Government and there is no way they can avoid admitting to that description. In other words, in today's terms, this Government are taking approximately £1,000 million more in higher taxes. In this country we have now reached the ludicrous stage where a single industrial worker could be paying the top 60 per cent tax rate on an income which is little over £9,000 a year.
There is probably no other country in Europe that subjects significant numbers of its industrial workers to the top rate of tax. Four out of ten taxpayers in this country are in the higher bands. The indirect tax levels after the 1983 budget were the highest in Europe. Surely, bearing in mind the increase in the population, and especially the adult population, the depressed state of consumer spending — well below now what it was in 1980-81 — is the surest possible proof of the severe squeeze on incomes by taxation in the last few years.
This State faces major financial problems which have got worse, not better, in the last three years. There is a serious revenue shortfall this year. The VAT returns up to mid-November show an increase of 3.5 per cent only over the 1984 figure instead of the 9 per cent increase targeted in the budget. Of course, it is possible that that situation may improve  a little coming up to Christmas on account of the increased levels of consumer expenditure always associated with the Christmas period, but I do not think there will be any significant improvement. In fact, all the indications are that consumer spending this Christmas season will not be of any particular significance in that regard. Therefore, we have had the situation in which the Minister, in his budget in the early part of this year, targeted for a 9 per cent increase in VAT and he is getting 3.5 per cent only. Surely there could be nothing more clearly indicative of the failure of his fiscal policies than that statistic?
While there are no official figures published, except quarterly, for the current budget deficit it is possible to calculate that deficit from the weekly Exchequer returns with an accuracy of plus or minus £10 million. Halfway through this last quarter of 1985, by 15 November, the current budget deficit had already reached £1,350 million as against an original target of £1,234 million. If the Minister, in the course of this debate, wishes to contradict that figure he is, of course, at liberty to do so. But from our calculations — and we have not access to the sort of information the Minister has — the current budget deficit is already £1,350 million at this stage. Therefore, it is likely that, at the end of the year, there will be a gap of at least £100 million or possibly more.
The Taoiseach came into this House — I recall it well — and claimed that the State was on the edge of bankruptcy when the current budget deficit was 7.4 per cent of GNP in 1981. But he now maintains, when the deficit is 8.5 per cent of GNP, that national solvency has been restored — an interesting use of statistics — we were teetering on the brink of bankruptcy, the IMF wolves were at the door in 1981 because the budget deficit was 7.4 per cent of GNP. But now there is light at the end of the tunnel; we are one of the healthiest economies in Europe when the current budget deficit is actually 8.5 per cent of GNP.
Mr. Haughey: That the monetarist policies pursued by this Government have brought unemployment and hardship cannot be denied. They have destroyed national morale and confidence. It is true also that, as economic and financial policies, they have failed totally to reach even their own narrow, limited, monetarist objectives. One of the key objectives this Government set themselves as an esential part of their policy of fiscal rectitude was to reduce the current budget deficit. There can be no gainsaying that; we all recall it, it was repeated again and again — the new philosophy was fiscal rectitude and what had to be done was reduce the size of the current budget deficit.
The document Building on Reality specified that the current budget deficit should be reduced to 5 per cent of GNP in 1987 — in 1987 the current budget deficit was going to be 5 per cent of GNP. This year the current budget deficit is already running at approximately £1,350 million, way ahead of even the historically high figure that was projected at the beginning of the year. By the end of the year certainly it will be the largest budget deficit every recorded in the history of this State both in its actual amount and in the percentage of GNP it will represent — £1,350 million at least representing 8.5 per cent of GNP.
We now learn from comment in the newspapers that the Government have settled the estimates of expenditure for 1986. It is difficult to understand why any such exercise had taken place. At the time of the publication of Building on Reality, we were told that one of its cardinal virtues was that it established for the first time certainty in regard to public expenditure; that the entire community would know for certain what the level of expenditure under the different headings would be for each year of the plan. The total for 1986 was set at £5,630 million, with the amount under each heading clearly set out. We must ask now, are those “Reality” spending totals going to  be adhered to? Perhaps the Minister will tell us in his reply. The Taoiseach and the Minister for Finance have been informing us throughout the year that the document, Building on Reality, is still on target. If this is so, will the figures for 1986, set out in that document, stand or will we be subjected to another set of euphemisms, like “rolling forward”, “adjustments within the framework” and so on?
I believe we shall have to be vigilant about what the Government do in this crucial area and also in the related area of the size of the current budget deficit. In previous years at this time we were subjected to a great deal of comment and discussion about the possible size of the forthcoming budget deficit for the following year. So far, Government spokesmen are remaining remarkably quiet about this aspect of the public finances. I would like to ask all those who have spoken and written so eloquently about it in previous years what has changed. Is it no longer the central crucial issue that we were lectured about? Is there no longer any concern about this enormous discrepancy in the nations's accounts and that each year it adds another layer to the national debt?
When this Government came into office they professed themselves to be deeply alarmed about the rate of public sector borrowing and the size of the national debt. At that time the total national debt was £12.8 billion. Since then it has risen at dizzying speed to a point where it is now over £20 billion. This is the greatest single increase in the national debt ever incurred in the period of office of any Government. It has gone from 100 per cent of GNP to 130 per cent. Foreign debt was £5 billion in 1982; it is now £9 billion. The proportionate increase in the last three years is something the like of which has never been seen before. Insofar as any reduction in the amount or the rate of Government borrowing is concerned, all the unemployment, all the hardship, all the emigration, have been suffered in vain. The policies which caused them have brought no improvement whatever in the state  of the public finances, which are now infinitely worse than they have been at any time in the history of the State. The huge publicity campaign waged about the public finances has been discarded and fiscal rectitude is a dead duck.
The Government amendment refers to expenditure having been got under control. Government expenditure was kept below the original budget estimate by Fianna Fáil in 1982. It was again kept under estimate by this Coalition in 1984, but that is all. It will not be this year. A key element in control of expenditure was supposed to be the publication in September and a debate on the Book of Estimates in the autumn session. That was a specific commitment in the Joint Programme for Government. It has been abandoned. On the other hand, in 1982 we published the Book of Estimates on 18 November, not just in time for a Dáil debate but for full-scale debate in a general election campaign.
The key question of fiscal policy and the Government's honesty as we approach the 1986 budget is whether the Government will do anything serious about the current budget deficit in line with Building on Reality, or whether they will just add another billion pounds or so to the national debt in order to achieve tax cuts. Building on Reality effectively ruled out tax cuts, but we shall have to wait and see and the answer will be very revealing from many points of view.
The reduction in interest rates is the next point that the Government see fit to boast about. Irish interest rates are simply following international trends, but with the important proviso in this country that real interest rates, or the gap between the rate of inflation and the rate of interest, is unprecedentedly high. Under this Government the gap has steadily widened.
Any apparent reduction in the growth of unemployment, as I have explained is attributable mainly to emigration and training schemes. Compared with 1982 there has been no improvement of expenditure control. The improvement in the balance of payments is to a considerable extent simply a reflection of the  depressed state of the economy with some contribution from industries brought in under Fianna Fáil.
The lack of any possibility of securing employment is forcing thousands and thousands of young people to go abroad in desperation, in search of some form of employment that will give them an income, a standard of living and restore their personal dignity and self-respect. That is the cruel reality of Irish life today. It is one specific outcome of the monetarist policies pursued for the last three years.
It must be acknowledged by this Government. They must stop trying to conceal the reality behind a screen of figures and statistics. The Irish economy, as it has been run, is not providing employment now and does not offer any hope of employment in the future. For many thousands of others, those who are unemployed and for a variety of reasons cannot or will not leave their homes and families, the situation is now desperate. Their living standards have been depressed down to a real, hardship level. For them it is a struggle — a daily, weekly struggle to survive. There is actual hardship and deprivation in our local communities today to an extent never before known. Large numbers of families are in need and have no alternative but to have recourse frequently to the St. Vincent de Paul Society or some similar charitable organisation.
Hopelessness has entered into the very fibre and fabric of our society. The humiliation of unemployment, the sinking feeling that it is no longer worth while even looking for a job, the erosion of dignity and self-respect have created a mood of apathy which is now feeding upon itself and has become the predominant state of mind in the local community. In the suburbs of our cities, there are now whole streets where practically nobody goes to work. Unemployment and apathy is the pervading atmosphere.  The one or two people who actually go out to work feel different and isolated.
A major programme of economic recovery must await a general election. This Coalition is too divided on basic issues of economic approach, too wedded to monetarist doctrines to make the radical change in the direction of economic policy that is needed. The very terms of the Government amendment demonstrate that they are not in touch with the realities of the situation.
Positive policies are needed, not a pathetic attempt to defend the present failures. The revival of the construction industry must be a major priority. There is ample work that needs to be carried out.
Our natural resources must be properly exploited. We have tended to neglect the wealth of the sea off our coasts. That must be corrected by setting up the proper supportive institutional structures. Our investment in agriculture has been cut by three-fifths over the last three years. We must seek to create the conditions for an intensification of agricultural production in areas where this is still open to us.
We must develop our technology base for modern industry. Our future lies in a well-trained generation of young people, ready to take up the challenge of new technologies and new types of economic endeavour.
Our taxation system and the cost of our public utilities should be examined closely to see whether they are creating unnecessary obstacles to enterprise and investment. The right assistance to particular sectors may lead to a radical improvement in their performance, as has often happened in the past.
What is needed is an economic policy  that will turn the country around; restore a spirit of enterprise; give people back their confidence. Economic recovery is necessary and possible. The present economic situation is leading us to social disaster. Mass unemployment will destory community life as we know it, if it is to remain as a permanent feature of national life.
Dáil Éireann notes with approval the success of the Government's economic and financial policies as shown by the significant improvements in economic performance during this Government's term of office, notably in relation to:
The policies which the Government followed since assuming office three years ago are not, as the Opposition have repeatedly tried to make out and which Deputy Haughey again tried to make out this evening, the products of a naïve ideology or a simplistic obsession with accounting concepts to the exclusion of the real needs of the economy and our people. Nor are they to be dismissed or categorised as monetarist, another of the buzz words which the Opposition discovered over the last three years, an insult to be hurled when they cannot think of anything else to say. Our policies must be seen in the context of the potentially disastrous situation which existed when we took over the reins at the end of 1982. Indeed, after the publication of the famous 1983 Estimates, referred to  by Deputy Haughey, which did not come anywhere near covering the problem for 1983, it is easy for the Opposition to forget the full extent of the crisis which faced us at that time.
Activity in the economy was stagnant, even declining. Real GNP was falling and manufacturing production had declined for two out of the previous three years; unemployment was spiralling upwards: almost 40,000 more people were out of work than a year earlier; our balance of payments situation was frightening: the cumulative deficits over the four years to 1982 amounted to half of our total annual production; inflation was rampant: the value of money had been halved in less than five years. Our international competitiveness was being seriously and relentlessly eroded; the imbalance in the public finances seemed to have assumed a permanent character, with the EBR, for the second consecutive year standing at about 16 per cent of GNP; and interest rates were at exorbitant levels, putting impossible strains on the financial position of businesses, farmers and the ordinary individual.
That was the situation which was patently not coped with in The Way Forward published in October 1982 and which was not properly addressed in the Estimates published by the outgoing Fianna Fáil Government in November 1982. Our response to that situation could not conceivably have been to ignore those seemingly insuperable problems and to hold out vague promises that all would come right of its own accord. Instead, we confronted the reality, put to the people an honest assessment of the situation and said that we would face up to the difficult decisions needed to put the economy on a sound footing again. We confronted head on the real problems of the economy, the creation of sustainable employment, the control of inflation and the restoration of our international competitiveness, the correction of the public finances and the reduction of borrowing. In spite of all the fine words in December 1979, January 1980, March 1982 and October 1982, those problems were not addressed by the Deputies opposite, nor  have they been addressed by them since December 1982. They have not been addressed here tonight either and in the prescriptions offered by the Opposition over the last three years there has not been a single, solitary proposal which would even come near addressing the reality of those problems.
It has not been easy to deal with the problems — we never said that it would be — and inevitably the measures taken have not been popular with everybody. We have had to put up with the constant jibes of those who purport to share our analysis of the problems but, at the same time, put forward solutions designed to win short term popularity which run diametrically opposite to that analysis, solutions indeed which contain the seeds of disaster. Deputy Haughey, for some reason best known to himself, did not go that far tonight and, for once, we heard a speech on the economy from the Opposition which did not put forward the madcap solutions which they have been trying to peddle around the country for the past three years. Perhaps we should be grateful that, so far in this debate, we have been spared the nonsense of the various ready formulae that come tripping off their tongues. We have so far also been spared a repetition of the nonsense for which the Opposition Front Bench spokesman on Finance recently got his knuckles rapped.
I do not believe that the public are misled by the fanciful economies underlying those pseudo-prescriptions for the problem. The real test of the Government's strategy is whether they are achieving the results we claimed they would, and I have no doubt that the record speaks for itself in that regard. Substantial progress has been made on both budgetary and taxation policies. Control has been restored over the management of the annual budget. The deterioration in the public finances has been halted and Exchequer borrowing requirements and the public sector borrowing requirement as proportions of GNP have been reduced. The burden of  taxation in 1985 will fall for the first time since 1979.
Deputy Haughey appears to have found in the figures a reason for suggesting that taxation this year will take 42 per cent of GNP, although he claimed that he does not have access to all the data, which is true. He cannot get it right now and his party did not get it right in earlier years. Current Government revenue this year on the post budget estimate will amount to 40.9 per cent of GNP including tax and non-tax revenue. Deputy Haughey, in his haste to find something bad to say, may have forgotten that non-tax revenue is not part of the taxation system. That was the first own goal in what should have been a serious debate on the economy.
We have also made progress in restructuring the tax system and these policies have been successfully pursued notwithstanding a difficult economic environment and, as a number of aspects of the recent economic performance prove, they are beginning to produce positive results. The restoration of proper management of the annual budget has been a key objective for the Government. In the period between 1979 and 1982 the average overrun on the annual target for the current budget deficit was 56 per cent.
I must now take issue with a claim which Deputy Haughey made a few moments ago and I should like to give figures for the performance in each of those years. The overrun in relation to the current budget deficit in 1979 was 80 per cent of the target; in 1980 it was 55 per cent; in 1981 it was 56 per cent and in 1982 it was 46 per cent. Contrast that with the situation in 1983 where we over-ran by 7 per cent of the original target, in 1984 where we had an undershoot of just over 4.5 per cent and with this year when we will have a small overrun, nothing like the level claimed by Deputy Haughey. He should get better advice on the interpretation of figures.
In the period 1983 to 1985 the average overrun will be about 3 per cent and the variations in this period have been well within normal estimating bounds which  clearly show that control over the management of the public finances has been firmly restored. The gap in 1985, while it will be a little larger than we had reckoned on, will be nothing like as big as Deputy Haughey indicated and will pale into insignificance compared with the performances of the Fianna Fáil Government under Deputy Haughey's leadership which never seriously addressed the problems of carrying out a set of financial policies which co-ordinated their budget targets.
The period prior to 1983 was marked by continuing deterioration in the budgetary position notwithstanding the major remedial action commenced in the budget of July 1981. Since 1982 the Exchequer borrowing requirement has been reduced from 15.8 per cent of GNP in 1982 to somewhat over 13 per cent of GNP this year. In the same period the public sector borrowing requirement has been reduced from 20 per cent of GNP to somewhat over 16 per cent of GNP. Against the economic background of this period these represent substantial achievements that lay a groundwork for the future that will be of inestimable value to taxpayers in the future.
The problem of the current budget deficit is much more deep-rooted and difficult to resolve than most analysts imagined in the early eighties. With high real interest rates, weaknesses in revenue buoyancy and demographic and labour force pressures on public expenditure, restrictive policies are necessary merely to prevent the deficit from rising. I remind the House that every time Deputy O'Kennedy comes into the House to talk about the economy he insists we must reduce the current budget deficit but every time we discuss any measure  designed to do that he says no, he will not support it.
Mr. Dukes: On the other hand, we have recognised the fact that in the absence of the policies we have pursued the current budget deficit and the Exchequer borrowing requirement would have simply exploded. It is a total fallacy, and a dangerous one, to argue that all the action taken since 1982 has been in vain. If those on the Opposition benches who make this argument really believe it, then they show a total inability to understand the workings of the economy and their total unsuitability ever to be entrusted with any kind of responsibility.
Mr. Dukes: He wrung every single drip of possible advantage from the slow, calm, measured delivery of the first 20 pages of his speech and had to gabble through the rest of it, missing some of the best lines. He then ran out of the Chamber. I would not pretend for a moment to try to compete with that kind of theatre. That is not why we are here.
The inexorable increase in the tax burden over the previous five years has been halted this year. In 1985, for the first time since 1979, the tax burden will fall. Deputy Haughey, and Deputy O'Kennedy, if he is advising him, should look at the figures again. The national plan commits the Government to avoid any further increase in the burden of taxation and we will adhere strictly to this commitment. Significant progress has been made in the area of tax reform. The  income tax system has been significantly restructured as has the VAT system. Much more needs to be done and will be done. The problem of tax collection and tax evasion have also been thoroughly reviewed and a whole battery of measures is being taken to solve them.
The primary aim of the Government's economic policies is to reverse the upward trend in unemployment. The achievement of this goal depends, among other things, on the rate of economic expansion. Faster growth creates more job opportunities and it helps to reduce the budget deficit because it boosts tax receipts and reduces expenditure commitments. That is why the recovery in national output in 1984, which has continued this year, is most welcome. Everyone now acknowledges that our growth performance last year was the best in Europe. However, it may not be fully appreciated that this performance was achieved against the odds. Growth in our European export markets was relatively sluggish and so our export gains were due more to increased market share than to a general improvement in the trading environment. In addition, and in direct contrast with the growth rates recorded from 1977 to 1981, last year's growth performance was achieved in the context of a further improvement in the fiscal position. Those two factors will be extremely important. There is the potential there on which we can capitalise if people will read the lesson that is there to be read. I say this particularly in relation to the Opposition.
Mr. Dukes: Some slowdown in the rate of growth had been expected this year as a result of the way very high level of international interest rates and of the forecast slowdown in our export markets. In manufacturing industry it was thought that some of the recently established firms would be approaching peak production levels, while in agriculture it was considered unlikely that the combination  of favourable factors which resulted in such a strong increase in farm output and incomes would be repeated this year. While export growth has slowed down, both personal consumption and investment are turning up following a protracted period of decline.
Even if overall growth in output this year will be less buoyant than in 1984, its profile is more favourable, with a better balance between consumption, investment and trade. This is true also of the manufacturing sector, where the more established labour-intensive sectors, taken together, appear to be holding their own this year. The overall growth performance in the manufacturing sector since 1982 has been very impressive. On the reasonable assumption that the out-turn for 1985 will be in line with trends in the year to date, output will have expanded by about 30 per cent in real terms over the last three years, and by year-end we should be somewhat ahead of schedule for achieving the growth objective set out in the plan.
If it were not such a serious matter, the Opposition's attempts to link the further increase in unemployment which has occurred during our term of office specifically to our policies would be amusing. Have they forgotten that at the end of 1982 there were 180,000 people out of work, more than double the number five years before, and that unemployment was rising at almost 40,000 a year? To ascribe all of that increase to the policies of our predecessors would be a naive exaggeration and I would not attempt to do so. However, I am entitled to demand in the interest of common sense and constructive debate that they desist from the spurious claims they make in connection with unemployment. The task of generating enough jobs to cater for our rapidly expanding labour force, let alone to put the unemployed back to work, requires the active co-operation of all sections of the community. This requires that the Government provide leadership and that they be seen to take a responsible approach. This, I believe we have done, and we would claim at least part of the credit for the relative improvement in the  employment situation over the past few years, even if it still falls short of what we need and hoped for. It requires also that we fully appreciate the wide range of influences that affect employment here and that the Opposition give up the wild, jingoistic claims which seem to pass for argument on their benches.
By the end of last year, the annual increase in the number of registered unemployed had moderated to less than half of that in December 1982 and this encouraging trend has been maintained throughout most of 1985.
Mr. Dukes: While a single month's figure must always be treated with caution, the fact remains that in October the live register showed the smallest year-on-year increase since the middle of 1980. This development is all the more noteworthy for having occurred against a background of continuing growth in the labour force.
Apart from reflecting the favourable impact of the special initiatives introduced by the Government to boost the numbers at work, to which I shall refer in a moment, the easing in the unemployment situation also stems from a more positive employment position. Although total employment, which fell by 23,000 in the year to mid-April 1983, continued to decline in the following 12 months, it did so at a much slower rate; indeed, the rate of decrease in non-agricultural employment during 1983-84 slowed to less than half that of the previous year, mainly because of a sharp reduction in net job loss in the industrial sector. While comprehensive figures are not yet available for the period after mid-April 1984, the indications are that the trend has continued to improve since then, to the point where total employment has already begun, or will shortly begin, to grow again.
We have never made any secret of our belief that it would take some considerable time to turn the tide of unemployment. Apart from ensuring that the  unemployed were spared the worst financial hardships of their situation, the Government, recognising the particular disadvantages which beset the young and long-term unemployed in times of high-unemployment, acted to improve the employment prospects of both groups. The numbers engaged in special employment and training schemes under the aegis of the Youth Employment Agency grew from about 33,000 in 1982 to about 53,000 in 1984, and is likely to have increased again during the current year.
Mr. Dukes: I feel sorry for Deputy O'Kennedy who seems to find cause for laughter in any constructive response to the problem. Let Deputy O'Kennedy bring into this House somebody who has set up his own business under the Enterprise Allowance Scheme and then see who is laughing. Is Deputy O'Kennedy trying to cast aspersions on those people? We are succeeding in doing what we set out to do.
Mr. Dukes: In order to alleviate the plight of the long term unemployed, whose chances of successfully re-entering employment in the short term were poor, the Government announced, in the national plan, the introduction of a social employment scheme providing part time work for one year for persons who have been unemployed for over a year and are drawing unemployment assistance. This scheme is now under way and I am pleased to say that over 4,000 people are currently benefiting from it.
Another important and hearteningly successful Government initiative is the Enterprise Allowance Scheme, designed to assist the unemployed to start their own businesses. This scheme attracted over 4,500 participants in its first year of operation in 1984, and, in the current year, at least a similar additional number  will have taken part. Apart from helping to dispel the notion that the unemployed are simply not interested in work and prefer to remain on the dole, these enterprises can act as an encouragement to others to follow suit and many will become important local centres of employment.
the designation of the Customs House Dock Site for a major redevelopment programme: a wide range of incentives will be made available to stimulate investment in construction; the institution of an additional programme of inner city development and reconstruction in Dublin by designating specific areas of the city and making a wide range of incentives available: in the same way, specific areas in Cork and Limerick will also be designated;
special new grants to develop better facilities at hotels and guesthouses: grants will be made available up to a maximum of £30,000, and the investment that these grants totalling £2 million will generate will yield a substantial number of jobs;
the accelerated development of the natural gas grid: the Government have decided in particular to extend the grid to Limerick and Waterford, bringing the benefits of gas, together with a substantial number of construction jobs, to a number of cities, towns and industries that do not enjoy them at present;
doubling of the number of new employees eligible for aid under the Employment Incentive Scheme;  the introduction, in order to stimulate new employment, of a scheme of exemption from PRSI contributions by employers for the tax year 1986-87 in respect of additional new full time employees taken on by any private employer between now and 31 March next who have been on the live register for at least six months.
I find it particularly amusing to hear Deputies Haughey and O'Kennedy out of one side of their mouths criticising the Government for being rigid and monetarist and out of the other side finding something to criticise in flexibility and fine tuning. They have shown again tonight, as they have done for the past three years, total inability to make up their minds about any single prescription, total disability to make up their minds about what are the important and the less important ones.
Mr. Dukes: These initiatives are imaginative and wide ranging and are a tangible response to the unemployment situation. They are designed to boost private sector job creation, particularly in the construction sector. These measures are fully consistent with the Government's overall economic strategy as outlined in the national plan Building on Reality. They should be seen as fine tuning of the plan strategy which is flexible enough to accommodate changes where these are considered desirable and necessary.
Progress in controlling inflation has been particularly encouraging. Inflation has now fallen from an average rate of over 20 per cent in 1981 to significantly less than 6 per cent. The year-on-year increase in August at 5.5 per cent was lower than the rate in the UK and was in line with our EC partners. The year-on-year increase to May 1985 at 5¼ per cent was the lowest since 1968. Recent reductions in petrol prices, and in mortgage interest rates came too late to be included in the most recently published  inflation figures, but they will have a beneficial effect on the rate for the year as a whole. This is now likely to be around 5½ per cent, better than the plan target, and better than the expectation of 6 per cent or below at the time of the budget.
Control of inflation is central to the Government's economic policy and is particularly important in maintaining our competitiveness as against our main trading partners. One reason why our employment performance has been disappointing in recent years is that the rate of increase in earnings here has consistently been much greater than in most of the countries with which we compete. Since 1979, for example, hourly earnings in manufacturing industry in this country have doubled. In the same period, earnings in our main trading partners — the EC countries, the USA and Japan — have increased by only 57 per cent, not much more than half the rate of increase here. Among our narrow-band partners in the EMS, the rate of increase has been even less, at only about 40 per cent.
Here I come to one of the important lessons which the Opposition, clearly, have not begun to see in our performance in recent years. If, as has been the case since 1983, we have managed to increase our market share internationally against countries that had a more favourable development in labour costs than we, had lower inflation rates that we and lower interest rates, how much better can we not do in output growth now that we have our main cost indicators more closely in line with those of our competitors?
Mr. Dukes: I want to say to the Opposition, to our interest groups, to our trade unions and employers that we now have the conditions on which we can build and create employment, because we are more competitive and can reverse the trend of recent years. Our predecessors failed to get cost indicators under control and, consequently, we lost employment. They  are the opportunities that have been given to our people, to the unemployed and the young people looking for jobs. In bringing about those improvements in inflation, interest rates and in balancing the economy we have been given an extra margin and it is up to us to use it to get our people into jobs. I am prepared to do it. I am prepared to say the policies that are needed. They have been spelled out many times and voted on four times in this house. I invite the Opposition, if there is any reality in their concern, to support us in those policies.
Mr. S. Brennan: I agree that the Minister has spelled out his policies, but I hope to illustrate in the 20 minutes available to me — I compliment the Minister on how clearly he spelled out his policies — that those policies clearly are not working. I will try to do that as dispassionately as I possibly can. I shall begin by referring to the reply to a question which I received in the past few days from the Minister for Finance. My question was to ask the Minister the number of taxpayers now in the country and without going into the massive documentation he was good enough to send me, the reply is 972,000. The figures in respect of the previous years are: last year, 975,000, the year before 984,000 and in the year before that, close to 1 million. My reason for giving these figures at the outset is to demonstrate that, wherever the blame may be laid, the number of people available to pay the taxation necessary to keep the State moving, is decreasing.
Mr. S. Brennan: The 1984-85 figure for the number of taxpayers is an indication of the underlying economic difficulties facing us. Unlike the Minister I do not see that necessarily as a healthy sign. Rather, I see it as a sign of continuing unemployment and emigration.
This debate gives us an opportunity of discussing where we go from here as we enter the second half of the eighties. The issue is not only that but whether policies  being pursued offer any better hope and outlook for the future. I was amazed to hear the Minister accuse the party on this side of the House of trying to link unemployment to his policies. That is what I understood him to say. If the Minister believes the unemployment should not be linked to Government policies there are major difficulties facing us.
Mr. S. Brennan: There is a need to look at the Joint Programme for Government which was put before the people on the formation of this Government, to look also at the national plan, Building on Reality which can safely be said to be running into major difficulties and at the Minister's 1985 budget speech. How can any Deputy judge and assess what a continuation in office of the Government would mean other than by examining the printed record of the Government and measuring where we are at in terms of their specific targets?
I am not interested in off-the-cuff remarks by the Minister or in his new enthusiasm for his job but I am interested in considering what the reality is vis-á-vis what the Minister and the Government told the House it would be. If the Government were being interviewed for their jobs, comparisons of those two figures would render it extremely difficult, for them to be employed.
The unemployment problem is the single most important issue concerning us. We in this House have a joint responsibility to the unemployed, not  only for economic reasons but in terms of the despair, the apathy, the crime, the subversion and the emigration that are prevalent when there is gross unemployment. The Government admittedly inherited an unemployment figure of 187,000 but we might remind them that at that time they pointed out that that was a disastrous figure and in all their documentation pledged, not only to stem the trend, but to reverse it. Since then — and I am putting this in as dispassionate a way as possible because this is how we should act in this House — the unemployment figure has increased by 40,000. In his budget speech this year the Minister said that unemployment should begin to level out. That has not happened and it is clear that the figure which is now nearing 230,000 continues to rise. As an average throughout the year it may be a little lower.
According to the national plan the unemployment figure for 1985 was to be 215,000. Last month the figure did fall and I was one of those who welcomed that improvement but I pointed out also that there were reasons for this and that the underlying figure was much higher and in my view would continue to increase. One of the reasons for the fall is the increasing number of people in training schemes which in effect are building up a kind of deferred unemployment pool. Another factor is the growth in the number who have given up altogether, the discouraged unemployed, and most obvious, there is the increase in the emigration figures.
In the past few weeks I have put a number of questions to the Taoiseach in that regard. The replies have been revealing. At the beginning of this decade there was a net outflow from the country of 2,000 people. The figure increased later to 7,000 and to 14,000 recently, though I suggest that the real figure is about 25,000. The effects of that are obvious. We have been losing our best and brightest people and there is cause for anxiety about the number of Irish in Britain who are experiencing extreme difficulty, who are sleeping rough and so on. Again, the assumptions in the  national plan on emigration have been wrong. The Minister might say the figure is different but it is much higher and therefore I suggest it is wrong. Likewise, it is possible to say also from the statistics I have given that the figure in the plan for unemployment is quite different from today's figure and that therefore it was wrong also.
The plan forecast that manufacturing employment would increase but the reality is that, according to the reply to a question I put to the Taoiseach recently, there is 21 per cent unemployment in that sector. How can we stand over a plan that predicted an increase in the number of employed in manufacturing industry when the opposite is the case? That is the sector that we were told would create the wealth to keep the economy going. Anybody who has ever devised a plan for this country or for any other can say that the manufacturing area is essential and crucial because that is the main area in which the wealth in generated to allow the services spin off. The general unemployment level is 17 per cent.
I do not think any member of the Government can say legitimately that the assumptions in the plan were accurate or that its targets are being met when a central feature is already off line and dangerously so. It is important to make that point. According to the Joint Programme for Government the current budget deficit was to be eliminated in 1987. Later that was amended to 5 per cent. That was after the National Planning Board got the Government off the hook and suggested this was an acceptable way of doing so.
I have put it to the Government also that it is essential and central to the credibility of the national plan that the 5 per cent target is met because all of the other policies are built around that 5 per cent. I am trying to consider the plan, to consider what has happened and to rest my case simply on the point that the facts and figures that were laid before the House by the Government have not been achieved and have not come anywhere near to being achieved. The national plan, Building on Reality, is in shreds in the sense  that all the assumptions and the targets have gone off the rails.
Mr. S. Brennan: That 5 per cent is central to it. I have spoken about unemployment, manufacturing industry and the current budget deficit going off the rails and the figures I have given were taken mainly from replies to Dáil questions from the Taoiseach and the Minister.
In the budget speech the Minister said the figure would be 7.9 per cent in 1985. We know now it will be over 8 per cent — perhaps 8.3 per cent or 8.4 per cent. The Government should admit that the 5 per cent target is irretrievably lost. If they do not admit that, will the Minister in this debate affirm that target? If he does, will he point out where the £800 million needed to achieve that 5 per cent target is going to be found, or is the target going to be abandoned? They are the central questions I want to put to the Minister, and his response will dictate the future of this plan.
The national debt stands at £20 billion. I can say without any fear of contradiction that this is the highest percentage of GNP for any industrial country. To get that down to simple figures it means £17,000 for every employed person.
Mr. S. Brennan: I want to discuss the repatriation of profits. Some time ago the Minister introduced a scheme to allow companies to buy Government securities instead of exporting their profits. Perhaps he would tell the House sometime how many of these multinationals have bought Government securities and if he has succeeded in stemming the outflow of profits. It seems to me that this offer has not worked. So far as I can ascertain, there are still £1 billion of profits made  by multinationals being sent back to base and if this scheme had worked that figure might not be so high. How are we going to stem this pull-out of profits? I do not think the scheme introduced by the Minister will remedy this situation. When the scheme was introduced I wished it well but I pointed out that I did not think the multinationals would fall for it.
Mr. S. Brennan: If they have a choice of taking their money out of this country or investing it in Government stocks, they will opt for the former. As the Minister knows, wealth is a mobile commodity. From the figures I ascertain that the amount being sent out of this country is enormous. I ask the Minister to take further action in this area and to encourage multinationals to invest not just in Government securities but in Irish industry and investments generally.
The Minister said investment has increased, and I accept that, but the investment was largely in the area of plant and machinery. The type of investment envisaged by the new industrial policy is in labour intensive industries. To that extent the total increase in investment is not very significant. There are other indicators which worry me. The volume of house building activity is 40 per cent below what it was in 1981, the number of Dublin housing starts is 20 per cent below last year's level, cement sales are down by 7 per cent since the start of this year——
Mr. S. Brennan: The Government have attempted, as any Government would, to respond and I have welcomed some of those initiatives but most of this is replacement investment and unfortunately, will not do the kind of job which could have been done by the original investment.
 The National Development Corporation was one such response. We are told there is £300 million available to invest in Irish industry through that agency. The reality is that that is £300 million of authorised share capital, not equity, and that sum is to be handed out in lots as small as £1 million. There is no £300 million available to the National Development Corporation because it is only an authorised figure. The Government have specifically to approve every investment over £2.5 million and the Minister has to approve every investment over £1 million. There is no £300 million available. The Bill could have said £800 million, £900 million, even £10 billion, it would not have mattered.
I want now to deal with the nonsense that we must set up another State company to get in touch with existing semi-State companies, who together will set up a third company and that will provide employment. Why cannot the existing semi-State companies be given some of this £300 million and let them get on with the job of forming these companies instead of setting up another semi-State agency so that they can have another talking shop, and see if they can create some employment? Obviously this National Development Corporation was set up for ideological reasons.
The industrial policy generally is over-dependent on foreign industry. There has been a failure to encourage the kind of linkages we need in the economy and to protect domestic middle sized firms — like Clarks. These firms would have been protected if we had had a sensible industrial policy. I do not need to remind the Government of the increasing pressure on the middle classes — I think everybody is in the middle class. Most of these  people are piling up debts, bank overdrafts and running from building societies. There was a recent case of a mother who was hauled off to prison because she could not pay a few pounds on a cooker. Is that the kind of society we are trying to run? This kind of fear and tension is driving people to bouts of depression. The Minister will know exactly what I mean when I say that.
Recently the Commission said that Ireland had the third lowest living standard in the EC. Having said that, there are some positive points which I put before this House many times before. It would be churlish of me not to say that I welcome the Minister's move on PRSI. He will remember that for a long time I have been saying that a sliding PRSI scale or policy which says that the more people employed the less PRSI is paid, is a sensible policy. I compliment the Minister for making a move in this direction but there is much more which still can be done in that area.
We can do a lot more in the venture capital area, as I pointed out time and time again. If we take the bureaucratic shackles off the venture capital scheme I believe it will work. I want the Minister to put an early warning system into some of our larger companies so that we do not wake up one morning and read on the front pages of our newspapers that another company employing 500 people has gone to the wall. I want the Minister to concentrate more on small domestic industries, remembering that the United States have largely solved their unemployment problems by the growth of small industries.
As regards the dockside that was an interesting development. I wish it well. There is only one solution to this country's economic problems and that is a new philosophy which concentrates not on battening down all the hatches but on creating some kind of movement and wealth and putting on a pedestal the people who run the companies to build the profits which give the employment. That is the road forward and not the one which is being followed.
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