Appropriation Bill, 1986 [Certified Money Bill ]: Second and Subsequent Stages.

Friday, 19 December 1986

Seanad Eireann Debate
Vol. 115 No. 11

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Question proposed: “That the Bill be now read a Second Time.”

Minister of State at the Department of Finance (Mr. J. O'Keeffe): Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  The purpose of the annual Appropriation Bill is to give statutory effect to the departmental Estimates for the supply services, both non-capital and capital, including Supplementary Estimates that were necessary during the year. This year's Bill follows the usual format. It appropriates, to the various services set out in its schedule, the sum of £6,566 million comprising the Estimates totalling £6,425 million as set out in the revised post-budget Book [1533] of Estimates and Supplementary Estimates of £141 million, which were approved by the Dáil during this year. The Bill also authorises the use of certain departmental receipts amounting to £537 million as appropriations-in-aid.

The Bill also provides the statutory basis for calculation of the “four-fifths” issues which the Minister for Finance is authorised, under the Central Fund (Permanent Provisions) Act, 1965, to make from the Exchequer towards meeting the cost of next year's services during the period before the Dáil has an opportunity to consider and pass the various individual Votes.

The year 1986 has seen a real improvement in the economic fortunes of this country but it has not been sufficient to make a significant contribution to overcoming the problems of unemployment or the public finances.

Internationally, events this year have been dominated by the fall in oil prices. For Ireland, which must meet up to half its energy needs from abroad, this development has been of major importance. Already we have seen tangible benefits in terms of lower inflation and an improvement in our trade balance. However, it is important that we realise that the full benefits of events this year have not yet been felt; the spin-off effects of the oil price fall on growth and demand in the industrialised world are only now beginning to make an impact.

Against this background of an improving international climate, we can point to solid progress in key areas of the economy this year. The rate of inflation has fallen again, for the fifth year in succession, and has averaged less than 4 per cent, the lowest rate for almost 20 years. The inflation rate was over 23 per cent at the end of 1981, only five years ago. Our current inflation rate compares well with an average rate of 3.1 per cent for the EC. However, the EC average includes rates of 3.5 and 2.1 per cent for the UK and France respectively. The Federal Republic of Germany actually registered a slight decline while the comparative US rate was 1.8 per cent. While the decline in the rate of inflation and the narrowing [1534] of the divergence with the rates for the main trading partners is welcome, the figures nevertheless suggest that further improvement in our relative performance is essential in the interests of competitiveness. This can only come about if we are sensible and ensure that wage trends take full account of the lower trend of inflation.

There has also been further progress in relation to the trade balance and the balance of payments deficit. In the current year there has been a large increase in our trade surplus and the balance of payments deficit is expected to narrow again, to about half the level of last year. I need not remind Senators that the balance of payments is the key indicator for a small, open economy like ours and that the reduction in the external deficit to a sustainable level in recent years has been a major economic success.

Last year saw an increase in the volume of personal consumption for the first time in several years. This year there should be a further expansion in personal consumption, reflecting the increase in disposable income, due mainly to the rapid fall in inflation and the major tax reliefs provided in the 1986 budget. While the retail sales figures, the main indicator of consumption, were rather disappointing earlier this year, the most recent data indicates that the underlying trend of domestic consumption is now definitely upward.

The trend in unemployment continued to moderate in 1986 for the third year in succession. Average unemployment for 1986 is likely to be somewhat lower than had been expected at the beginning of the year. The Government have, within the constraints imposed by the public finances, made considerable efforts to stimulate employment through the house improvement grants scheme and other measures particularly in the area of special employment schemes.

Overall, while we still face real and worrying problems in the economy — the high level of unemployment and the serious state of the public finances remain sources of major concern, we have made progress in certain key areas and prospects [1535] for the coming year are better now than they have been for some time. The international forecasting agencies have indicated that international growth and demand will be stronger next year in the industrialised countries as the full benefits of the oil price fall come through.

The Government's declared intention is to keep the 1987 Exchequer borrowing requirement within this year's original targeted level. We are confident that if this course is followed, it will help interest rates to decline from their present exceptionally high level. This will, in turn, boost confidence in the economy and stimulate investment. This is the only real way to achieve durable growth in output and to reduce unemployment.

Provided there is the right response to the measures proposed by the Government, 1987 should be another year of quite favourable economic progress. Hopefully, the events in 1986 which adversely affected the economy, such as the poor summer weather and the sharp decline in the number of American tourists coming to Europe, will not happen again in 1987. There are good prospects therefore, that there will be a much broader based improvement in activity in 1987 compared with this year. Furthermore, we also stand to gain from the more buoyant international conditions which are now emerging. If exchange rates and crude oil prices remain relatively stable over the next year or so, there is likely to be a period of low inflation both domestically and internationally which should ease the way for the degree of pay moderation so necessary for competitiveness.

As Senators will know, there has been some slippage in the targets which the Government set for the public finances this year. The latest available expenditure and taxation returns point to an overrun on the current budget deficit of about £170 million and to an increase of the order of £180 million in the Exchequer's borrowing requirement. It should be noted that this year's overruns are the first of any significance in the past four years. The excess of up to £100 million in [1536] non-capital supply services expenditure is to a significant extent attributable to a combination of circumstances which could not have been anticipated. Extra expenditure on agriculture has been necessitated because of bad weather conditions and increased costs of intervention owing to the devaluation of the Irish pound. Other expenditure factors contributing to the overrun have been the teachers' pay settlement earlier in the year which involved a net additional sum of £13 million and the recent Government decisions on the social welfare Christmas bonus and the equal treatment provisions which have increased expenditure by £20 million. While the overruns are due, to a significant extent, to factors of a non-recurring nature, they highlight the need for even tighter control of public expenditure in future years. The balance of the overruns have resulted from shortfalls in tax and non-tax revenue.

As far as the 1987 budget is concerned, the Government have already announced their decisions in the crucial area of borrowing. These provide for upper limits of 7.4 per cent and 11.8 per cent of GNP on the current deficit and of the Exchequer borrowing requirement respectively. In settling these targets, the Government's concern was to find the right balance between reducing dependence on borrowing and avoiding excessive disruption. A continued high borrowing policy will undermine our political and economic independence. It makes Government policy dependent on international interest movements, international banking opinion and other external factors. Accordingly, a reduction in Exchequer borrowing is a key priority.

The Government are at present finalising the details of the 1987 Estimates within the framework of the budgetary decisions already announced.

There is widespread frustration with our tax system. The general consensus is that tax levels are too high and that the distribution of the burden, for a variety of reasons, is unequal.

I need hardly remark on the increase in the tax burden over the past decade. [1537] As a proportion of GNP, taxes have risen from 24 per cent in 1975 to more than 36 per cent now. The adverse impact of this high taxation on the economy is unfortunately all too evident. It acts as a dis-incentive to hard work, to initiative and investment. It encourages the spread of the black economy. It distorts trade and encourages smuggling. However, substantial tax reductions are not feasible in the short term since they could only be achieved through further borrowing. That is not an acceptable option, because borrowing is no more than deferred taxation. Today we are paying the tax that was deferred last year and for the past ten years. The higher taxes we pay today are in consequence not available to support spending programmes. Instead, an increasing burden of interest on past debt is pre-empting much of our revenue.

In the longer term, with substantial growth in the economy, with more people at work and with a healthier budgetary position, there should be room to bring taxation down to more acceptable levels. However, to reach this position, we must first curtail public spending to a level our economy can reasonably support. Only through the control of expenditure can our excessive borrowing and burden of debt servicing be ameliorated and the conditions for stimulating sustained economic growth be encouraged.

In its recent report entitled “A strategy for development 1986-1990”, the National Economic and Social Council said that “the stabilisation of the debt-GNP ratio must now be a minimum objective of fiscal policy”. It emphasised that “any adverse consequences of stabilising the debt burden must be set against some of the more positive effects”. It went on to say that “it is neither feasible or desirable to effect the required degree of adjustment...... through the medium of higher taxation”. The Council also recognised that “correction of the chronic imbalances in the public finances will require a considerable degree of sacrifice from society”. However, it pointed to the positive effects of adjustment, saying that these would “derive primarily from an easing [1538] of interest rate pressures”.

There are lessons in all of this. The policy of following a path of high expenditure, part paid for by high taxation but also based on heavy borrowing, has failed. High taxation has impeded growth. It has also evoked an understandably adverse public reaction. We must change our approach — continuation of that kind of policy can lead only to further and greater difficulties.

If we are to create the growth that is needed to expand employment and to sustain a reasonable level of public services, we must first create the conditions for that growth.

I recommend the Appropriation Bill for the approval of the Seanad.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  I should like to congratulate the Minister and his officials for presenting this document to us — in fact, I think he should submit it to the Booker prize committee. He should submit it in the fairytale category and it might have a good chance of winning some sort of a prize. Speaking realistically about the economy, this Bill before us and the Minister's speech is far removed from what is perceived and what is actually happening in the Irish economy today. The Minister does not have to go very far from this House to see the large numbers of unemployed. The Minister may suggest there is an underlying trend of a growth in employment but this is not being perceived outside. The 235,700 people who were registered as being unemployed last week, which probably has gone up to 245,000 this week, would not agree with the scenario as presented here this morning.

There is no doubt that excessive borrowing has played a major part in the problems which have been created for the Irish people. It appears to me and to many other people that the Government do not realise the situation is not improving. There is an over-simplification in the Minister's speech regarding future prospects. When one looks at the problems which are going to be faced and which are being faced by the agricultural sector as a result of decisions made in Europe [1539]— even in the past week — one will see there will be further problems in that area. However, they are not referred to by the Minister, and he is presenting the appropriation account here to us at the end of this session of the Seanad.

As has been suggested, there will be short term gains in agriculture for those who get out of milk production but this 28p per gallon over the next seven years is purely and simply a short term gain. After the seven years there is very little chance that these smaller farmers, particularly when they get out of milk, will have the opportunity to work in agriculture. There is little opportunity of changing to beef because that is not an option and neither are root crops or cereals. There is also the fact that it would appear from Government policy that they will close the Tuam factory. The Tuam sugar factory gave small farmers in the west an opportunity to have a cash crop at a time when they needed cash.

Mention has been made of the international drop in the price of oil and resultant significant advantages to the Irish economy. Unfortunately, whatever advantages are associated with the drop in oil prices, have not been passed on to the general public. The tax take from oil is much higher than it should be. This is reflected in the fact that many thousands of people have been put out of work in the motor trade over the past few years. This is due to direct Government intervention, in the sense that the take by the Revenue Commissioners from oil has increased. Another significant point that has been raised in the Minister's speech, is that the tax take in terms of GNP, has gone from 24 per cent in 1975 to 36 per cent which is an amazing increase in a short number of years. This increase, in tax take by the Government, is reflected in the fact that shoppers are no longer able to buy Irish goods.

It would appear that an increasing number of people are going across the Border, to England and outside the country for their purchases. It is disgraceful to think that each day there are thousands of people crossing our Border and with [1540] no attempt by the Revenue Commissioners to check the goods that are purchased in the North. There does not seem to be a willingness by Government to tackle this major problem. I have absolutely no wish to suggest that Northerners should not shop in the South and that the Southern Irish should not shop in the North. It is essential if we are going to have coming together off the communities in both parts of the Island, that we should have the to-ing and fro-ing of a cultural nature and in an economic sense. Nevertheless, if we have a tax regime in the South which is so high, which precludes people from buying essentials in the white goods area, in the motor accessory and in the motor vehicle area, in the area of electrical goods of all kinds and in certain foodstuffs, and particularly in the area of detergent powders and so forth, there should be further checks on traffic on the main roads in and out of the North.

The motor trade has been decimated over the past number of years because of the increasing intervention by Government in the raising of taxes and the taking of taxes from this particular section. The motor trade, which was very highly motivated, which provided excellent training and jobs for young people and provided many jobs will disappear unless there is some help given to it. The agricultural industry is facing increasing problems in every area. These problems, are due to the fact that the CAP system is coming under increasing pressure. It would seem that food production will not be subsidised and the marketplace is going to dictate what farmers will get for their products. This may not be a good thing for the Irish farmer. If we could do away with the intervention mountains there would be a better perception of fairness in the system.

It is disgraceful that the only people who are making exceptionally good money from the intervention system are the people who are running the intervention cold stores. It is disgraceful that food is left in these intervention stores until it becomes unfit for human consumption. Suggestions have been made [1541] that this food should be sent to areas in southern Africa experiencing hunger. Unfortunately, if there is a total dumping of free food into that particular area, while it might solve some of the problems of hunger in the area but it could, equally, wipe out an indigenous farming population in that area who depend when they get rain on the sale of surplus farm products for the only small amount of cash they are able to gather.

The spin-off which the Minister mentions in terms of the fall in oil prices has not been felt by the consumer. There have been small reductions in the cost of petrol. When one looks at the price of a litre of petrol as against the price of a litre of petrol ten years ago one would see that the reduction is not significant because of the higher tax take. It is suggested there is going to be a reduction in ESB prices over the next weeks. This must be welcomed. Any reduction in ESB charges will have a certain effect on the Irish industrial scene and, again, might turn some companies which are marginally unprofitable at present into profit.

The difficulties facing Irish business because of high taxation are to be seen every day in the growth of unemployment. Anybody who reads the newspapers each day will see that there is an increasing number of companies going to the wall. The number of liquidations and receiverships is not decreasing but is increasing at an alarming rate. If one reads the Dublin gazette or any trade magazine one will see that they are getting bigger and bigger as judgments are made against an increasing number of companies. An increasing number of companies are being put into liquidation. Unfortunately it is not voluntary liquidation where companies are just closing down; there are companies closing down voluntarily because they find that they cannot get a return from their investment in business.

The situation in the motor trade and farming is disastrous. Another indicator one could look at is the situation in the beer trade where public houses are closing [1542] down. In the past in times of economic decline public houses seemed to do well because people went to public houses because they felt they could forget their troubles. They do not have the money to go there now and public houses are closing down throughout the country as are businesses which traditionally close down when the cold economic winds blew through the business scene.

The fact that the inflation rate has come down is not for something the Minister should praise himself. The inflation rate came down in Ireland because of international trends.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  The Senator did not say that when they went up.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  The fact that inflation has come down to 3 per cent has meant that interest rates are at 15 per cent to 17 per cent depending on whether you are a “AAA”, a “AA” or whatever. You can pay between 13.75 per cent and 20 per cent for money and with inflation down to 3 per cent the real interest rates being borne by businesses have gone up by approximately 10 per cent in the past year.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  They will go up much more.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  Even though there might seem to the Minister to be a benefit in having a very low inflation rate, the only real benefit that would accrue from a very low inflation rate would come about if interest rates come down. Only when interest rates come down will the benefits be felt in Irish industry. When inflation was at 23 per cent bank interest rates were at approximately 15 per cent so there was a benefit to the customer in having a high inflation rate. It may not have been of any great benefit to the Government at the time. Nevertheless it is a fact that the inflation rate has come down but it has not come down because of the influence of the Minister or the Government.

Bank interest rates are too high and very few businesses can afford to stay in [1543] business with the high interest rates that are being charged as a direct result of Government intervention. I hope that within the next few months there will be a lowering of interest rates. The prospects do not seem to be good for that because there is no mention of it in the Minister's speech. If the Minister thought interest rates would be lowered he should have said so.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  I am totally convinced of the re-election of this Government.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  When the Minister was introducing this I said he should go for the Booker prize in the area of fairy tales. The flight of fancy he is trying to bring into the debate now is only equalled by the speech he made to the Seanad this morning. I wish him well in his retirement from the junior ministry and I hope the Government will still allow him to keep his pension. Even though he will probably be back as a serving TD it will be a long time before he will be sitting in front of the Seanad again. I hope to be back here but I am sure we will be changing sides and that I will be addressing the Minister of the day directly rather than obliquely.

Acting Chairman (Séamus de Brún): Information on Seamus De Brun  Zoom on Seamus De Brun  Keep to the terms of the debate.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  It is Christmas time, the time of good cheer.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  Reference has been made to the trade balance, the balance of payments deficit and the large increase in our trade surpluses. The balance of payments deficit is expected to narrow again to about half the level of last year. Unfortunately the benefits in terms of trade balance are not accruing to a large extent within the Irish economy. A number of funds are being generated in Ireland which are being expatriated by international companies. Even though much money is being made by these companies it is being expatriated — the black [1544] hole as it is being called. I am not suggesting we should stop foreign firms from coming in to Ireland. The investment of foreign firms is and has been of enormous benefit to this economy. There are about 8,000 foreign companies in the country and a large proportion of these are from countries within the EC. Over the next few months the new Government will have to address themselves to the question of the completion of the internal market and try to ensure that in the completion of the internal market trade barriers will be broken down within the EC. Unless trade barriers are broken down we are not going to get any benefits from the European Community. We are suffering because of the fact that the internal market has not been completed.

The Minister's Department suggest that there will be large reductions in revenue to the Commissioners if there is harmonisation or rationalisation of taxation regimes throughout the European Community. I do not think we should have problems all along the way. There has to be some sort of rationalisation and harmonisation of the taxation system throughout Europe and equally there should be no inhibitions on cross-border and trans-border traffic of goods manufactured within Europe. The difficulties we are experiencing in terms of trade are not being experienced by our major trading competitors such as Japan or America. If one leaves Boston with a load of goods one crosses State barriers but there is no inhibition in regard to border controls. There are no paper work controls and they have the same taxation regime within the States.

Japan is one of the best trading nations in the world and they do not have the same problems as we have. We, in Europe, should look at Japan more carefully. Even though we are looking for an opening up of trade throughout the world, nevertheless the barriers put up by Japan against imports should be looked at. We should not allow so many Japanese goods to come in if we are not prepared to hammer at them that they must allow the same openness in terms of Irish exports into Japan. In terms of [1545] world trade we see Ireland as part of a declining Europe. As a trading bloc the SEATO countries, which would have been considered to be almost Third World countries five or six years ago, are getting stronger and stronger. The Government and the Departments involved in trading should look at this carefully to find out why this is happening.

A projection was made by the Government at the beginning of the year that taxation would be buoyant towards the end of the year as a result of certain benefits they were bringing in because of their taxation changes at the beginning of the year. They said there would be an increase in personal consumption and, as a result, the Government “take” in the indirect taxation system would increase. The Minister mentioned that there is an increase in personal consumption for the first time in several years. He or his advisers have not spoken to the traders. I guarantee that when he goes into Grafton Street, O'Connell Street, High Street in Kilkenny, or Ross Street in Waterford he wil find that there is not a trader in Ireland who would suggest that there is an increase in the volume of personal consumption. The Minister may have figures for the past two or three weeks which would change my impression of this but the statistics we get do not add up to what is mentioned in his speech.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  They are there.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  The most recent data in the case indicate that: “The underlying trend of domestic consumption is now definitely upward”. Underlying trends are no use — it is the volume of trading being done that is important. Ministers suggest that the “underlying trend” in unemployment is downwards even when the numbers are going up. When I see more people going through shops and business premises, only then will I accept that the situation is as the Minister suggests. The Minister says: “The trend in unemployment continued to moderate in 1986 for the third year in succession”.

[1546]Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  It is not perfect but it is better than an increase of 40,000 a year.

Mr. Lanigan: Information on Mick Lanigan  Zoom on Mick Lanigan  There is no point in the Minister trying to fool us in terms of trends in unemployment. The facts are that there are an increasing number of young people unemployed. There are quite a number of young people in short term employment schemes throughout the country which are not of great benefit to them except that it gives a temporary measure of work to them. There has to be a rationalisation in these training schemes. We have to show that these training schemes are going places and are not just stop-gap measures as were brought in in the days of the Famine when stone walls were built all over the country just because they looked well on the estates of the landlords who probably did not live on the estate. There is an element of stone wall building in many of the training schemes. If we are to bring a number of State training agencies together I hope one of the things that will be looked at is the long term benefit of training schemes. I saw about 25 people working on a Dodder bank scheme this morning. Perhaps that will be of benefit to the community around the Dodder bank but what I saw was four people shoving tree fellings into the middle of the river. Undoubtedly these would go further down the Dodder and block some place else. I suggest that the recipient of any benefit that might result from that exercise would be the Minister for Labour, Deputy Quinn whose name was in big print over where these people were working. I presume that was not because the Minister comes from the constituency but whether that will be of benefit to him in the next election is open to question.

With regard to the prospects for 1987 I would wish I could stand up here and say that in terms of business that there would be an increase of confidence within the business community. That confidence is not there at present. I am not going to suggest that we should preach despondency at all times but we have to have a response from the Government that will give the business community the opportunity [1547] to reinvest. There is not enough money left in businesses to reinvest. The result of this lack of reinvestment in businesses can be seen by the number of businesses which are closing down and the huge increase in unemployment.

There are going to be benefits in the future because we have a very young and better educated population. I read the statistic the other day that between 1982 and the end of 1984 650,000 fewer people were living in Germany and that between 1984 and 1986 there will be a further one million fewer. Obviously the population trends are going downwards in that country. I am not a preacher of emigration, but there will be opportunities for our young population in such places. The biggest problem the Germans will face in the near future, the problem we are facing now, is that as the population grows older the State will have to provide more services for elderly people and there will not be enough people paying tax to support them. When, as in our case there are too few workers, a higher percentage of tax must be taken from them. The Government must change the trends in unemployment and leave enough money in business to sustain future growth in that area. If there is to be a future growth obviously there will be an increasing employment rate.

The biggest understatement made by the Minister was in relation to public finances. He said that there has been some slippage in the targets the Government set this year. He also said that the excess of up to £100 million in non-capital supply service expenditure is to a significant extent attributable to a combination of circumstances which could not have been anticipated. The dogs in the street could have anticipated that this £100 million non-capital supply service expenditure would come about. The Government did not foresee what was going to happen throughout the year and they should have. We accept that extra expenditure on agriculture as being necessitated by bad weather and the increased cost of intervention owing to the devaluation of the Irish pound. The [1548] Government devalued the pound at a time when oil prices and interest rates were coming down. They made a major blunder in that decision which was taken over a weekend. The effects of that devaluation were not to the benefit of the economy, as has been accepted here. It has cost the economy. There is no point in bringing in other expenditure factors which contributed to the overrun. It is obvious that in any year there will be an overrun in terms of negotiations which go on about pay and conditions.

From reading the Bill I see that over £9 million was paid in overtime to 1,600 prison officers. This is disgraceful at a time when we have such a huge unemployment problem. I am sure the Prison Officers' Association would prefer to have more people working within the prison system. In that way we would have a more efficient prison system and the officers would be working hours which are compatible with a reasonable lifestyle rather than what is happening at present where they are being paid excessive amounts of overtime, working excessive hours and the conditions are not up to what they should be.

The constraints being put on people in the public service are not to the benefit of the country in general because there is an arbitrary reduction in the public service. There are areas of collection of revenue which are being neglected. There is absolutely no doubt but that there is a need for extra people in the Revenue Commissioners. I am no great lover of the Revenue Commissioners, having problems with them which are of my own making. I would prefer to see more people employed and that an actual amount of tax could be suggested as being owed rather than having the present situation where there is complete misapprehension as to what tax is owed and what has been assessed.

In the area of customs and excise there is a need for the employment of extra people. These people would not be a burden on the State because the State is losing a considerable amount of revenue because of lack of officers. It is disgraceful coming up to Christmas that [1549] because of a dispute in the postal system, there was no control on parcels coming in to Ireland. It has been suggested that quite an amount of drugs and arms were brought in. These suggestions may or may not be true, but the fact that there were no negotiations to solve that problem has meant an outrun of revenue.

There is widespread frustration with the tax system. This State is more socialist now than many States who would declare themselves to be socialist. If there was a reasonable return on investment in industry there would be nobody in Ireland who would not be willing to pay a reasonable amount of tax on their profits but we have a tax regime, between direct and indirect taxes, which is a disincentive. Even those who declare themselves to be socialist would like to see people get a reasonable return so that you could have some benefits to spread throughout the economy as a result.

Coming at the end of the year this debate on the Appropriation Bill is obviously important. Unfortunately, because of time constraints the debate will finish before Members will have had an adequate amount of time to go through it. However, I am glad the debate will continue after Christmas and, on the runin to a general election, speakers will have an opportunity to say a few words about what should and should not be the policy of future Fianna Fáil Governments after 19 February.

I agree that the stabilisation of the debt-GNP ratio must now be a minimum objective of fiscal policy. We have to have a stabilisation of the debt burden within this country, and we have to have a reduction but the present Government have increased the percentage of debt borne by every single member of the community in Ireland. The Minister is welcome to his view about the economy but I am afraid his viewpoint as expressed here is not the viewpoint of anybody outside the walls of this Chamber.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  As a socialist Member of the House the confidence of my colleague about the return to Government of his party fails to impress me. He has some [1550] grounds for his belief, according to the polls etc. I wish them well in the democratic process but I would not rush into the situation as quickly as my colleague because the public are questioning many things nowadays which in the past they took for granted. The previous Government — now in Opposition — are not entirely blameless for some of the problems we have inherited in Ireland, and which we are now trying to come to grips with as a result of previous policies including massive borrowings to finance existing debts and other non-productive purposes. This Government, who have been trying to come to grips with this problem, have been castigated for trying to be responsible in their approach to the problem of the economy. In spite of their past deeds in the areas of economic participation it amazes me that there still seems to be this inbuilt support in the Irish electorate for the idea that a continuation of this kind of policy in the future is somehow the answer to all our ills.

I was looking at a television programme last night which suggested that promises are now being made which could be costed at about £800 million. Nobody seems to have any idea of where this kind of money can be found. If the public are still unaware of the consequences of those kind of promises going into an election this country will never come out of its economic crisis. I hope the electorate will be much more definitive in their questioning of how we can continue to survive as a nation and try to pay our way. The total amount of £6.5 billion in the Appropriation Bill is pretty staggering: the Houses of the Oireachtas, £12 million; the Central Statistics Office, £13 million; the Office of Public Works, £106 million; the Office of the Revenue Commissioners, £86 million. Senator Lanigan advocated increasing expenditure in the revenue area, putting more people into tax offices. There have been calls from people who feel that our tax collection system does not have the best record in the world. I do not know if that goes back to what is perceived to be the amount of money owed to us arising from assessments [1551] made and not contested or the actual genuine amount of money that is due. There is a feeling in the minds of working people that somehow the private sector, the farmer, the self-employed and the business man are paying no tax or can get away for years without paying it. If the Revenue Commissioners need additional staff and facilities to come to grips with that problem we would all agree with the concept that we should have a proper system to collect from people who legitimately owe money to the State.

The areas of highest expenditure include social welfare at £1.552 billion and health at £1.153 billion. These are staggeringly high figures. The problem with figures like that is that in a tight budget situation they seem to be the areas economists and media writers always turn their attention to — if we were to solve the evils in our economy these high spending areas should be approached and attacked. That is a dangerous philosophy to have, because the people in those two areas of high spending are the people who are most in need. They are dependent upon the social welfare system and the health system. They are two of the major spending areas and they are two of the major areas to which the lower paid or the underprivileged turn in their time of need. It is popular nowadays to talk about effecting economies in these areas, but it is highly dangerous. We could do untold harm to the poorest sections of the community if, for the sake of balancing the books, we were, to introduce some sort of curtailment in these areas. The economic consequences of doing that would be extremely serious.

The Minister, in his speech indicated improvements that have taken place in our economy. One has to keep repeating this because people do not believe it. The public do not believe it simply because the expectation rate of everybody is continuing to increase away beyond our capacity to meet it. They are more willing to believe that we are in a crisis rather than that anything constructive has been [1552] done or is being done by the Government. I hope, whenever the next election comes that there will be a forum in which people can be properly informed in this whole area of how we are going to attack problems of our economy.

Inflation is continuing to fall and is at its lowest for many, many years. As the Minister said, when it was increasing the Government was blamed for it but when it is continuing to fall the Opposition suggest we should not take any credit for it. It has fallen and it is at a level which we all welcome. Our industrial exports have continued to rise.

Public expenditure is a major problem and must be brought under control but not necessarily curtailed in the sensitive areas which I mentioned. The rate of unemployment has dropped but the total numbers are continuing to rise. As Senator Lanigan said, irrespective of the trend being improved, the numbers are continuing to rise. The Senator would know because in their last Government, in their last year in office unemployment increased by 40,000. The annual average increase at present is about 3,000, which is a dramatic improvement. Unfortunately, we just keep adding to our total unemployed workforce young people who will have to turn either to emigration or become dependent on social welfare unless something specific is done in this area.

This brings us back to Senator M. Higgin's contribution this morning about a planned economy. Unless we plan how jobs are to be created and how an economy is to be developed to create jobs, then we will have missed the economic tide. This country is too important to all of us to allow that to happen. We hope that whoever captains the ship in 1987 will realise that it is very easy for the ship to run aground so that it becomes waterlogged.

Senator Lanigan condemned some of the social employment schemes that have been inaugurated particularly over the past 12 months. I do not share his views in this regard nor will anybody who is associated with local authorities or local [1553] communities which have availed themselves of these schemes to employ people in very important work in the community, environmentally and otherwise. This scheme has brought between 11,000 and 15,000 off the dole and into employment. It has made a major social contribution in the areas in which it applies and psychologically it has been very important for those who participated.

The improvement during the year from £70 to £85 for a social employee and his dependant was a further incentive for people with families to come off the unemployment register. The amount of work that has been done by local authorities — not just building stone walls as Senator Lanigan has said — in many very important environmental projects, has been dramatic. Anybody dealing with the trade unions, county managers or anybody at local authority level will tell you that it was one of the most important employment schemes ever initiated by any Minister. The Minister, Deputy Quinn, should be congratulated for the way he designed the scheme. As a result of that he was chosen recently to chair an international conference of Ministers of Labour in the area of economic development. I am pleased that the scheme has been revamped and that local authorities have been given the all-clear to go ahead with further projects. With the removal of the rating system and the financial consequences for local authorities we were precluded from employing people directly because we did not have the finance available. We were greatly limited by the restrictions on our capabilities to strike a rate.

Members of my party have been criticised for being Members of this Government. This criticism has come from everybody, including trade unions. I said in this House recently that it may take ten years for the workers and the poorer sections in our community to realise the input that the four Labour Cabinet Ministers had in this difficult period: it was a difficult period, a period when it would have been much easier to be in Opposition and to call with abandon for all sorts of spending sprees without having [1554] the responsibility of having either to cost them or provide the finances for them.

In that difficult period we have managed with our colleagues in the Fine Gael Party to develop a whole range of economic activities and maintenance of social welfare to a degree that had not been surpassed in the Community. We all admit that the introduction recently of equality legislation in social welfare created problems and in spite of the easing of those problems by temporary measures by the Government there are still problems in that area. I am not satisfied that the legislation or the directive initiating the legislation is in any way creating equalities. I have discovered that while the legislation and directive from Europe insisted that people would be treated as equal — men and women, married or otherwise, in the areas of social welfare — in introducing the legislation it was still provided that instead of treating two married adult claimants as equals in their own right to social welfare benefit at the end of the day, if by so doing their incomes totalled more than that of a married couple, they would get only the married couples' allowances.

That is not equality. A married woman in her own right should be able to claim if she has stamps and get paid in her own right. A decision can be made which of them can claim for the children or you can divide the number of dependants. I honestly believe a woman should be treated in her own right as an adult and the fact ignored that she is a dependent adult. There is the concept that if you put the two of them together at the end of the day they cannot be paid more than a married couple. In the area of social welfare the equality concept has not been properly addressed at all. That will have to be looked at again. We can still do so and live within the directive from the Community.

Other areas where the Government have managed to bring about major changes include the implementation of the legislation setting up the National Development Corporation. We have also had a radical reassessment of the health services. The Minister for Health has [1555] come in for more criticism in his time than any other Minister — unfairly, because the Minister has applied his efforts in an economic area which involves so many of the poorer sections of the community but which also gives a very important service to so many people that any rationalisation of that programme is obviously going to be misrepresented. He has achieved much. He has tried to cut out wastefulness that happened in the past in the health services. This has always been referred to as a cutback. In my area, in spite of saving about £15 million over a period of four-and-a-half years the health services continue to be delivered very efficiently. We managed to have economies in areas of wastefulness. That is how our Parliamentary Party would want to see the public enterprise developing. In spite of our minority position in Government, we have made a major impact on public decisions of tremendous importance particularly during periods of recession and hardship.

In the area of the Department of the Environment there has been a major development programme, the biggest road building programme in the history of the State. The level of investment in roads for the years 1985 to 1987 will be greater as a percentage of GNP, as a percentage of the total capital expenditure programme than at any time over the past quarter of a century. It has risen steadily from 3 per cent of total capital expenditure in 1980 to 7 per cent in 1985 and 8.5 per cent in 1986. There are major roadworks all over the country as anybody travelling our roads will have seen. There are roadworks going on in my constituency and throughout the country. The road projects itemised in the future planning programme which will be completed by 1987 will include a whole range of other major road by-passes that are being discussed and processed with local authorities.

We have tried to keep a balance between the national primary network and the network in urban areas and in the less important roadways. A proper [1556] road and rail network are important infrastructural developments in any country that aspires to be industrial. The record of this Government in the area of infrastructural development has been second to none. I am very proud of that. Improvements have been made through road block-grant assistance to local authorities in many areas in which specific allocations were made which could be applied for the first time to local authority roads, particularly since the change in the rating system.

In the area of local authority housing, the Government have made a most significant contribution to curtailing many of the waiting lists. We have complaints from some local authorities that they have houses to which they are unable to assign tenants. It is a pity if that is the case but in my local authority area the Minister has approved of going to tender to renovate the low-cost houses that were built under another jurisdiction and which have created major problems for us because of maintenance and the fact that very few people wanted to take up occupancy. We found them suddenly becoming the cause of social problems. They were becoming ghettoes; normal families were not prepared to accept them and were prepared to go on waiting lists for better houses.

This Government have now put in a scheme of high subsidy assistance to local authorities to enable them to bring these houses up to the proper standard. I hope when that happens that most of the local authorities in the country will not have the kind of waiting lists I remember in the days when we were in Opposition and when we called for emergency housing programmes because we had so many families waiting for houses living in caravans and wrecked motorcars. We have gone from that. This Government have built over 7,000 local authority houses per annum over a number of years. The standard of local authority houses is higher than has ever been achieved before. It has not been achieved by some of the private sector housing or co-operative housing in the same areas on land provided by local authorities. There has [1557] been a dynamic input by the Government into the development of houses for people who need them.

The private housing sector has also been assisted by increases in new house grants. New house grants have gone up from £1,000 to £2,000 and people can now get a house grant for a second house. For the first time ever, people can improve their situation by building a second new house. When the scheme was initiated if you had a house in England you would be barred from a new house grant in this country. That has been liberalised recently by the Minister for the Environment and it is possible to get normal grant incentives. The £5,000 grant for local authority tenants transferring to private houses, whether new or secondhand, has been a tremendous boost and has given people an incentive to improve their housing. That has ensured a steady flow of secondhand local authority houses has become available for renting. Many people have criticised that but I see nothing wrong with helping people to help themselves, if by so doing they make available to the local authority a house in good repair. It has to be in good repair under the scheme. That is progress.

I have listened to criticism from the Opposition of this Government's activity in the construction industry. I heard their spokesman last night throwing in this as if it was going to be the panacea for all our ills. I do not know whether the private sector building private houses needs Government assistance to do that. I agree the construction industry has contracted because the private sector demand has diminished. I do not know if that is the responsibility of Government. Some people who do not believe in socialism would say that it is not but they are the people who feel that it should. I am anxious that we get our minds straight on what we are doing. Are we providing incentives for people who cannot build houses, or are we providing incentives for those who can, and want money handed direct to the construction industry?

This Government have carried out more public construction than any [1558] Government in the past. They have built hospitals, health centres, local authority houses and roads, all in the construction industry area. They have used public money, European money and other moneys to develop a public building programme, and still we hear talk that the construction industry needs further assistance. I am prepared to listen to any argument but our policies have been generous with the building industry. If something else needs to be done that would generate employment, let us talk about it.

Since the foundation of the State, industry in Ireland has accepted assistance from this Government, through the tariffs that were imposed in the thirties to protect and make easier the expansion of industry, through credit provided by the ICC and the rapid expansion of grant aid to industry by the IDA in the sixties, seventies and eighties and the wide range of subsidised, specialist services that are provided by all the State agencies. Despite this, we have arguments from the industrial sector for a free private enterprise ethos allowing individual enterprises to flourish without Government interference. There is scarcely a firm or industry in this country that has not over the years benefited in some way from the IDA, CTT and AnCO grants and other grants and specialised services like the IIRS and other Government agencies. Most of the industries appear to want the freedom to accept Government funding with no strings attached and the freedom not to pay any tax. That sums it up. We have been a most generous State in trying to influence industrial development here from abroad and we have been successful. The IDA have been criticised for their expenditure in this connection but if we look at what they have been trying to do, they have been successful; they have managed to coax people to come to this country to set up industry here and taxpayers' money has been used to do that.

We are an open economy and I applaud that. Senator Lanigan referred to us as a socialist economy. We are certainly liberal [1559] with the private sector, and have been, and I am not at all satisfied with the response of the private sector in the job creation area. Everybody seems to feel that it is the Government's responsibility. Everybody also agrees that it is the Government's responsibility to create a climate which will be an incentive to industry to set up here.

I have itemised some of the areas in which we have tried to assist industry to come to this country. The great paradox is that those who have argued loudest against the NDC have been those who have happily accepted that the IDA, Industrial Credit Corporation, Fóir Teoranta and all of these should provide funding for the industry. We want to establish the concept of a corporation that could link the two together, the State and the private sectors. They had ideological problems in that process. They like the transfer of funds from the State to themselves and say: “Thank you very much” and leave it at that but they do not like to have responsibility to say how they spent the money. The National Development Corporation are the ideal kind of vehicle and I hope they will prove so in the future. Recently they have gone into some enterprises which possibly without them we would have lost. I am thinking of our national film industry. Were it not for the intervention of the NDC it is possible that the kind of people who are now involved in it would never otherwise have been involved. There is this kind of schizophrenic attitude among capitalists or people who follow the capitalist system to feel that it is all right to hand money to the private sector not to set up any formal structures under which anybody would have to reveal how the money was being spent, or how efficiently. This is what Senator Michael D. Higgins is talking about — planning what we are doing in a proper way. There has been an investment from the public and private sectors in this practical idea and generally, once people overcome the ideological hang-ups they had about it, they will see that it will make a major [1560] contribution to industrial development in the coming years.

There has been a lot of talk recently from many people including some Ministers who are fond of talking about privatisation. They talk about the possibility of efficient State enterprises being disposed of to the private sector. They do not see anything wrong with it: the money that would be got from that would help our balance of payments and all this kind of philosophy. I am always worried about the fact that the enterprises they want to sell off to the private sector seem to be the efficient ones. The Government have put public money into trying to make the public sector efficient. Why should we dispose of it if it is going to be efficient and would be of benefit to the Government and the coffers of the Government in the future? We have dealt with legislation here and I hope will make for efficiency in CIE and other similar bodies but I would also like to feel that having developed an infrastructure in forestry and a planting programme it would benefit the people as a whole. If banks can see a future in going into forestry, well, let them do so in virgin land that is suitable. Why should they expect the State to hand over or to buy from the State forests in which we have invested public money?

It is easy for An Bord Telecom and An Post now to be efficient. Everybody talks about how marvellous they are since they were taken away from the Department: the reality is that we had put the whole thing together for them and invested public funds to make them efficient, millions of pounds, in infrastructure, new cable lines etc. — hundreds of millions — and then we handed them over. If they do well in the first year afterwards they are marvellous: it just goes to show how bad the Government are and how they handle Departments. This kind of attitude begins to come into the public mind whereas we made the operation and then handed it over. Unfortunately, some of these are in a sort of semi-State situation still but it is intended that they should run on a commercial basis and there is nothing wrong with that. I do not think [1561] it could be said that we ever supported lame duck situations, even in the public sector. We have always been anxious for efficiency and I think that the more efficiency we can get from the public sector the better, because we could enter into a new era of public sector bashing. It has been going on. At public meetings or any function that one goes to address as a public representative, the first to be the scapegoat of any criticism is the Civil Service or the “faceless bureaucrats” in Dublin or in Europe or wherever else it is. It is a popular thing now if you cannot put a face on somebody to criticise them. If you sit into a bus, train or plane, somebody behind you will be critical of public servants, civil servants, Oireachtas Members or the Ministers. This is quite a dangerous thing. Unless we stress the importance of what we are trying to do within the democratic process the whole fabric of what we are trying to put together and hold together in this country could be in danger. Deputy Kelly said yesterday in the other House that we could be entering into an era when the whole system we are trying to defend here, the democratic system, could be wiped away and you could have a dictatorship very easily. If we do not convince the people that we are constructive in what we are trying to do in the economy then I think they might lose faith in what we are doing and maybe take things into their own hands. That can happen very easily.

As a small party in Government we were faced during the last four years on many occasions with very hard decisions and they were made, not for political gains because you would not want to be an economist to realise that some of these decisions would have electoral consequences, but with the interests of the country at heart. They were not made easily or without some rancour and some argument within the parliamentary structure we have, and indeed within the executive structure we have. However, these decisions we felt had to be made at the time and I suppose it is inevitable that further decisions will have to be made in [1562] the future. We will only have to wait and see. The party are big enough to realise that changes are coming and will have to be made. If we can live with that, fair enough, and if we cannot everybody knows what the consequences will be.

Tax reform has been frustratingly slow. Many people see no reason why the whole tax system could not be changed overnight. We realise that it is not as easy as that for two reasons. Everyone is, in theory in favour of tax reform and greater equity. Each one of us individually think that this should mean that other people should pay more tax than we do. This is an understandable attitude and it leads to a lot of debate in public fora, at trade union meetings, labour council meetings or any other meeting. Everybody talks about tax equity and they understand it to mean that other people should pay more and they should pay less. I listened to a prominent trade unionist recently saying that the most important thing is not just to be talking about lesser taxes but to spread the tax burden more fairly and evenly throughout the spectrum of the economy, self-employed, farmers, industrialists, PAYE workers, everybody. If everybody paid a fair share of tax the tax load would be automatically lighter on everybody else.

Acting Chairman:  I would not like the Senator to go into any further detail on taxation. The general question, the general burden is relevant on this Bill but not details of taxation.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  I realise that and I bow to your superior knowledge.

Acting Chairman:  I admire the skill with which you walked the edge for a while but your foot did go over the edge.

Mr. Ferris: Information on Michael Ferris  Zoom on Michael Ferris  The problem is that without taxation we will not have money to deal with an Appropriation Bill. This prompts one to talk about the possibility of spreading the tax load so that when we are dealing with the Appropriation Bill in the future we will try to ensure that everybody has contributed to the fund. [1563] However, I look to the future for a greater tax equity and not necessarily a reduction in taxes as a whole because if everybody paid their fair share more services could be given.

Comments have been made about the energy crisis and energy prices and the way they have affected our economy. I share many of the sentiments of Senator Lanigan in this regard. There have been reductions in energy prices. Unfortunately this reduction in energy prices does not seem to have percolated down into the economy to the extent I would wish. It is only beginning to show its effect in the area of ESB charges. The cost of energy has collapsed and this should have had a major impact on the cost of everything but somehow it does not seem to have had the spin off effects we hoped for. I know the Tánaiste is continually reviewing this whole area of energy and energy costs and I hope sincerely that the country will benefit from what has happened in the area of oil prices. I know that when the opposite happened in the seventies when prices escalated, everything was affected immediately. The price of everything escalated the day after but that did not happen automatically in the case of the reduction in prices. I hope this new Restrictive Practices Committee that has been initiated by the Government following the abolition of the prices commission will look strictly and severely at this whole area of malpractice which allowed for increased profits and did not pass on to the consumer the benefit of reducing oil prices.

With those comments, Acting Chairman, may I welcome you into the Chair. I have not seen you in the Chair for a long time. It is good to see you there but it is more reassuring to have you here closer to me. I support the Appropriation Bill and it is appropriate that we should pass it into law to make Government spending in the year 1986 legal. It gives us an opportunity to have a fairly wide ranging debate on many areas. I could talk about agriculture. I could deal with many areas for which I have responsibility within the party. I do not suppose [1564] anybody needs to be reminded of the difficulties in agriculture particularly with the change in the Common Agricultural Policy and what will inevitably happen in the future in that area of over-production. The Government have responded in two critical years for agriculture and appropriately so. We will have to organise ourselves much more efficiently in agriculture if we are to survive in the Community because the Community will no longer support an intervention system in products which are over supplied. We must try to improve our technology in agricultural production and improve the quality of breeds and the quality of the food that we produce.

We have a reputation within the Community of having the cleanest food available in the whole of Europe and that is our way forward, not just being dependent on intervention as being the saviour of the agricultural industry. Intervention should be at the minimum price available for products which could not be sold otherwise. We are capable and our farmers are geared and capable of producing a much higher quality product which will sell directly into the European market and outside of it, and they can do that by getting assistance from Europe to improve their breeds and to adopt techniques which would help to improve our produce. In that way there is a future for Irish agriculture. There is no future in being dependent on either a quota system or on an intervention system which is obviously going to be under tremendous pressure and makes it very difficult for farmers to plan in the future. I hope we will plan not to produce more but to produce a better quality.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  I welcome the opportunity to speak briefly on this Bill without giving a long monologue about one's political philosophy. Some weeks ago the Seanad had a certain amount of difficulty in having an immediate debate on the crisis in the public finances and very naturally the Government were not over eager to debate the crisis which occured at a particular time when interest rates rose very sharply. Eventually the Seanad did [1565] debate the public finances and by that time the crisis was over and interest rates had settled temporarily at a higher level. It would be wrong for us to believe when debating the Appropriation Bill that the crisis is over, because if you live in a permanent state of crisis you dilute the situation and the meaning the word. We are very close as an economy and in our public spending, in our taxation and in our management of the economy, to being in that permanent state of crisis. We are getting very, very used to it. At some stage, unless dramatic action is taken, that crisis is going to take us over. I do not say it is going to happen this month, or next month, or in a year's time necessarily, but we are moving very close to a doomsday situation in which we will not be able to control ourselves.

One of the indications of this is that this Government who undoubtedly in terms of the public finances have the best of intentions and who have great integrity in trying to put their intention into effect have failed to meet their own targets and have consistently failed to do so. They have failed to meet their own spending targets and revenue targets. If this were to continue the situation would be unsustainable. We have huge political pressures on the unemployment front. Unemployment is a political battering ram which all parties use when they are in Opposition with which to hit each other. Unemployment is a miserable, unhappy state. But unemployment should be recognised by political parties on all sides as being here to stay. The unemployment problem, as far as any realistic politician or economist knows, is a permanent and world-wide problem and it is wrong, although it is tempting for whichever party are in Opposition to make promises and wild policies about increasing employment or as happened not all that long ago about actually creating full employment.

It is simply not going to happen, I do not for one moment question the intentions and the honesty of the Labour Party in their championing of the unemployment [1566] problem and in their disillusionment and their disappointment at not be able to improve it. Those people who are traditionally identified with the cause of the unemployed, in Government, despite their intentions, have been unable to improve that problem. Now they would say that had they not been there it would have been worse. I simply do not know whether that is true. I do not doubt for one moment that that is what they feel.

We do need some sort of realistic recognition that we are a very small country, that unemployment is a world-wide problem and that it is partially out of our control. From doing that and from looking at the unemployment problem and acknowledging that it is probably here to stay we should, instead of just tackling the problem of how much dole we give, be looking at what we do in the longer term with this large pool of unemployed. We should be looking at the problem of whether we are going to create occupations and things for people to do with their leisure time because it is going to be there. We should ask whether they should be doing public work, whether they should actually be employed by the State for the same money that they are getting on the dole and making a contribution to society. We do not seem to have thought beyond what sort of benefits we should give them. Everybody would like to give them greater benefits but economically that is not feasible.

That problem is not realistically acknowledged although there is political temptation in opposition always to say: “We want the unemployed's votes so we are going to promise them that we will get them jobs.” It is a very difficult temptation to resist and no doubt any other political party, apart from the present Opposition, would do exactly the same thing. But it is a false and dishonest promise and they know that because jobs cannot be created just at the drop of a hat. That is why I think we should recognise it and look at it and not be irresponsible about it. We should not even make promises which will raise false [1567] hopes.

I would like to say a couple of things about what Senator Ferris said about privatisation. It is an ideological argument of course. It is one about which we would obviously disagree. I think there is a strong argument for privatisation. I do not see the great benefits of retaining profitable State companies in the hands of the State. Senator Ferris said the only companies that are mentioned are the ones which are profitable. That is quite simple. You would not be able to sell one that was not making any money. It would be quite impossible. Of course they are the only ones and I do not see anything wrong with that. You do not have to sell a State company if you do not get the right price. Surely the State can at some stage say, “All right, we have a State company going. It is worth X and we might get a premium on it. Using ordinary commercial criteria then we can sell it to the private sector”. In that sense, the State is only acting under normal, commercial criteria in selling off one of its assets. I do not think there is anything sacrosanct about the State's assets. I do not see why the State should just hold on to them for the sake of holding on to them and especially in the situation we are in at the moment where the public finances are in such an appalling state.

Surely the whole point of having assets in the end is that you can liquidate them when you need them, that you can actually raise money when you need money. At no time have we needed money more than we do at the moment and we do have some State companies which are profitable. I do not think they would be very attractive but that is a matter of public relations more than anything else. I believe that ideologically it is absurd to say: “No, we must hold it for the sake of holding it.” If the State can get a good price I do not see why it should not sell off its assets, especially when it needs that money for all sorts of different purposes.

Related to that is the issue of the National Development Corporation which this Government set up. That was an ideological decision undoubtedly. It [1568] may have great merits. The National Development Corporation has just branched out into some new projects and I would be happy — although I am not terribly well disposed towards the National Development Corporation — to judge it over a long period of time. I think that would be fair. I am not well disposed to it for lots of reasons, one of which is that this type of corporation has not worked terribly well in other countries. The real problem with the National Development Corporation is that it is working under different rules from those it is competing with.

The National Development Corporation is working under the priority of giving employment, while at the same time working under commercial criteria. Its competitors would be working under purely and simply commercial criteria. When the Minister for Finance introduced this Bill — I do not know whether it was in the Dáil or the Seanad that he said this — he said that quite simply one of the reasons for setting it up was that the National Corporation would be using what he called patient money. I do not think that there is a place for patient money. What patient money means is that you are not demanding the same response from that money as you would if you were imposing normal commercial criteria on that money. That money becomes lazy money and becomes money to give employment. As a result the business is not run properly.

That is the problem, I think, with the NDC. Whereas the people involved have the best of intentions, and those who set it up have the best of intentions, in the end you are not exacting the same demands on it, because it is State run and because it is patient and because it is employment orientated rather than commercial orientated, as you are in a normal private situation. I think there is a great danger of it becoming a rather floundering organisation in time without any enormous thrust behind it. But let us be reasonable about this. Let us, having criticised it — those of us who voted against the idea because we did not like it — now sit back and see how it works. [1569] I am quite prepared to do that over a period of two or three years, while having principled reservations about it.

There are certain areas in which the Government could have made progress and have not. I have not been able to understand why in this dearth of public funds, in this appalling hunger and need we have for funds the black economy has not been more strongly tackled. It is no secret, without being specific, that the black economy is rampant in this country, that there is an enormous black economy out there. I do not know what the size is, but it is something which we all come across day in and day out. There are places where taxation is just being avoided. Taxation being a levy on the transfer of money there are huge openings for the Government to raise money without causing hardship. I do not know the size of the black economy and I do not know how much could be raised by dealing with that problem. I do not think anybody knows but I do know it is sizeable. It is strange that it has not been properly tackled. The regular easy way out is so often taken by just direct taxation and indirect taxation. I commend the Government for their declared intention of making capital cuts of £300 million in the forthcoming budget. That is absolutely essential. I commend the Government for their efforts in the past because it has been an uneasy Coalition between people of different ideologies.

It might be appropriate here to say that it is most disappointing and it is untenable and irresponsible for the Opposition to be continually criticising what the Government do, without producing any concrete programmes themselves. Last night I heard again that extraordinary statement of self-financing coming from a spokesman for the Opposition. I do not understand what self-financing means. The spokesman was saying on television that they were going to pump so much money into the construction industry which would be self-financing. I am sorry nobody asked him what it meant because as far as I see it means that you can keep putting money in and it costs you nothing.

The logical conclusion of that is that [1570] you create full employment overnight because all you do is you put enough money in to give enough people who are unemployed jobs and it is self-financing, so it costs you nothing. That is a nonsense and they know it is nonsense. It is highly irresponsible of the Opposition to say this. It is highly irresponsible of them to make promises about the construction industry which, if they intend to keep, will be an absolute disaster because there is not the need for the construction industry to build all these offices or houses or whatever they intend doing. I do not understand. They are not more specific than saying they are just going to pump the money in and then they are going to let it go. There is just not the demand for that sort of thing.

There has been on the Government stock market some panic reaction in the past six months to certain things that are happening. There has been panic reaction in anticipation of devaluation of the Irish pound. There has been panic reaction on interest rates. There have been situations where people do not want to hold Government stock at all because they have no confidence in the Government's ability to control the economy. They feel that things are completely out of control. However, it should be said that one of the reasons people have not waited to hold Government stock is because they see an Opposition in waiting who are less responsible than the Government. That ought to be said because I see it day in and day out. The one thing they fear more than the present, uneasy Coalition, who have their hands tied behind their backs, preventing them from doing the things which they would like to see done with the public finances, is a Fianna Fáil Party or an Opposition party coming in keeping the promises which they are making. That would be catastrophic for the public finances.

People come to different conclusions but the latest figures with regard to promises are between £700 and £1,000 million. If those promises were kept there would be a far greater crisis in the public finances than there is now and I do not know what the consequences would be. [1571] It would be irresponsible of one to paint the wrong type of scenario. Bad and all as things have been, difficult as they have been, and failing as this Government have in many areas, it would be far worse if the sort of spectre of what we see from the Opposition is anything like the reality. The signal and the truth of that lies in the fact that people are putting their money where their mouth is.

The Government might still give an example to the people in terms of financial rectitude and stringency by looking at the image of politicians which is low in the country, by examining why it is low and possibly by doing something about it. One of the reasons has been the sort of hiccups we have had in the past six or seven years outside the finances of this House, in a different type of area. Where I think the image of politicians is particularly vulnerable is the whole business of State pensions and pay. I do not think that politicians are paid too much — far from it. The public think politicians are paid too much and the public think that politicians have too many perks. I think there is a problem with pensions. I think it would do some good, even if it is a public relations exercise, for the Government not just to change the position regarding State cars but to make tangible moves to reduce the pensions of politicians who are sitting in this House. We had a motion on this earlier in the year. It is right to say that we are out of line with the rest of Europe on that. While it would not save a great deal of money, it would give politicians some sort of credibility and more authority in taking particularly unpleasant surgical measures with the economy under which everybody would suffer.

I have personal disappointments about where money has been spent in the last year. I congratulate the Government for their efforts on divorce. They showed an honour of intention if a tactical mistake of which I would certainly have been a culprit as well. I congratulate the Government on bringing in a Bill on extradition. That shows a certain amount of courage. The only trouble is that it has [1572] taken a very long time to come. It is a pity that the extradition Bill is almost certainly a result of negotiations and outside pressure rather than purely and simply a measure which would be taken on its own merits. I am personally disappointed that the Government have been unable and are now unlikely to bring in a Bill to abolish hanging. I find it very difficult to understand why they have not done that. It is a simple measure but I think a very important measure. First of all, it would be a solid achievement and, secondly, it is vital that that be taken off the Statute Book.

Mr. McDonald: Information on Charles B. McDonald  Zoom on Charles B. McDonald  There have been no executions in 25 years.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  That makes very bad law then.

Mr. McDonald: Information on Charles B. McDonald  Zoom on Charles B. McDonald  What the country needs now are practical measures to improve the situation.

Mr. Ross: Information on Shane Peter Nathaniel Ross  Zoom on Shane Peter Nathaniel Ross  Senator McDonald does not believe that there is any situation in which hanging would take place in this country. Therefore, it should be abolished. It is an absurdity to have a law in operation where every time someone is sentenced to death, we have to go through this absurdity of the matter going to the Cabinet and to the President to have the sentenced commuted. I do not believe for one moment that this country or the politicians in this country are so civilised that hanging would not be introduced in a time of emergency. It is unreal and naive for one to say that. Because it has not been used, it does not mean that it will not be used. That is why I think it should be taken off the Statute Book, so no one would have the option of ever using it. That option is still there. I think it is a great pity and it is false and it is wrong to say: “Ah well, it is never used. It will always be commuted”. That is just nonsense. It is bad law. It also shows contempt for the law. The Senator may wink at me as much as he likes.

There are one or two other things for [1573] which the Government should be commended. One is the Bill dealing with the status of children and another is the Clinical Trials Bill. There is the Air Pollution Bill and all sorts of Bills dealing with reforming legislation which the Government have brought in too late. I should like to see this Bill passing. I would like to see the economy brought back to an even keel in the next budget.

Mr. McDonald: Information on Charles B. McDonald  Zoom on Charles B. McDonald  I will be very brief in speaking on the Second Stage of the Appropriation Bill, 1986. It is a record high sum of £6,566 million all of which has to be collected either from the public or borrowed on behalf of the public. I listened with interest to the speeches made here this morning. We have developed a great tendency in Ireland at all levels to be very critical and to look at and concentrate on the parts of the administration or the portions of the economy that we find personally distasteful for one reason or another. I cannot say that I am any different from the majority of people in that respect. It would be an exercise worth tackling if we were to endeavour to look, in a more positive way, at the achievements of the Government and the progress that has been made in some areas.

Acting Chairman (Professor Dooge): Information on James CI Dooge  Zoom on James CI Dooge  There is a division in the other House. The option is open for the Senator to continue.

Mr. McDonald: Information on Charles B. McDonald  Zoom on Charles B. McDonald  I will continue. Senator Ross, in the course of a very interesting speech, deplored the fact that there has been some slippage in the targets which the Government set for the public finances this year. The latest available expenditure and taxation returns, as the Minister told us this morning, point to an overrun on the current budget deficit of about £170 million, an increase in the order of £180 million in the Exchequer borrowing. This year's overruns are significant. The excess of up to £100 million in non-capital supply services expenditure is, to a great extent, attributable to a combination of circumstances [1574] which could not have been anticipated. Extra expenditure in agriculture was necessary because of the bad weather conditions and the increased cost of intervention owing to the devaluation of the Irish pound. Other expenditure factors contributing to the overrun have been the teachers' pay settlement earlier this year which involved the net additional sum of £13 million, the recent Government decision on the social welfare Christmas bonus and the equal treatment provisions which increased expenditure by £20 million. When on the long overdue legislation on equality treatment between men and women was going through both Houses I do not recall even one voice speaking against that provision.

In addition the Government had to find moneys this year for Bord Gáis, for B&I and Irish Shipping which were not provided for in the budget. The increase in the tax burden during the past ten years or so, as a proportion of the gross national product, has risen from 34 per cent in 1975 to 36 per cent now. The adverse impact of high taxation on the economy is quite clear to everybody. I welcome the assurance given earlier this year by the Government of their intention to reduce tax. Everybody accepts that high rates of taxation are a disincentive to hard work. They do not encourage initiative and certainly they frighten off investment. High taxation trends encourage, to a great extent, the spread of the black economy. In fairness the Government reduced the higher rate of taxation from 60 per cent to 58 per cent in the last budget. They also removed the special 1 per cent levy and this benefited every taxpayer in the country.

The policy of following a path of high expenditure paid for by high taxation which is also based on the heavy borrowings of the past, has quite clearly failed. High taxation has impeded growth. It also evoked an adverse public reaction and the continuation of that kind of policy can lead only to further and greater difficulties. If we are to create the growth that is needed to help expand employment and sustain a reasonable level of public services, we must first [1575] create the conditions for that growth. I suppose the greatest problem facing this country, and indeed the European Community as a whole, is the trend in unemployment.

I was glad to hear the Minister state in his Second Stage speech today that the trend in unemployment continued to moderate this year for the third year in a row. He told us that the figure for this year is likely to be somewhat lower than had been expected at the beginning of the year. I believe the Government, within the constraints everybody recognises, imposed by the public finances, have made a significant effort to stimulate employment through the house improvement schemes, through the greatly enhanced new house grant scheme and other measures particularly in the area of special employment schemes. The Government have introduced five or six schemes such as Teamwork and the work experience programme which were of an experimental nature all of which have contributed very significantly and favourably. Thousands of people got a new break and moved into the private sector with the aid of the grants that went with some of those schemes.

Very often a voluntary committee succeed with the aid of SES or Teamwork in creating temporary employment and in improving the environment to a great degree. After the six or the 12 months for which they signed up ends, they create an almighty fuss. Some people seem to think that if you get on a temporary employment scheme, or a work experience programme, it is like getting an old age pension and you have it until you snuff it. That is purely political propaganda and it is unbecoming of the excellent voluntary organisations who devote their effort and time to improving their own environment and living standards in their localities. It is a pity people have become so dependent on the State and that excellent schemes are decried by virtue of the duration of the schemes. Nobody seems to connect the cost of these schemes either with taxation in general or with public expenditure. This [1576] Appropriation Bill calls for expenditure of £6,566 million, of which roughly £106 million has been spent by the Office of Public Works, £263 million for the Garda Síochána, £70 million for the prisons, which I will come back to later, £1,800 million for education, £261 million for agriculture, £36 million on forestry, £171 million on labour, which accounts for some of those social employment schemes, £245 million for Industry and Commerce which goes towards the IDA and the job opportunity policies, £117 million on communications, £260 million on defence, £1,552 million on social welfare on £1,200 million on health. If you take the three largest spending Departments, Education at £1,800 million, Social Welfare on £1,552 million and Health on £1,200 million, that is a total of £4,552 million. That only leaves £2,000 million out of the £6,566 million in the Appropriation Bill for the other 48 Departments of State. That is where the entire public miss the idea as people are just concerned with their own particular household budget.

People too readily forget that every penny collected by the State through budgetary arrangements and through taxation goes on the public services which are very comprehensive. During the past year each time we have heard public officials, whether working for a local authority, health board or indeed any other State agency, hiding behind or proffering the excuse, that owing to Government cutbacks it is not possible either to give a service or to carry out some programme. I would accuse such officials either of making a political statement or declaring their own impotence as far as their administrative capabilities are concerned. That is something we must tackle.

We must be able to live within our means. According to OECD figures, we are the 25th wealthiest country in the world. We know that we are not the 25th biggest, but expressed as a percentage of the GNP, our expenditure on health, on education and on social welfare is higher than any of the 24 countries who the [1577] OECD say are wealthier than this country. The public are entitled at least to give the Government and previous Governments some credit for the fact that the policies here reflect our Christian traditions and values. I would not say that we spend too much money on social welfare, but we should be aware of the cost of the excellent services we provide. I attend health board meetings in my own area. This week there was a proposal that the fuel scheme should be doubled. It makes a nice heading on the local newspaper. That very fact tends to upset people and raise their expectations.

While we still face the real and worrying problems in the economy, the high level of unemployment and the serious state of the public finances must remain a major source of concern. It is good to see that progress has been made in some areas and prospects for the coming year, as the Minister told us earlier this morning, are better than for some years past. The Government's declared intention is to keep the 1987 Exchequer borrowing requirement within this year's original targeted level. I am confident that if this course is followed, it will help to lower interest rates and this in turn will boost confidence in the economy and stimulate investment. This is the only way to achieve durable growth in output and to help create employment. Provided there is some sort of realistic response to the measures proposed by the Government, next year should be a year of favourable economic progress. One would hope that this country will not have to provide for, and contend with, the same unfortunate weather which caused such havoc and reduced agricultural incomes to such an extent and also the external factors which tended to keep thousands of American tourists from coming here.

Having regard to difficulties, I feel obliged to compliment the Government on the continuing drop in the rate of inflation. Nobody is interested in inflation any more for the simple reason that, as a result of Government policies and perhaps to some extent to the international situation, inflation is not a problem here any more. The Minister told us the rate [1578] of inflation this year would be 4 per cent compared with 23 per cent when the Government took office. That is something of which we must be conscious. Similarly, the balance of payments figures and the balance of trade are in an excellent state again as a result of the Government policies. If we are being critical of the Government, the one thing that we as politicians cannot criticise them for is the fact that, without regard to the popularity of their decisions, at least they tackled the problems in what they perceived to be the correct way. That is a difficult thing to do in a democracy such as ours. The Government are entitled to take credit for that; whether they get it is another matter.

I should like to mention briefly one or two headings in the Appropriation Bill for the coming year. In the report of the Comptroller and Auditor General I see that to date we have spent some £225 million on the bovine tuberculosis eradication scheme. When you look at the benefits of that to the agricultural community you find that the compensation for reactors, which is still absolutely inadequate, was only £7.4 million. Fees to veterinary surgeons were £10.4 million and the cost of the Department's people either in providing the vaccines or the administration of the scheme was £4.4 million. Similarly, too, the brucellosis eradication scheme which has been much more successful than the tuberculosis one has cost £106 million to date. In 1985 the compensation for reactors was £2 million, the fees for the veterinary surgeons was £1.5 million and the cost to the Department in personnel and vaccines was £1.5 million. We should go into that scheme in more detail at an early opportunity because there has been less money provided for the hardship clauses in the year gone by. When you mix a breakdown in cattle disease with the adverse weather and the sharp reduction in agricultural incomes, at a time when the profit margins have been still further squeezed, I believe a fresh look should be taken at the amount of compensation.

I want very briefly to mention the Vote for prisons. A sum of £13.5 million is [1579] provided for buildings and equipment. The standards in the prison service and the progress is reasonable to a great extent. The only area where I would ask for greater expenditure is in the education service, in educational equipment, educational aids and materials. That figure for the year in question is only £165 million. I would like to see a programme for prisoners, especially for first offenders. I accept that we must have education in the three `Rs' and a high percentage of the prisoners are illiterate. The Government and the Department of Justice should seriously consider introducing a system of lectures to prisoners — a soft indoctrination programme — to put the message across as to why they should conform as ordinary citizens of this State, and the benefits of accepting the rule of law as everybody else does.

I mentioned the very considerable amount the Government are spending on education and the high percentage of the total taxation which goes on education. I also mentioned the cost of the health services. I am very glad to have this opportunity of saying to the Government that it is appropriate, when we come to sum up the Appropriations Bill at the close of each year, that they have made significant improvements in many areas. They have succeeded, throughout a difficult period, in improving the public services that are so widely availed of. In the entire Republic 49 per cent of the people are registered on the general medical services register, which means they have medical cards. If you look at the means test it is hard to accept that every second person one sees has an income of less than about £90 per week. The State provision is very generous.

In conclusion, I compliment the Government, especially our Minister for Foreign Affairs for his sustained efforts and his excellent progress on the Anglo-Irish Agreement and Anglo-Irish cooperation. The improvement is significant and in the coming years it will be reflected, not just in the country as a whole, but in the Appropriation Bill because we can expect a reduction in the [1580] demand for policing on the Border. I compliment also the Minister of State who plays such a significant role in increasing the amount of money the Government have provided — that is £23 million or £24 million on international co-operation and aid to the Third World. That is a very significant amount of money for a small State such as ours to provide in hard cash. We are well on the way to meeting the target laid down by the United Nations. The fact that that figure has been enhanced throughout a difficult financial period for the Government reflects the input and the dedication of Deputy O'Keeffe when he was Minister of State at the Department of Foreign Affairs for the past three or four years. I compliment him on that and, coming up to Christmas, it is good to know that while the Irish people have always demonstrated their generosity and Christianity in a very practical way the State, on our behalf, does it in a magnificent way in supporting the international Third World organisations to such a generous extent. I wish you, a Chathaoirligh, the compliments of the season and every success next year.

Minister of State at the Department of Finance (Mr. J. O'Keeffe): Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  I had not intended to be political in this debate but I am provoked to some degree by Senator Lanigan. He damned with faint praise those inherited problems which were resolved by the present administration. He derided the progress made in improving the situation in others. He ranged wide over the various issues. His speech was long on problems and difficulties but very short on solutions. It has to be said that the Opposition are inconsistent and contradictory in their statements on those rare occasions when they are permitted to venture an opinion on future policies.

They have a degree of consistency in only one area. They want to spend more. Have they learned anything at all from 1977? Do they want to repeat, to an even greater degree, the disastrous consequences of the policies outlined in that infamous manifesto? I am not against spending per se but quite clearly, where [1581] further borrowing is the resort for payment then major critical questions arise. Do Fianna Fáil really believe that the answer to our problem is to borrow an additional sum of almost £1,000 million to fund the promises they have already made in recent times? Talk of self-financing is rubbish. That party once christened themselves, “the party of reality”. At least one could expect in this debate that we would deal with facts and not fiction from a party who christened themselves with that name. It is very clear that the solutions today proposed by the Opposition, to all the problems, involve borrowing.

The solutions proposed by the Leader of the Opposition involved borrowing on all fronts. I notice that even in issuing the recent book of speeches he had to borrow the title “Spirit of the Nation”. He reached back a long way to find this particular title. He reached back to the year 1843 when an important book of writings from The Nation newspaper was published by James Duffy.

Mr. W. Ryan: Information on William Ryan  Zoom on William Ryan  On a point of order what has this to do with the appropriation Bill? Is that book costing the State any money?

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  I am not sure but I need to reply to the points raised in the debate.

Mr. W. Ryan: Information on William Ryan  Zoom on William Ryan  Was that raised in the debate here today by Senator Lanigan? I did not hear him but I doubt if he mentioned it.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  The Senator raised many points that I had not originally intended to deal with but since I am here to reply to the debate I cannot ignore the political points raised. The last point as far as the Senator is concerned is of no importance but it epitomises an attitude. Even on that small issue they were prepared to reach back to borrow in that instance the title of a book. What will they do when it comes to the public balance if this unfortunate country ever has to suffer the consequences of a Fianna [1582] Fáil administration?

Mr. W. Ryan: Information on William Ryan  Zoom on William Ryan  That is going to happen very soon and the Minister knows it. They are not going to suffer as a result of Fianna Fáil getting into power and they will be in power in a very short time.

Mr. J. O'Keeffe: Information on Jim O'Keeffe  Zoom on Jim O'Keeffe  It is our duty to point out to the people the possible disasters and unfortunate consequences that could ensue, in the confident knowledge that common sense will prevail when it comes to the appropriate time, as I have no doubt it will. Senator Lanigan also referred to the sluggish performance of the economy. There was a strong impetus to growth projected this year largely from the dramatic fall in fuel oil prices which amounted to over 50 per cent in Irish pound terms on average in 1986. However, the effects of this price fall have taken much longer to filter through than expected. This has been the case internationally and accounted for the slackness in international trade growth in the early part of the year. Combined with the more sluggish than expected external environment the domestic economy was affected by the exceptionally poor summer weather for a second successive year which had, as everybody knows, an adverse effect on agriculture and tourism in particular. Despite these setbacks GNP will show further growth in 1986 and the main impetus will come from domestic demand; real disposable incomes have increased significantly giving a boost to personal consumption. Recently published retail sales figures showed improved buoyancy consumer spending compared with the beginning of the year. This is a point that was raised by Senator Lanigan. The figures are there to show that this has occured. I am confident that that trend will be further evidenced in the figures to be published in the short term.

As I said in opening this debate, progress has been made in many areas. I refer to the question of inflation. Figures again speak for themselves; we are down from a figure of over 20 per cent to less than 4 per cent this year. We have not [1583] had a figure like that for over 20 years. Again, on the trade side, we achieved a trade surplus last year for the first time since the war. That surplus will, I have no doubt, increase substantially this year. In the first ten months the surplus was over £540 million which is more than double the surplus in the corresponding period of 1985. This improved trade balance is contributing to a stronger current account. The House should note these very important and significant improvements that have taken place.

Both Senator Lanigan and Senator Ferris referred to the question of unemployment. I agree that the employment situation remains disappointing. However, it is important when discussing this issue to relate it to the facts and the facts are that the trend has continued to moderate in 1986 for the third year in succession. The facts also showed that in the last year of the previous administration there was an enormous increase in unemployment. A discussion on this issue has to relate to the facts. Much as I would like to see an immediate and dramatic improvement in the situation, the reality has to be faced. Our approach to the problem is geared towards achieving a sustained reduction in unemployment. We have within the constraints imposed by the public finances made considerable efforts to stimulate employment through the house improvement scheme and the other schemes. These all had their effect in achieving the results we have achieved. I spoke earlier about the outlook for 1987 and I believe that the outlook is promising. Many of the factors which inhibited growth in the economy in 1986 are unlikely to recur. We had two bad summer seasons from the point of view of weather and while I cannot make any confident predictions in that regard, on the law of averages there is a reasonable chance that things will improve next summer. Let us not underestimate the importance of that to our farmers and to tourism.

Furthermore, assuming that crude oil prices remain at approximately their present level and that there is general [1584] stability in international exchange rates external demand should expand strongly and this will benefit Irish exports. Let it be said that the extent to which we gain from this expansion will be determined by our competitiveness. The Government have clearly stated that pay moderation is essential if we are to remain competitive and provide more jobs. The opportunites exist given the prospects of continued low inflation rates for low pay settlements, which will still afford improvements in living standards.

Senator Lanigan also commented in relation to exchange rate policy and interest rates. I do not think there can be any doubt on any side of this House that exchange rate stability is needed to create a suitable environment for trade investment. Everybody will agree to that. However, the volatility of currencies outside the EMS exchange rate mechanism, particularly sterling and the US dollar, complicate the task of exchange rate policy. Large movement in these currencies can result in excessive changes in the overall trade-rated value of the Irish pound and if these movements take place over a very short period the adverse effects can be immediate while the benefits can take some time to appear.

It was in the context of such a change that the initiative was taken quite exceptionally and for the first time in seven years of the EMS to seek a realignment of the pound in early August. That realignment does not mean we have any target rate for the Irish pound against sterling or against the US dollar. Our exchange rate policy is directed towards fulfilling the obligations of EMS membership and securing stability in the overall value of the Irish pound. It was designed to achieve stability in trading relations — a large and increasing share of our trade is with EMS member countries. Exports to our EC partners other than the UK now exceed those going to the UK. That has been a dramatic change in recent years. The August re-alignment has improved the competitive position of Irish industry particularly in relation to continental European countries. This should provide new opportunities for [1585] Irish business to concentrate even more on these markets.

The Government are now determined to maintain the current EMS parities of the Irish pound and have made it clear that there will be no downward adjustment of the Irish pound. This assurance should show speculators that they cannot hope to make gains from an adjustment of the Irish currency. There are already signs of a start to the reversal of the outflow from funds which took place over the past year.

The other aspect under the terms of this heading that is of relevance is the question of interest rates. The underlying level of domestic interest rates is far too high and this has to be clearly understood. It is too high due mainly to high Government borrowing requirements. Let there be no doubt about that. That has to be repeated over and over again in the context of a situation where policies are introduced and promises made which have at the end of the day a price tag which involves further borrowing. Let there be no doubt that any increased borrowing inevitably has a direct consequence of increasing interest rates. That message has to be clearly understood by everybody.

The most recent increase in interest rates in Ireland and the difficult conditions that prevailed in the domestic money and securities market earlier this year can be traced fairly directly to the problem of exchange rate volatility internationally. That size of our international trade is such that there is considerable scope for adverse leading and lagging of trade payments in the light of the exchange rate movement with resultant upward pressure on interest rates. This is an aspect we discussed on the Bill we had earlier today and something which it is unnecessary to go into detail about at this stage. The conditions in the domestic market have improved greatly since the middle of October. As speculative positions are further unwound, there should be a considerable increase in bank liquidity. This will allow the more favourable underlying interest rates climate to reemerge [1586] in 1987. Already inter-bank interest rates have eased significantly and gilt yields have fallen from 14 per cent to about 12.75 per cent at present. For the sake of growth and employment in the economy we must all redouble our efforts to get interest rates down to more reasonable levels. That includes making it clear to the markets that there will not be huge extra additional demands for borrowings in the years ahead. If there is one message that has to be repeated time and time again that is the one.

The Government accept that there is an onus on them to help create the right conditions for lower interest rates. We have indicated that we will discharge this responsibility. Any failure on our part to continue the efforts to cut back on borrowing would have to be paid for in higher domestic interest rates and higher Exchequer debt servicing costs. I would be very interested to learn the position of others who might suggest they have an interest in being involved in the administration of this country.

Senator Lanigan and Senator Ferris spoke on the need for more investment. The Central Bank and the Economic and Social Research Institute forecast a rise in investment next year. This expectation is confirmed by other independent forecasting institutions. It is clear that the adjustment policies pursued by the Government have contributed to this recovery. These involve cost efficiency measures including pay moderations as well as fiscal and public expenditure measures aimed at stimulating investment leading to sustained employment. That aspect of pay moderation is very important. It is relevant to note the facts and the figures. The fact that over a period of four years the total pay increases combined were at a level less than the increases in the public sector allowed in one year, the year 1980. That is something that has to be borne in mind by anybody taking a serious interest in how this economy should be developed in the years ahead. In addition the Government's industrial strategy as set out in the White Paper on Industrial Policy and the initiatives already taken [1587] are contributing to the recovery to which I have referred. The Government have devoted considerable resources to the promotion of efficiency and innovation in the economy. Industrial and tourism policies have been reorientated. Measures have been introduced such as the enterprise allowance scheme to bring unemployed people back to work, venture capital is being provided through tax incentives and the newly established National Development Corporation. Education and training are vital to employment and there have been significant increases in the resources allocated to these areas in recent years.

Within the public capital programme expenditure has been reallocated to concentrate on investment which leads to sustained, additional employment. The success of the business expansion scheme has been dramatic. In less than two years since its inception this scheme has produced investments of £9.3 million in 84 different companies. I am confident that it will produce a figure of at least £15 million in the coming year.

While it is important to concentrate in this economic debate on the facts and statistics, these figures are not simply statistics. They reflect flesh and blood, realities. They reflect real productive projects and real jobs. Among the more notable features of the scheme's operation are the variety of projects involved ranging from mariculture to film making, from engineering to the production of orthopaedic appliances. On the range of projects, in terms of size, investments have averaged £110,000 but have ranged from as low as £1,000 to as high as £1 million. The scheme which aims at providing necessary investment and which is far more flexible even when conventional funding is involved, looks set to provide worthwhile levels of extra secure sustainable employment.

Progress in the profit sharing area has also been encouraging where 19 schemes have been approved to date. These cover over 17,000 employees which is equivalent to every single person in a substantial Irish town having the opportunity [1588] to own part of his or her own company. A further 11 schemes are at various stages of processing. While improved tax treatment of share options was introduced only this year the results of these changes are already apparent. Nine share option schemes have been approved to date. These involve over 700 employees. No fewer than 24 schemes are currently under consideration. Although the scheme of tax relief for investment, research and development does not come into force until the New Year, inquiries are already being received about the scheme. A strong R and D capability is essential to development of a sound industrial base. The response is therefore most heartening.

A number of Senators spoke about the disincentive effect of high rates of taxation. I take this point on board quite unequivocally. The adverse impact of high taxation on the economy is self-evident. I dealt with this in my opening remarks and referred to the effects from the point of view of disincentive to work, the spread of the black economy, and the distortion of trade. In tackling this problem there is no room for pious hopes or airy-fairy promises. We have to be realistic. It would be unrealistic to expect that substantial tax deductions are possible in the short term. That needs to be said. Otherwise we are codding the people. If we were to achieve that, how would it be achieved? It could only be achieved through further borrowing and we have already had our discussions on that point. I hope we convinced those who might be tempted along that route that that is the road to disaster for this country.

If we eliminate that option as being a reasonable one bearing in mind that, in any event, borrowing is no more than deferred taxation, do we simply say that it cannot be done? I do not believe that is the answer either. If we look at the record of borrowing to reduce tax, today we are paying the tax that was deferred last year, the year before, ten years ago. That is very simple. The consequence of that is, of course, that the higher taxes we pay today are not available to support [1589] spending programmes and instead an increasing burden of interest on past debt is pre-empting much of our revenue. It is relevant to note that our PAYE receipts are now only just about sufficient to meet overall debt service costs.

There is hope for the future. In the longer term, with substantial growth in the economy with more people at work and with a healthier budget position there will, of course, be room to bring taxation down to more accaptable levels. At first this presupposes that we curtail public spending and that we maintain it at a level our economy can reasonably support. Only through the reduction of the overhang of debt and the future tax levels it implies will economic activity be stimulated. In the shorter term the emphasis in tax policy must instead be on spreading the existing burden in a more equitable, economical and efficient way. We must build on the significant improvements which have been made in recent years. They provide the springboard for future tax reform.

To be effective, reform has to be based on the following elements: a greater emphasis on effective and efficient tax collection procedures; the improvement of incentive to work and risk taking; a further easing of the burden on the PAYE sector; and a significant simplification of our overly complex tax structure. If we are to create the growth needed to expand employment and to sustain a reasonable level of public services, we must first create conditions for that growth. There are those who assert that tackling the problems in the public finances and cutting unemployment cannot be done simultaneously. Cutting the budget deficit, they argue, is tantamount to adding to the dole queues. I reject this argument. First, we no longer have the luxury of choice in the matter of effecting a remedy in the public finances. The situation is not static, it will deteriorate rapidly, even explosively, unless it is tackled soon. That is very clear. Secondly, other countries have faced problems like ours and have dealt successfully with them without raising unemployment. [1590] The converse is true. In recent years several countries have achieved simultaneous success in reducing budget deficits and unemployment and, indeed, this pattern is quickly becoming the norm in the European Community.

In Denmark, for example, the general Government position has improved from a deficit of 9.3 per cent of GDP in 1982 to a surplus of 2.8 per cent this year according to Commission estimates. Unemployment has declined to 7.7 per cent from a peak of 10.1 per cent in 1983. In Germany, the federal deficit has been scaled down successively to just under 1 per cent this year while unemployment has also declined to 8.1 per cent and employment is currently growing at an annual rate of 1 per cent. Reducing the budget deficit is a primary requirement to build confidence.

There is much justifiable discussion about the need to restore confidence in the future. Without confidence people will not be prepared to invest. Some people seem to assume that confidence can be created by speeches and an attempt to change the mood. Confidence in the durable sense can only be created by decisions. Confidence will be restored once people see that problems causing concern are on their way to being solved. The biggest damper on confidence and investment in this country at present is the level of Government borrowing. Government borrowing is a promise of future taxation. If people know the Government are not paying their way and asking future taxpayers to pay through borrowing they will not want to invest. The worst disincentive to investment is the sword of “Damocles” of future extra taxation caused by the need to service borrowing.

Mr. W. Ryan: Information on William Ryan  Zoom on William Ryan  I am not objecting to Second Stage but I am agreeing to it on the understanding that when we come back on 14 January we will have a further discussion on it as we used to have in previous years. The reason Fianna Fáil had only one speaker is that we were proceeding as in previous years. We are passing the Bill in order not to hold it up [1591] and I want to make that very clear.

Professor Dooge: Information on James CI Dooge  Zoom on James CI Dooge  I would like to indicate that it will be possible to facilitate this request. I might also point out that whereas for very many years past we have had the Appropriation Bill thrown at us at the last moment it was in fact under a Government from our side of the House that the practice of giving the supplementary debate was introduced. There can be no guarantee that that debate will be taken in the first week when we come back in January but I would anticipate that it will be taken before the end of January on a suitably broad proposition.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee, reported without recommendation, received for final consideration and ordered to be returned to the Dáil.

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