Wednesday, 19 December 1979
Seanad Eireann Debate
Minister of State at the Department of Finance (Mr. McEllistrim): This Bill provides Senators with an opportunity for discussing the expenditure which it covers and also, in line with previous practice, provides an opportunity for general discussion of the Government's expenditure and financial policies in that context.
As Senators are aware, the main purpose of the Appropriation Bill, which has to be passed before the end of the year, is to give statutory effect to the sums voted by the Dáil for the supply services. In addition, the Bill authorises the utilisation of certain departmental receipts as Appropriations-in-Aid.
This present Bill also authorises a small issue of £22,435 from the Central Fund. This is provided for in section 1 and it is required to make an excess, which has been cleared by the Public Accounts Committee, on the Vote for Army Pensions in 1977. The Central Fund (Permanent Provisions) Act, 1965 does not authorise the issue of moneys for an excess vote—hence a special section is necessary in the Appropriation Bill.
Section 2, which is the principal section of the Bill, appropriates to the specific services set out in the Schedule to the Bill the sum of £2,734,766,505,  comprising the 1977 Excess Vote of £22,435, referred to already, the original Estimate of £2,432,749,000 and Supplementary Estimates of £301,995,070.
As is the normal practice, I do not intend to make any general statement at this stage. In my concluding remarks I shall attempt to deal as fully as possible with the various issues which will be raised by Senators during the course of this debate. I look forward to an interesting and constructive discussion.
Mr. Cooney: I take the opportunity of congratulating the Minister of State. He has probably been welcomed to this House already. My welcome is to him personally not to him in his capacity as Minister of State because I must confess to some disappointment that the Minister for Finance has not done the Seanad the honour of coming here particularly for this debate. Perhaps he will be here tomorrow to hear the contributions that are made and while it may be normal practice to make a short opening statement in the debate on the Appropriation Bill, I nevertheless feel that in the particular political circumstances of the moment we might have expected the Minister for Finance, newly installed in his office, to come here and let us know, on the first opportunity for a major debate in either House of the Oireachtas, his views on the economy, his economic philosophy, the problems of the day, his analysis of how they have arisen and his suggestions as to how to solve them. For personal reasons the Minister might have been particularly glad of this platform to dispel the notion abroad that he is the puppet of the Taoiseach when it comes to financial matters. I have noted that the Minister said in reply to those accusations that he is not the puppet of Deputy Haughey and that he will be his own man. This is the place where the Minister should have dispelled that notion, if it is mistaken. The Minister could have indicated to one House of the Oireachtas, his views on the state of our country. An opening statement by the Minister in the context of these times would have been particularly valuable and would have been a  peg on which we could have hung this debate so that the whole exercise, instead of being meaningless, might have taken on some meaning.
I am disappointed that the Government as much as the last Government do not have a very high opinion of the importance or worth of this House in so far as Ministers of the Cabinet, where they have a Minister of State attached to their Department, invariably ignore this House. I protest about that practice and I hope that that protest will be heeded in the places where it needs to be heeded and that in our proceedings from now on particularly in next year's session we will see here as frequently as the exigencies of their offices permit, Ministers of the Cabinet. It is due to the status of this House that this be done.
Mr. Cooney: I accept the Chair's ruling, but it is a little difficult to talk about the state of the country as many of us will want to, and about our economic predicament without having guidance from the current office holder as to his views which will obviously inform the debate from the point of view of the rest of us. To some extent the debate is now pointless.
It is common case with everybody, including Members of the Government, that the economy is in difficult straits. While some of the difficulties have their origin in external factors it is also common case that many have arisen from a mixture of policies that were fundamentally unsound and policies which were alright but where there was not sufficient political courage or ability to take  corrective action when those policies conflicted with trends that were not foreseen or trends of a magnitude that was not foreseen. We have in essence overspent and we have over-borrowed and, like a firm, a country that engages in exercises like that is engaging in a reckless policy.
The deficit on current account is alarmingly high and one has to recall that doubt was expressed at the time of this year's budget as to the validity of the figures projected on that occasion. Those doubts were pooh-poohed and when the leader of our party expressed those doubts, he was accused of indulging in a pointless numbers game. When dealing with the economy of a country one must deal in figures and must make sure that the figures or numbers are accurate and reasonable. The outturn of the year's operations has proved beyond any doubt, that this year's budget was startlingly wrong. As a result, we are left with a huge gap in current account. In addition, the general economic strategy in so far as it released a large amount of money into our economy as predicted by the manifesto, has had the effect of throwing our balance of payments into disarray. This was foreseen, though it was not in any of the economic documents published in the last 18 months or so. It was not sufficiently highlighted nor was our attention drawn to the dangers of it.
There was a hope that the “Buy-Irish” campaign would have a much greater effect than it actually had. This is an instance of the policy beginning to run off the rails because certain predictions were not being fulfilled and of an inability to tack to take account of that. The “Buy-Irish” campaign was commendable and it is regrettable that there was not the level of response that it should have evoked from a patriotic population. There are many reasons for this. An explanation might be found in the fact that we were for so long a tariff-protected economy and the range of goods was limited and to some extent of lower quality than foreign made goods, and the novelty of having a wide range of foreign  goods has not worn off. That was a big factor in the failure of the “Buy-Irish” campaign. I assume that the “Buy-Irish” campaign has failed but I am interested to hear the views of the Minister on how useful or otherwise that campaign was. I am also interested to hear if it is intended to continue with that campaign. It seems to have lost its impetus in the last number of months. There seems to be an unspoken recognition that a dead horse is being flogged.
If that is so we should be told. If the public learned that the appeal to basic patriotism has been unsuccessful, it might possibly have the effect of shocking them into a realisation of the way they have failed in what was a national duty. Like so many other things in modern Irish life we as individuals felt that it did not apply to us, it applied to the other fellow. Its failure was a substantial contributing factor to the balance of payments difficulty that we now find ourselves in.
I see three major problems facing the economy in the year ahead. The first is to correct the balance of payments imbalance; the second is to improve the revenue to the Exchequer; the third is to cut back on Government spending. Each of these is politically difficult because it will involve measures that will not be popular with the electorate. It will involve measures that might cause actual hardship to many people. One wonders just how much room for manoeuvre the Government have in correcting each of those headings. When one considers that the PAYE people are up in arms about their burden, have taken to the streets, and their spokesmen have threatened all sorts of dire consequences if their burden is not eased, it is inconceivable to think that the budget in February will be able to levy more tax on that sector. If that is attempted we will be coming to a stage where the country might well be ungovernable because of the reaction of the people in that category. The tax situation at present is becoming oppressive in that there is an air of menace about tax collection. We hear nothing but talk of  sanctions, prosecutions and people going to jail. To try to enforce the tax regime like that seems oppressive. There is talk of recruiting hundreds of more functionaires into the Revenue section. The country will be over-run with functionaires. In every aspect of Government they are on the increase.
As far as the PAYE payer is concerned, I cannot see how there is any more room to increase his contribution to the Exchequer. He has a very live expectation of having his contribution decreased and he can see no reason why it should not be decreased. He feels it should be decreased because other sectors are not paying their share and he points his finger at the farmers. The question then arises, can the farmer next year be looked to as the person who will bring in the much needed extra funds to the Exchequer to try to close that horrifying gap? I do not think he can. The time for catching the farmer is gone because the boom in agricultural incomes is gone. Agricultural income this year will show a drop in real terms and the outlook for next year is no brighter. Consequently, if the income increases are not there and if the level of income is dropping, it is difficult to see how the Exchequer will be able to manipulate extra revenue out of that sector.
We had the suggestion that they would pay the levy, the special taxation applicable only to themselves. Resources tax was mentioned and we all know the reaction that these proposals produced. If they are proceeded with next year that reaction will be there again and even more violence because the economic scene in the agricultural sector has disimproved since they were originall made.
It will be difficult to devise and implement a taxation regime for farmers that will have their confidence. They are entitled to be satisfied about what is proposed for them. They are entitled to have a tax regime that is no better or no worse, but the same as for any other citizen engaged in business. That, for self-employed farmers engaged in the agriculture business, will be a form of accounts. They will be entitled in their accounting  practices to the same allowances and the same techniques and practices that are applicable to any other self-employed businessman. All of us know that if that is to be the tax regime for agriculture the yield, particularly having regard to the fall in incomes, will not go anywhere near meeting what the Exchequer needs. I cannot see that the farming incomes, if farmers are to be treated in the same way as any other citizen, will come in and help the Exchequer in its hour of need. From my knowledge of that community if there is any attempt to impose a resource tax, which is a new name for rates, or if there is any attempt to continue the levy, the reaction will be as unsympathetic and possibly just as hostile as the reaction from the PAYE payers. We know from past experience, and the present Taoiseach has reason to know it more painfully than anybody else, that the farmers are prepared to go a long way in making their case. They are prepared to go to jail. They have done it in the past and there is an air of dissatisfaction and disillusionment among that sector of the community at present. If there is any attempt to impose taxation on them that is different or oppressive or that they see as harsh in relation to any other section of the community, they will react in possibly extreme measure.
The self-employed are also being mentioned as another area where there is a lot of cream to be gathered for the Exchequer, the imputation being that there is evasion and avoidance on a very wide scale. If there are loopholes through which tax is being lawfully avoided they can be legitimately closed in the budget legislation. I am not saying there is not evasion. It is the ambition of everybody paying tax to try to evade as much as he safely thinks he can. Nobody has ever quantified and I do not think anybody can ever quantify accurately—estimates have been made but at best they are only gestimates—the extent of tax evasion by the self-employed sector. Having regard to their numerical proportion within the community and to the magnitude of income into the Exchequer, I do not think that the amount being evaded would be  of significance in meeting the gap that has to be met.
There is the factor, with serious social consequences, that in curbing that evasion extreme sanctions may have to be applied. If they have to be applied in an extreme or widespread fashion to curb evasion totally, in turn they may have a disincentive effect. They can foil investment; they can have a disturbing social effect. If a law is not obeyed voluntarily almost unanimously by those it effects, it is well-nigh unenforceable. There is talk of outlawing unofficial strikes. We would all like to see them outlawed. If a Bill is passed outlawing unofficial strikes and 1,000 workers take unofficial action, how can the law put 1,000 workers into jail? That is the harsh reality of it. Unless a law is obeyed voluntarily, it becomes impossible to enforce. If we reach the stage with the self-employed that they are being harried and chivvied by the imposition of criminal sanctions, we are in a very wrong and bad social area.
The outlook for the Exchequer from the point of view of getting in extra taxation is extremely bleak. In think the Taoiseach is on record as saying it is not intended to increase the tax burden, but I am subject to correction by the Minister. Many citizens will be listening with anxiety to what he has to say on that matter. I was surprised that such a specific statement should have been made by the Taoiseach at this stage before his Minister for Finance and his other Cabinet colleagues have got down to framing their Budget and seeing how their sums are working out. I certainly read his statement as a commitment that there would be no further tax burdens.
He may have to go back on that statement or, perhaps, he is just recognising the reality of the situation as I have been outlining it, and the difficulty, or rather the impossibility, of getting any significant amount of extra taxation from any of the three broad groups in our society. We have, of course, the old reliables, but taxing beer, cigarettes, and so on, or increasing the rate of VAT is very much a double-edged weapon. These items all  figure in the consumer price index and any taxation imposed on them—and I cannot see a situation where taxation increases will be excluded—will push up the consumer price index and this, in turn, will have a spin-off in demands for wages, and off goes the spiral again.
As I see it—and I am only an amateur economist—the other two alternatives left to the Minister are to look at the expenditure side of his sums and see what he can do there and, when he has looked at that, to look at his borrowing possibilities. It seems that we will now have to employ here much of the policy being operated in the United Kingdom by the Tory Government. There will be severe and in some areas quite savage cuts in public expenditure and, as a result, many of the services to which citizens have become accustomed will be curtailed in scope and in quality. The question that arises is: in what areas will these cuts be made?
The question also arises: what will be the reaction of the citizens who will suffer from the effects of these cuts? It is not for me to offer to the Minister for Finance any advice as to the areas in which he should make his cuts. I have no doubt that his colleagues in Government, when they debate the departmental estimates, are offering him excellent reasons why their estimates should not be cut. The only person who can argue that with confidence and get his own way is the Minister for Justice, and I speak from experience. I will deal with the Minister for Justice in more detail later on.
With regard to the cutting back of expenditure, it will be an interesting exercise particularly by the present Government, when one considers the spending Departments and the personnel in them, and when one considers all that in the context of the political trauma of the past couple of weeks. It will be a very interesting exercise and if one could capture one of the flies on the walls of the Cabinet room, it would be an enthralling exercise to hear what he would have to say and particularly what he would have  to say with regard to whether we now have a Government with a presidential style or a Government with “collective” responsibility in the real sense of that word.
To use the phrase some political commentator used in a book, is the Taoiseach chairman or chief? It will be very interesting to see if there are any clues following the settling of the Departmental Estimates and the production of the budget figures next year as to whether our new Taoiseach is chairman or chief.
The style of the man would indicate that “chief” will be the role that he will seek for himself, and “chief” is the role that he would like to play. Whether he is allowed do that very much depends on the mettle of the people he has appointed to share Cabinet responsibility with him. Time will tell, and we will have to wait and see what happens. It appears as if the thrust of the budget strategy will be a severe cutback in expenditure. That will be forced on the Government because the options for bringing their books into balance are so limited, and that is possibly the only way in which they can do it. That way is fraught with political and social difficulty.
Much of the political difficulty is eased because of the size of the majority in the Dáil. There is no political difficulty in putting through even harsh measures. There would be possibly a long-term political difficulty in the sense that the Government who would do so would have to face the electorate eventually. Undoubtedly the thoughts in the minds of the Taoiseach and his colleagues will be that something will turn up before that happy day arrives. Consequently, the political difficulties of a cut-back in public expenditure may be in the future and because that is so, we can look with a fair amount of certainty to cut-backs. I do not know where they will come. I am apprehensive that they will be geared to affect the sections of our society who do not have a lobbying power, and that includes the more helpless persons in our society. The social welfare classes are not organised in strong and militant lobbies  where they can command publicity, where they can raise political scares. They are a soft target when it comes to cutting back. There is nothing whatever in the philosophy of the Fianna Fáil Party to show that they have a real concern for the under-privileged in our society. On the contrary. They have not been neglected, but they have never got as much of the cake as they were entitled to. That is in the tradition of the Fianna Fáil Party, and I am afraid that tradition will reassert itself now in this time of budgetary stringency. We will have to wait and see.
Mr. Cooney: I provoked a reaction at last. I say that because I know my history. When we came into office in 1973 over 500,000 people were living below the poverty line of bare subsistence when a party who were committed to cherish all the children of the nation equally had been in office for over 16 consecutive years. For the first time the old age pension age was reduced from 70, at which it was fixed in 1902, and substantial increases were given immediately to social welfare recipients. This year their increases will not keep pace with the year's inflation, so far as I recall though I may be out a percentage point. If that is the history of Fianna Fáil with regard to social spending those people can look forward with some trepidation to the cuts in next year's budget. The cuts will be tailored political rather than socially. High profile areas where there are militant lobbies to object when the cuts come on them will be avoided and we will see substantial cuts in the social welfare area.
There are already signs of it. The signs are principally a tremendous amount of red tape in the payment of grants. Social Welfare cheques are being delayed and letters are unanswered. There is delay of up to many months and there was evidence of this at the time of the by-election in Cork. The one feature that was mentioned to our canvassers time and time again was the delay in paying social welfare payments. The administration  could not have become so bad so suddenly that such a massive delay on such a wide scale could have occurred. There has been a general direction to slow down, slow down. That is understandable when one considers the appalling mess that the Exchequer is in. The fact is that there just are not funds in the Exchequer to meet these payments. With regard to housing grants, the inspector comes not once, not twice, but three times and on every visit he finds something else wrong and the payment of the grant is delayed. Every Deputy and Senator is plagued with people coming in to him. Farmers come complaining that headage payments and other grants from the Department of Agriculture are being held up. They are slow. In all Government Departments there is ample evidence at the moment that there is a slow-down on payment. All this adds weight to what I am saying, that there is a dire financial mess. Dire measures will be taken to rectify it and the poor citizens of the country are going to suffer.
The question arises then of placing responsibility for this situation and we know already that one victim in the witch hunt has been blamed for the situation we are in. Deputy Martin O'Donoghue has been dropped from Cabinet level. To pinpoint him as the person responsible for our economic situation was a callous political gesture.
Mr. Cooney: Speculation, I agree, but it is speculation of a kind that causes one to say to oneself before one makes speculation, why was Deputy O'Donoghue dropped? He is the architect of the Fianna Fáil manifesto. He is the economic adviser to the former Taoiseach and was in that position for many years. Economic unrest is widespread throughout the country. It is commonly admitted by their own backbenchers that they are getting a hostile feedback. This has been proved in the elections that have taken place during this year. The hostile feedback that they are getting from the electorate has  to do with the economic situation. Who is responsible for the economic situation? Deputy Martin O'Donoghue primarily and former Minister for Finance, Deputy Colley, secondly. The result is a putsch in the backbenches fomented by this unrest that they have been spreading throughout the country and their own unease about their political future. What happens after the putsch? The man who has been pinpointed as the economic architect of Fianna Fáil policy is gone. Of course, it is speculation, but it is not unreasonable speculation. I do not think anybody would deny that it is accurate speculation. Why was he not kept? He is a highly-qualified academic economist, a man who devised a strategy that swept Fianna Fáil into power with 82 seats. When we hear the answer to that then I will know whether I am speculating. He has been pinpointed as the ogre and he has been shoved away and his colleagues are distancing themselves from him.
Likewise his colleague the former Minister for Finance, has lost the race. He is staying in the Government but he has been moved out of the prime ministry charged with the economy of the country. He has also—to use a slang word—been pinpointed as a fall guy.
Obviously, there is a clever exercise of the new regime distancing itself from the old regime, pretending to the country that it is different, whereas the personnel, with four exceptions, are the same Government who were in charge of the country since 1977 with collective responsibility; and every man sitting around that Cabinet table had an input, if he so wished, into the economic policy of the Government. Those who are still there cannot absolve themselves from blame by a witch hunt among their less fortunate and more vulnerable colleagues. It is discreditable. To try to pretend to the electorate that that was a different Cabinet, a different Government, and that this now is a whole new Government and a different scene and “we had nothing to do with the sins of the past” it is cute political exercise. It is  ridiculous because every man sitting around that table was responsible and had ample opportunity to make his own personal input into every aspect of the Government's economic policy. When the budget was being debated it was open to every Minister to make his contribution. If any Minister felt so badly about the way the economy was moving or that the economy was being messed about and that there was incompetence on the part of the Ministers charged with our economic affairs, it was the duty of that Minister, if he considered it sufficiently serious, to opt out from the collective responsibility. However, opting out for honourable terms is not a characteristic of the Taoiseach. He was prepared to stay there with the rest of his colleagues and take part in his economic debates and because of that he is as responsible for the present economic mess as are the men that he has fired into the wilderness.
An Leas-Chathaoirleach: The Chair is of the opinion that a debate on Government policy is in order and the Chair would hope that speakers would keep to the policy. It has been the traditional approach to the Bill in the House.
Mr. Cooney: I accept the ruling of the Leas-Chathaoirleach, but I find it difficult to talk about economic policy without also talking about the architects of it. It was not automatons who devised it; it was men sitting around the Cabinet table. If one descends to personalities, that is not unreasonable, in the present political context in which we have had a change of Government and in which we are trying to analyse why the present mess happened and what are the chances of getting out of it. The team that is now going to clean up the mess is essentially the same team that created it. However much the team and its chief may want to distance themselves from the previous team, they cannot do so because essentially  it is the same team. I am afraid we cannot look forward with great confidence to the improvement that is required to clean up the economic mess we are in.
I foresee, too, in the context of a cut-back in expenditure, a lean time for the local authorities. Last year they got, as far as I recall, a 10 per cent increase on their estimates for the previous year. That 10 per cent, now that the outturn of inflation for the year is 16 per cent, has not enabled them even to mark time. They have gone back, and it will be interesting to see what percentage increase they will be given next year. They do not know, and next year starts in ten days' time. Yet the local authorities do not know how much money they are going to have to spend next year. So far as I am aware they have not made their estimates. They cannot discuss which works they are going to carry out because they do not know how much money they are going to get. This is an appalling way to run a country. Then local authorities will be blamed for bad planning, but how can they plan when they do not know what their budget is going to be?
This too is symptomatic of an inability to run a country properly. It is symptomatic of the chaotic situation that we are drifting into and the practical effect of that situation up and down Ireland for hundreds of thousands of workers I am afraid, will be catastrophic. How many of them are going to have to be let go? How many people working on the roads and all the other schemes that local authorities engage in will be prejudiced in their employment prospects for the coming year and do not know it? The appalling condition of our roads, that are patently unable to deal with the traffic that is using them at present, is a matter of great urgency. But, because of the financial policies of the Government, the funds of the magnitude required to solve that problem are not available, or even remotely available. Driving up and down the country one comes on, here and there, a mile of a road being done, then being left for six months with a display  of painted tar barrels; it may be 12 months before anything else is done on it. There is no cohesion, no planning in that area. That is because no proper financial provision has been made on a continuing basis, so that local authority engineers will know what they will be able to spend and local authority members will be able to plan coherently in advance and in time.
I foresee that in the local authority area there will be a considerable cutback in expenditure. Again this is an area where the effects of the cutback are to same extent hidden. They have a low profile. The money filters down through the county councils and the local authorities. There is a scheme knocked down here, a scheme reduced there and the adverse effects of the cutback are dissipated and do not impinge immediately and centrally on any one group so as to provoke harsh political reaction. That is the other area where one will see a considerable cutback in the local authority scene.
Then the question of borrowing arises—whether the Minister will be tempted to avoid some of these harsh consequences of cutback in expenditure by resorting once more to a high level of borrowing. I hope he does not for the sake of the country's finances, for the sake of the country's currency and for the sake of our reputation as a mature, responsible nation governed by reasonably mature, responsible men.
Our borrowings are reaching a level where they are nearly becoming scandalous, where we could shortly find ourselves in the humiliating position that Britain found herself in a couple of years ago when the inspectors from the IMF arrived at 10 or 11 Downing Street—wherever the Chancellor of the Exchequer lives—and told him what he could have in his budget, told him how Britain was going to have to be run. If they are prepared to do that to a country as powerful as Great Britain, one need not have any doubt that they would not be long packing their bags and landing in Merrion Street to tell us how to run our affairs. Certainly, if we continue  to engage in borrowing at the level that we have done for the past couple of years, that is an inevitable consequence. Indeed, it is a consequence I would welcome if we were to continue to engage in borrowing at that level. If we were to continue borrowing at that level we would be bankrupting the country and I would welcome anybody who would be prepared to come in to save us from ourselves.
Certainly, I hope the temptation to ease the consequences of cutting back in expenditure by resorting to more borrowing will be resisted. It will be a hard temptation to resist because, as far as the man in the street is concerned, we have become so blasé about millions that when he reads figures in the papers given out by the Minister for Finance, or reads them in the financial pages, he skips down them and says: “They are not for me.” We have become used to reading of millions, thousands of millions. Indeed, if we look at the Minister's opening statement the figures there are frightening in  their magnitude. There may be a temptation on the part of the Minister for Finance to continue borrowing at the level of previous years in order to ease the need to cut back so that it will not be as harsh as I think it has to be and should be. There is that temptation there. It is a political temptation, because this is not something that impinges on the man in the street. Of course, it is something that has very serious national consequences. But as far as the man in the street is concerned, who is often very tempted himself to borrow if he is in a bit of difficulty and can see nothing wrong with it, he does not realise the extent to which we, as a nation have over-borrowed. He may not realise the dangers that we are in. Consequently, there may be no political reaction from him to proposals to increase or maintain, never mind increase, the level of borrowings.
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