Dáil Éireann - Volume 303 - 02 February, 1978

Financial Statement, 1978: Motion.

The Taoiseach: I formally move :

That Dáil Éireann takes note of the Financial Statement made by the Minister for Finance on 1 February 1978.

Dr. FitzGerald: In approaching any budget the right question to ask is what kind of budget is needed given the economic condition of the country at the point in time and to what extent the budget actually introduces measures up to those requirements. I shall approach this question with, I hope, the reasonable detachment of an economist and not entirely in a political spirit because this budget must be judged by objective economic criteria; indeed, some of the comments on it this morning in the newspapers, either in the editorial columns or by people who are qualified experts in the field, have been critical of the budget because they see it as not being related to the actual needs of the economy at present.

What is the present condition of our economy? It is an economy in a condition of relatively rapid growth above the average level for this country despite the general sluggishness and [478] stagnation of the economies of other countries near us and, in particular, our major customers. Our economy is one which in the last year has expanded by at least 5 per cent—I will not be surprised if the final figures end up nearer to 6 per cent—in contrast to the increase of 2½ per cent in output in the rest of the EEC.

In the industrial sector this expansion has been sustained for several years now. In fact, the turning point in terms of industrial output occurred in mid-1975, two and a half years ago. The result is that, unlike most other European countries—one might almost go so far as to say unlike any other European country—many Irish firms are in a position of operating to capacity today. It is not, of course, true of all. There are Irish firms, particularly in the sectors of clothing and footwear and part of the textile sector which are not in this position. For much of Irish industry there is a problem of capacity. During the past two and a half years of rapid industrial growth, a growth which during that period has been well over 20 per cent overall, the available capacity in terms of factory space, equipment, plant and machinery has been moved from a position of gross under-utilisation to fairly full utilisation, in many cases to completely full utilisation. The need at present is therefore one for expanding the production capacity in order to bring into play the labour force which is, God knows, readily available for that purpose.

One reflection of this move from under-utilisation of capacity to full utilisation of capacity has been the increase in average earnings in industry which has been significantly faster than the wage round figure. This is a clear indication of a shift from short-time working several years ago to normal working and now, in many cases, to overtime working, overtime working which is, for the people who are engaged in it, profitable and beneficial but which could much more usefully be undertaken by additional workers brought into employment at possibly lower cost to the industries concerned if they had the resources to expand their capacity, increasing the [479] factory space, increasing the amount of plant and equipment. It is clear that further growth in industry, the growth necessary to provide employment, requires large-scale investment in factory space and machinery and equipment. That is the particular and unique position of this country at present.

On the agricultural side we know that the growth potential of our agriculture is almost unlimited in terms of the capacity of the land, but we know that past under-capitalisation of agriculture is the problem. A very major and continuing investment in fertilising and draining the land and in buildings and equipment is needed in order to make possible the growth for which the potential undoubtedly exists.

Apart from these problems in the industrial and agricultural sectors of the need for increased investment, if you are going to expand output and thereby provide increased employment in industry, and through the increase in agricultural output provide increased employment in processing and secondary industries, the third aspect of our economy to which we have to give attention is the question of our competitiveness in terms of wages and salaries, in terms of labour costs. During most of 1975 and 1976 the £ was collapsing: its value dropped by 35 per cent in 18 months. This brought in its train, in so far as we are concerned, a massive imported inflation which required considerable skill to reduce, as it has been reduced, from the extraordinary level it reached several years ago.

It also brought with it, as well as domestic inflation, an uncovenanted benefit in terms of external competitiveness. This devaluation of our pound as well as the £ sterling helped to maintain that competitiveness, in fact, to improve our competitiveness. During those years we got something of a boost in terms of our ability to sell our goods and services abroad, and to sell them at home in competition with imports, from the collapse of the pound even though the reduction in the value of our currency in this period went beyond what was beneficial in net [480] terms and involved an imported inflation which certainly did us more harm than the benefits in competitiveness. Certainly, we would have done better if the fall in the value of the currency had been less during that period.

Today the position is completely different. We now have the position of a stronger £ sterling, to which we remain linked, and this has weakened our competitiveness at home and abroad during and, therefore, has made income moderation more important than it was in 1975 and 1976. The budget, above all, should be one to encourage wage moderation and to encourage and provide for increased investment in the industrial and agricultural sectors. Those are the obvious crucial targets of any budget at this time. There is a fourth point to be made, although it is more of a negative one, and that is the fact that home demand is already extremely strong. It is rising as fast as it has ever done at any time in the past at a rate of 5 per cent. Obviously, in these circumstances, there is less need for stimulus to domestic demand especially because the lack of capacity in some industries must mean that a further expansion of demand will tend to take the form of more imports rather than more home goods. Again, this is not necessarily true of the hardhit clothing, footwear and textile industries, but even in those there may not be the capacity now to produce the kind of goods required without a further investment to improve the technology of those industries.

I prepared those remarks last night and I was interested to find on opening this morning's edition of The Irish Times, my analysis on these points confirmed absolutely in the article by Antoin Murphy. I should like to quote a relevant phrase from this article:

But to what extent will the increased demand flow into an increased output of Irish commodities. For this to occur it must be shown that (1) the Irish marginal propensity to import foreign goods is very low—in other words that we spend most of the increase in our incomes on domestic goods and (2) [481] there is a significant amount of unutilised capacity in Irish industry immediately ready to meet the increased demand for Irish goods.

Again it is doubtful whether either of these assumptions may be held with any conviction.

The typical understatement of the economist. The article continues:

We have a tendency to spend a considerable part of increases in our incomes on foreign goods, and there seems to be little evidence of wide-spread unutilised capacity in existing Irish industry.

I should remark that the writer of that article is exactly correct. The fact is that we have a very high propensity to import. Half of the services we use are imported and we know that the marginal propensity to import is greater than the average propensity to import. It can be taken then, with a fair degree of certainty, that any expansion of domestic demand will as to more than half benefit importers, will benefit firms in other countries selling goods to us rather than benefit our domestic industry. That is particularly true at a time when our firms lack the capacity to cater for increased demand and when what they require is not greater demand for their goods because in many instances they can sell the full amount of their present capacity but help to expand that capacity in order to meet a demand which already, in terms of domestic and external demand, outruns this capacity.

There is another point which I have to make in fairness to be complete in analysing the needs of the economy at present, the fact that the weakness in the clothing and footwear industries, which are labour intensive faced with the competition from employment incentives of a very large scale offered very freely in neighbouring Britain, needs special help. I must say that the budget gives that help but the assistance given is clearly inadequate, £5 per week, by comparison with what these firms have to meet. Moreover, it is given too late and, in some cases, tragically too late for the individual firms which have gone under. It has been evident since last summer when [482] the British clearly indicated their intention of maintaining these incentives for a further period that we needed to act urgently to help these industries. The budget aims in the right direction but it is doing too little and too late.

I should now like to go back and try and match up the actual budget to the kind of budget clearly required by our economy at present. The first requirement was a rapid expansion of investment in industry but when we examine the budget we find only one new step of any significance, an important and useful one and one which I congratulate the Minister for Finance on, and that is the increase to 100 per cent in depreciation for industrial buildings. For the rest, all he has done is to continue existing incentives for employment growth, which we introduced; free depreciation of plant and equipment have been continued and stock relief has been continued. The only extra assistance to industry is the increase to 100 per cent in depreciation for industrial buildings. When we look at the capital budget to see what immense increase in aid to industry the Government are offering we find the astonishing position that as far as industry is concerned, taking assistance to industry other than loan finance, the provision made is £10 million less than last year in current money terms, a reduction from £120 to £110 million.

The reason for this is that the Nítrigin Éireann investment is tapering off. Last year £39 million was needed and this year only £16 million is needed, but if we take that out what we are left with is that all the Government have done to replace this drop in investment in Nítrigin Éireann and to use the available funds as a result of that drop for constructive purposes is to increase the rest of investment to industry by £13 million, from £81 million to £94 million. In other words, of the £23 million relief afforded to the Government's capital budget by the imminent completion of the Nítrigin Éireann investment programme only £13 million, or less than half, has been replaced by new forms of aid to industry, by new investment in industry. As a result of this, total investment in industry is reduced at a [483] time when it should have been the primary aim of the Government to provide additional resources to industry, whether they are State industries, if they have entrepreneurial capacities to produce extra goods and services that can be sold competitively —many of them have—or whether it is money to be given through the IDA or by other means to the private sector. These should have been increased substantially but, in fact, they have been reduced overall. Even if one takes out the Nítrigin Éireann figures from the account one is left with an increase which in real terms is quite nominal in terms of industrial investment.

When we come to loan capital for industry we find that the increase given is £3.85 million, just 10 per cent, precisely enough to maintain the amount of loan capital for industry at its 1977 level in terms of 1977 prices. No real increase whatever in loan capital for industry and a reduction in other State investment in the industrial sector, that is what can be found in a budget which, above all, should have placed emphasis on the provision of capital for industry. There is nothing that would have been so important. We are now in the absurd position that we have a volume of domestic demand, even before this budget increased it, and a volume of external demand for goods and services which outruns our capacity to produce and we have people without jobs. According to the figures we have more than 100,000 people without jobs and they cannot be given jobs not because we are not competitive as an economy at present, not because the demand for goods and services does not exist but because the capacity to produce does not exist and because the Government have done nothing in the budget to increase that capacity.

The same is found on the agricultural side. On the agricultural side what is needed above all is to provide incentives and assistance to increase the productivity of agriculture which has the capacity to produce more. In this budget we find but a series of onslaughts on the ability of farmers to [484] reinvest the money which they are earning in increased amounts as a result of the EEC and as a result of the policies of the previous Government. We have seen the removal of the rates rebate, the removal of the phosphate subsidy, precisely the kind of assistance which should be given to increase the potential of the land, and we have seen the heavy increase in farm taxation.

We see also, when we come to look at the capital budget, a reduction in investment in agriculture. There is an actual reduction in money terms once again here from £31.92 million to £31.40 million in investment in agriculture, including arterial drainage, which is of immense importance particularly in the present context. That is a reduction of over 10 per cent in real terms in investment in agriculture. When we look to see what is being done about loan finance for agriculture through the Agriculture Credit Corporation the increase given is barely £5 million or a lot less than the increase that would be required to maintain the real value of this loan capital for agriculture. It is actually a 3 per cent reduction in real terms on the basis of a 10 per cent inflation rate for the capital goods that agriculture requires. I believe 10 per cent about the correct deflator for capital goods.

We see that nothing is done to help agriculture as an industry. The existing aids given by the State have been cut back in the Estimates, in the capital budget and further blows have been inflicted on the agricultural sector, on its ability to reinvest since the capital budget was prepared. The budget, therefore, offers no assistance to increased output for agriculture. It offers nothing but discouragement. It also imposes on farmers an obligation to decide which form of taxation they will opt for in the next three years. That might not be unreasonable as a proposal because I think there are obvious disadvantages in allowing farmers to opt backwards and forwards from year to year according to what suits them.

I can see the objections from the Exchequer point of view but if you are going to ask farmers to opt between [485] a notional and an actual system all farmers, if you are going to give them any chance to make an economic decision on which they can base future investment, need to be told what in fact the notional system will be for the next three years. They have been told what it will be for the next year. They have been told that the multiplier is up to 90 and they have been told that the threshold is down to £60 but they have not been told what lies ahead in the following two years. How can a farmer be expected to make a rational decision as to which taxation system to opt for in order to give him the maximum capacity to reinvest in the land when he does not know in respect of either of the two systems, certainly in respect of the notional system, what in fact it means or what in fact it will involve for him in the three years ahead?

I hope that in this debate the Government will at least have the commonsense, as well as the sense of common equity, to tell the farmers what their intentions are for the three years ahead because otherwise any decision they make will be a gamble on a gamble. The budget itself is a gamble to start with but they are being asked to gamble on a gamble. I do not think a double gamble is a basis on which you can increase capacity in the agricultural sector. A greater sense of certainty is needed above all by everybody at this time about what the future holds in terms of taxation. I will come back to that point later but it is obviously true in the agricultural sector.

The third requirement of the budget is that it should be such as to facilitate agreement being reached in the talks currently in progress on the national wage round because of the particular importance of securing moderation in the growth of incomes at a period when the value of our £ and sterling has increased and when as a result we have become less competitive in external terms and are likely, it would appear, to remain less competitive in terms of the currency rates for some time ahead. It looks in all probability as if this will be the case for the year ahead.

[486] One of the prerequisites for a wage round is tax cuts in order to give to wage earners and taxpayers generally a benefit which could be offset against income increases foregone in the wage negotiations. The benefit given is in fact negligible because, as is evident from replies to a question put down yesterday, in order to offset the effect of inflation it would be necessary to give tax cuts of £52 million in any event. The £63 million cut given, there-fore, involves in real terms a benefit of only £11 million which works out at about 30p per worker per week. That is the actual benefit over and above the indexation which is implicit in this tax remission. I doubt if a 30p a week net improvement over and above what is required for indexation, in order simply to maintain the present level of taxation as far as the worker is concerned, will influence workers greatly in terms of accepting a 5 per cent increase. I hope this inadequate provision will not damage the prospects of the wage round.

I believe what has seriously damaged the prospects is the Government's action on the wealth tax. The abolition of the wealth tax is to satisfy Fianna Fáil's wealthy supporters, whose contributions to the party's election fund have thus received their reward, no doubt tenfold. The average benefit received by wealth tax payers is £2,000 so I am assuming an average contribution to Fianna Fáil of £200 each. It may be an underestimate when I say they are receiving a tenfold benefit. The abolition of the wealth tax at this time can be described as nothing short of provocation in the middle of a wage round.

The Taoiseach: I thought it was Frank Hall who won the election.

Dr. FitzGerald: I do not know what the Taoiseach is going back to the election for. I am talking about the impact of yesterday's budget on today's negotiations for the wage round. We will leave the election for one moment. The abolition of the wealth tax at this time is clearly provocative. Workers see a massive hand-out to wealthy people who now become the only such group in any [487] industrialised country free of tax on wealth and property. In all other countries there is some form of taxation either an annual wealth tax or estate duty. In other countries there are other very heavy property taxes as well as those that can be found in many states of the United States and as still exist today in the neighbouring country of Britain.

I know of no country in the industrialised world which frees completely the wealthy from any form of tax on wealth and enables them to live off their capital without paying any tax at all. They can now have as many cars as they like and pay no road tax; they can have as many houses as they like and pay no rates and they can live off their capital and pay no tax what-ever. That is what this budget has achieved and for that group it is a lot. If I were in that group I should no doubt be very cheered by it but for the 750,000 workers in the country this does not seem to be much incentive in a pay claim. The workers, as they see this £2,000 on average handed out to each wealthy person in the country, see at the same time children's allowances frozen and the second annual increase to social welfare beneficiaries in October, which we introduced while in Government, dropped, which was so much welcomed at the time. It was welcomed indeed even by Fianna Fáil, if I remember correctly, because it means that social welfare beneficiaries are not left for a whole 12 month period to see the benefit of any increase they are given eroded by inflation and left to suffer for a whole 12 months of constant decline in living standards. We introduced that and made it, we thought, a permanent feature of the social welfare system but the first action of this Government coming back into power is to drop it and to get back to the old system under which the poor and the under-privileged must wait for a full 12-month period seeing their incomes eroded before any further benefit can accrue to them.

Professor O'Donoghue: In other words, the Deputy is assuming that [488] inflation is a permanent feature of the Irish economy.

Dr. FitzGerald: I am assuming, for the purpose of this exercise, if I may reply to the Minister for Economic Planning and Development, his rate of inflation. He has contributed a good deal to this budget, and the effect will be that there will be an increase in the cost of living which, according to the Government, will be 7 per cent. They are optimistic. It will be more than that for a variety of reasons, but if it is 7 per cent this means that for social welfare beneficiaries their standard of living will fall steadily by 7 per cent for 12 months.

(Interruptions.)

An Ceann Comhairle: Deputy FitzGerald is speaking.

Dr. FitzGerald: Their standard of living is going to fall, according to the Minister in his outline development, by 7 per cent from April onwards for a 12-month period before anything is done to remedy that position. The National Coalition Government would have taken remedial action in October to adjust for any increases in the cost of living that occurred in the meantime, as we did year after year in Government.

Deputies: Hear, hear.

Dr. FitzGerald: The families of wage earners have been further hit by the lack of any increase in the child allowance in the income tax code. Despite assurances of indexational allowances that indexation has not been extended to the child allowances. Furthermore, workers looking at this wage round see those retiring at 65 depived of what they had been promised, the extension of the old age pensions to that age group. We brought the age down from 70 to 66 and made it clear that it would be reduced to 65 in this budget. That has been grabbed back in the clawback action to provide the money to benefit the wealthy people of this country. There is no extra money in this budget for the children of the poor or the [489] workers. There is no extra money for the housewives whose only direct income comes from children's allowances. There is no money at all for those retiring at 65 who are outside the insurance scheme, as many people still are. There is £2,000 for the average wealthy person, plus the £382 from income tax relief at higher level.

How can such a provocatively anti-social budget encourage moderation in pay claims? I had not believed that Fianna Fáil would do this. We had discussed before the budget its probable shape. We had come to the conclusion—a little cynically, but that cynicism was justified by the manifesto and by the budget—that if the pay talks had been completed the Fianna Fáil Government might have given the pay-off to their wealthy supporters by abolishing the wealth tax. However, we came to the conclusion that they would not be so irresponsible and act so much against the country's interests and their own as to remove the wealth tax in advance of the wage round. We therefore assumed for the purpose of our calculations in this budget that the wealth tax would not be removed at this stage. Apparently we underestimated the grip that wealthy people have on the Fianna Fáil Party which can force the Fianna Fáil Government to act in this way at this time even at the risk of damaging seriously any prospect of a reasonable wage round.

The fourth point I made about the budget was that home demand is extremely strong. Given the competitiveness of our industry at present, hopefully to be maintained, external demand is also strong. In these circumstances the last thing which is needed in the budget is a stimulus to home demand. Stimulus on a modest scale may be desirable but where the capacity of industry to produce is inadequate in so many areas the first priority should have been to put the money into increasing industrial capacity and the second priority into increasing consumer demand. The budget cuts back severely on investment in industry and agriculture but does give a massive boost to consumer demand.

[490] The effect of the budget in the form of tax reliefs and of the various provisions made on the expenditure side will certainly be to boost consumer demand considerably. But at this time consumer demand is already running at an extremely high level which goes beyond the capacity of our economy to cope with it. Antoin Murphy says in his article that the benefit of this budget will go largely to the Japanese exporters and exporters in other countries with spare capacity. In every other country there is spare capacity because their economies have not been reflated and got moving again as ours was by the National Coalition in the past two years. They are all in a position to dump their goods as cheaply as possibly here, and they need to do so because there is nothing else to do with their goods and we are the only expanding market that they can find in the world at present, outside possibly Norway. Our own industry has not the capacity in most cases to provide the extra goods and services and this budget has done nothing to help that capacity. It has reduced the provision previously made to expand industrial capacity. Therefore the budget is directed towards expanding consumer demand rather than expanding production capacity and making increased employment possible. It is not workers in Ireland who are going to get jobs out of this budget so much as workers in other countries. Over half the jobs created by this budget are going to be in Japan, Germany, Britain, France and America, and that is where over half the benefits of the budget will go. Over half the consumer demand will certainly be satisfied from abroad, even allowing for any effect the new “Guaranteed Irish” campaign will have. The Government themselves, very optimistically, assess a 3 per cent switch but even if there were a 3 per cent switch from imports to home production, which is impossible if the capacity is not there and nothing is done to create it, the effect of that would still not be sufficient to prevent over half of the benefits of this budget in employment creation being exported.

The whole shape of this budget is [491] wrong. It involves a massive increase in public current spending to produce a mouse of 6,561 extra jobs in the public service in 1978—not 11,247, as one paper has mis-stated this morning. The Government are not to be blamed for that mis-statement because they said clearly in the green document associated with the budget that in 1978 public service employment will increase by 6,561 on top of the increase in 1977. When we put down questions yesterday to each Department we could not find traces of the 6,561 jobs for 1978 on top of those created in 1977. We were able to find 3,300 of them. Where the others are we have yet to detect but they are not in any Government Department who answered our questions yesterday.

I have not readily to hand figures for the increase in the public sector employment over the last five years. In one year we were endeavouring to control the increase in unnecessary public service employment and outside areas which were of importance and where the employment would have been productive and we decided to freeze the numbers. In that year when there was a so-called freeze on numbers the increase in public sector employment was 10,000. I remember seeing that figure published in one of the journals of the Institute of Public Administration. I hazard a guess that if we take the average increase in public sector employment during the lifetime of the Coalition you would find it would be greater than the 6,561 jobs which are trumpeted here. If anything the provision for public service employment in this budget is fractionally less than the ordinary increases which we provided for where they were necessary and with a view, particularly in the past year also, to providing increased employment opportunities.

Last year in the budget we made specific provision for 7,000 jobs in 1977. In replies we have had to questions put down on 10 November and yesterday it would appear from the Government's own statements that our financial provision for these jobs was fairly substantially utilised. Our fears earlier on that it would not be were [492] not realised. The Government did succeed in completing the process of creating jobs for which we made financial provision. There were there-fore 7,000 jobs provided for in last year's budget in the public service, and something close to 7,000 jobs were provided by the end of the year. Fianna Fáil's claim now is that they will provide 6,561 jobs in 1978. That is no improvement. That is less than were provided for in last year's budget. How does that go any distance towards solving the unemployment problem? It is simply the ordinary routine increase in the public service which follows on the increased needs in areas like health and education and which has happened on average in all the past years but is slightly less an increase on 1977. That in no way corresponds to the promises made to the electorate at the time of the election. Indeed it is a very long way from those promises.

The whole shape of the budget is wrong, the emphasis being on the current side rather than on the capital side. There is a fairly massive increase in the current budget, but giving only 6,561 extra jobs. On the capital side the increase outside the housing sector is only 2 per cent in real terms. The capital programme, less housing, shows an increase of 12 per cent, about 10 per cent of which would be required to allow for the increased cost of capital goods in the year ahead, on the best economic advice I can get. Therefore, there is virtually no increase in the public capital programme, whereas last year the National Coalition provided a 27 per cent increase in terms of current money values which in real terms, allowing for the fact that the cost of capital goods rose probably faster in that year, meant an increase of 7 per cent to 10 per cent in the capital programme. The capital programme this year has been increased by only 2 per cent, or something like a quarter or one fifth of the increase in real terms in the public capital programme of the Coalition's 1977 Budget. This means a severe cutback in the rate of growth of the public capital programme.

I have left out housing because it needs to be looked at separately. There [493] is a substantial additional provision for housing, £40 million extra, but of that almost half is accounted for by the £1,000 per house grant, which of course is a substitution for existing grants. The cost of that provision is £17 million, but the Government say there will be only 2,000 more houses built. The White Paper tells us that housing during the period ahead will range between 21,000 and 27,000 new houses per year. When we asked when the 21,000 figure would be reached we were told that in 1978 the figure of 27,000 would be reached. It is clear that the intention is to reduce housing from 27,000 to 21,000 in the years ahead, but the provision is this capital programme is for 27,000 extra houses.

I accept that, but it is a very expensive way of getting an extra 2,000 houses. The latest figure, published this morning in the monthly economic indicator, shows that house completions in the 12 months ended September last —this is the best measure one will get of the National Coalition performance —was 24,928, only 72 fewer than the target which we had on average surpassed in every year while we were in Government. The Government's figure of 27,000 means there will be a net increase of 2,000 houses, an increase in output of only 8 per cent.

So, what does the capital programme give us? In housing it gives us an increase of 2 per cent in real terms. How will that provide the increased capacity that the economy needs to create the employment that is required? There is not in the capital programme anything like adequate provision for employment. Indeed it provides for less employment in the public service, and I believe it will create less employment outside the public service than did our capital programme last year. That must be so when it involves a reduction in real terms in investment in industry and agriculture.

One of the great problems of this budget is the uncertainty it leaves in its wake. There is one certainty: it has to be paid for fairly soon, but how soon? There are various views on this. The Irish Press today refers to a clear threat in the Minister's speech that [494] there will be an icy autumn supplementary budget to chill further the hopes unrealised on the first day of spring if it does not produce the necessary response from workers in the form of enthusiastic reaction to the wealth tax remission. That is a good phrase— I am sorry I did not think of it myself. There is an imaginative touch there. The other newspapers have rather similar things to say. The Irish Times ends its editorial:

They must know in their hearts that their borrowing for this year is reckless and must wish they had the guts to think not just one year ahead but for four, and to act accordingly.

The Irish Independent states that the budget makes for an uncertain future. There is one certainty about it—it has got to be paid for. The Government have given us an indication in a broad sense of how it will be paid for. They have told us that borrowing will be reduced from 13 per cent to 8 per cent of our GNP in the next two years. We know that the increased remuneration as a result of this budget, the borrowing in this budget, will mean that in two years the Government will have to find £200 million extra for remuneration. On top of that £200 million they will have to find, whether by increased taxation or reduced expenditure, a further £400 million in order to get their borrowing down from 13 per cent to 8 per cent of GNP. By 1980, the value of GNP will be about £8,000 million, and 5 per cent of that is £400 million.

Therefore, the Government will first of all have to find £200 million extra to pay for the borrowing this year and next year—to start repaying and to pay interest—plus the £400 million cut they have announced in terms of a reduction from 13 per cent to 8 per cent in their borrowing. That means that £600 million will have to be found by way of new taxes or expenditure cuts in the next two years because of this budget. That is certain.

What we do not know is how soon this will be done. Neither do we know by what means it will be done. It may be done this year in an autumn budget with the excuse that a wage round of [495] more than 5 per cent had been negotiated, which I am afraid the Government themselves have made inevitable because of what they have done in this budget. It may not start until next year. We know certainly that £600 million must be found somewhere, that the economy must be deflated by that amount in the next two years, on the Government's own statement. The uncertainty as to how this will be achieved and when it will be achieved hangs over the whole economy.

People may have got up this morning, read the headlines and may have been temporarily cheerful, but anybody who knows anything about economics, anybody involved in business or agriculture knows that that money has to be found. They know that hanging over them is this immense burden of debt that has to be reduced, and they know that in the next two years the Government will have to either cut expenditure or increase taxes by £600 million. They do not know who will be hit, they do not know where the axe will fall, they do not know whether it will take the form of increased income tax, a reduction in expenditure, or whether it will take the form of cuts in expenditure that will mean the disemployment of some of the people now being employed in the public service.

I do not know and I am quite sure the Taoiseach does not know or, if he does, he is most unlikely to tell us now. I do not think the Government have been giving any thought to the future. I doubt if they have any plans as to how this £600 million will be found. If they have any plans or ideas let them tell the Irish people, because if they are to leave industry, agriculture, the whole economy, in a state of uncertainty as to how this money is to be found, that uncertainty will be the biggest inhibition to economic growth. It is bad enough to have a budget that cuts investment in industry and agriculture, but to have on top of that a budget that creates gross uncertainty about the future pattern of taxation and public expenditure, a budget that leaves over everybody a cloud of £600 million deflation in the next two years could not be a worse dose of [496] medicine for our economy at this time. To give that dose to an economy which is in good shape, an economy which the Taoiseach described before Christmas as being a foundation on which we could build—a foundation which we left to the Government—is the worst thing the Government could have done.

We all know that any sector of the economy will face up to the problem if they know with certainty what they are facing. If they know what the tax bill will be, they will adjust accordingly and they will get over it somehow. When they do not know what is going to happen, when they are uncertain about the future, they will not invest their own money. In any event, where will they get the money to invest? In Government we borrowed heavily in 1975-76. If we had not done so, the economy would have collapsed. Like every other country in western Europe, we have had to tide over the situation created by the oil crisis and the massive 60,000 million dollar transfer to the oil producing countries.

In borrowing heavily we were doing so at a time when nobody else wanted the money, nobody else would borrow the money. Until we got the economy back on an even keel, until we got it back on a growth path, there was no private demand for investment funds. Borrowing was not merely necessary to keep the economy going, it was also necessary to prevent an outflow of capital. All that would have happened if we had not borowed was that our external reserves, which were rising fast enough already, would have risen even further and the money would have been invested abroad. As nobody at home would invest privately at that time, it was vital that the Government should invest.

That is not the position today. The position today is that industry is operating at or near full capacity. We have agriculture recognising the great potential ahead of it and needing money for investment. We have both these sectors finding Government aid to them slashed in this budget in real terms. On top of that, the Government will take in terms of borrowing £821 million. Where will the private sector [497] find money for its needs? Unless the Government contemplate a massive inflationary expansion of credit, the money they are taking is being taken away from the private sector now ready and willing to invest because it needs the money for investment and has the opportunity for investment.

I am afraid the effect of this budget will be first of all to unsettle all sectors of the economy, because they will not know and do not know how the money is to be recovered, where the £600 million in cuts is to come. It is also to deprive the economy of the resources it will need because the Government will be borrowing money which, in present circumstances, would be borrowed by and used productively by the private sector, money which it will need to borrow privately because it will certainly not get it from the Government in a budget which has cut investment in industry and agriculture.

Basically that is what I have to say about this budget. It is a budget which is doomed to disaster. Irresponsible promises were made to get into power at any cost. These promises have now forced the Government to act in a manner which will wreck the economy. They have gone beyond even what they committed themselves to in that over-commitment in the manifesto when they did not really expect to win the election. They have done more damage even than they promised to do in the manifesto through the impact of their anti-social provisions on the possibility of negotiating a wage round.

It is a tragedy for the country that this should have happened when the economy was on the path to recovery. It raises a serious question about our whole political system. If our political system is to be at the mercy of political parties so anxious for power that they will promise anything, no matter what damage it will do to the economy, and if political parties are to respond in that way, I am afraid it will be very hard to make our democratic system work. I found the election result deeply depressing, not because we lost power——

The Taoiseach: I can understand that.

[498] Dr. FitzGerald: I said that deliberately knowing the laughter it would provoke from the Taoiseach and the other side of the House. I found it depressing not because we lost power— in fact, the burden of office is very heavy, as the Taoiseach knows, and a certain subconscious sense of relief went through me at the thought that I would not have another four years of what I had just been through—but because of the headline it set for the future of Irish politics.

All I can say is that I will do everything in my power to ensure that the appalling example set by this Government in the last election will not be followed. We will not follow them in irresponsible promises. We will have a manifesto next time like other political parties, a well thought out manifesto. It will not be a manifesto of give aways of a kind which can damage the economy. We will not fight the next war on the basis of the last one. We will not be misled either politically or economically into doing that. I give the country that guarantee. We will not follow Fianna Fáil along that path of irresponsibility.

The Taoiseach: Naturally I was interested in what the Leader of the Fine Gael Party had to say in his analysis of the budget. I was rather surprised to hear his concluding remarks suggesting that the Fianna Fáil Party, having put forward the most comprehensive manifesto ever put forward by any political party before a general election, were a threat to democracy. If that manifesto contained unresearched, unexamined undertakings, that might have been an under-standable comment from an Opposition party leader.

As far back as 1974-75 what is contained in that manifesto was being formulated by Fianna Fáil and, in fact, suggested to the then Coalition Government in certain respects. Action was suggested to them as far back as 1974. It was acted upon by the Coalition Government, unfortunately too belatedly, and failed to take full account, because of its belated implementation, of the damage that had already been done to the economy at [499] the time. Ever since then, we continued to research every aspect of the policy set out in that manifesto. Every aspect of it was costed carefully, and not only was it costed carefully at the time, but our costings were borne out by the access we had to more accurate figures when we came into Government.

Therefore it was with full confidence that we found ourselves in a position to implement what had been contained in our manifesto document. If that is a threat to democracy, I do not know what else could be a threat to democracy. We carefully researched every aspect of our manifesto document, put it before the people not suddenly but I might say almost piecemeal over a period of about three years, gave the people plenty of opportunity to digest it, gave the then Government parties plenty of opportunity to question it and, when they did, we were able to answer them convincingly. That is what democracy is all about. That is what party democracy is all about, and I hope that is the way it will continue.

The budget is essentially an instrument with which the Government set the course for the coming year. The coming year is not the only year involved because setting course for one year automatically and inevitably influences the course the economy will take for subsequent years, even though adjustments will be necessary, adjustments which can be effected through subsequent budgets.

The budget in any year is concerned with the management of the economy, with the place, direction and purpose of public expenditure, and also with the forms and effect of the borrowing and taxation necessary to finance that expenditure. This year, as last year, it will be closely concerned also with the level of increase in incomes and the effect of this on prices and employment. In what I have to say I will deal with these in their different aspects.

On the question of employment, the budget introduced yesterday by the Minister for Finance is based on the acceptance of an essential unity of interest and purpose in this direction. It is based on the principle that we now [500] have before us one aim to which we all subscribe, that is, the creation here of opportunities for employment for all who want it. We can say much progress has already been made.

The major initiatives by the Government in relation to public sector employment were outlined yesterday by the Minister for Finance. They have not yet had their full effect. In addition, private employment, particularly in manufacturing industry, increased significantly in 1977. In fact, total employment was 12,000, or more, higher than in 1976. This, of course, is not a final figure. In fact, the estimate by the Economic and Social Research Institute puts the figure as high as 15,000 in total employment, that is the increase in 1977 over 1976.

Further improvements require fundamental changes in economic climate. They require first, a reduction in what has been the highest rate of inflation in the European Community. Otherwise, we will simply price ourselves out of markets in which we must sell. The time for stabilising prices now is particularly favourable. The sterling price of basic commodities on the world market has fallen according to the Economist index by over 10 per cent in the last year. The recent rise in the value of the £ should ensure that the price we pay for most of our imports from non-sterling countries should fall or at least remain stable. Of course this rise imposes a further constraint on us in that it may force up the price of what we sell in those countries and, therefore, tend to make us uncompetitive. We cannot allow our domestic cost increases to add unnecessarily to the price of our exports in the fiercely competitive world in which they sell. The approach has influenced our decisions on taxation in this budget and will continue to influence our thinking on income generally.

Above all else, increasing employment here means we must achieve a high rate of productive investment and of economic growth. We are not tied be any academic or doctrinaire principles as to how these aims will be achieved. The White Paper on National Development, 1977-80 sets out some of the principles by which [501] we will be guided in the medium term. The budget introduced yesterday deals with the strategy in the shorter term.

The first point which is evident from the budget is the extent to which the State and public enterprise are now engaged in the economy as a whole. Public expenditure in its widest sense, including the expenditure of local authorities, was probably over 55 per cent of gross domestic product in 1977. Because of the differences in the scope of public services and for other reasons, exactly comparable statistics for other countries are difficult to come by but it is likely to be true that this is one of the highest proportions for any country in Europe. Current and capital expenditure dealt with in the budget are projected to rise by about 19 per cent in 1978—a percentage considerably higher than the nominal increase likely in gross national product this year. In other words, Government expenditure this year will probably increase again as a proportion of all expenditure, public and private, in the country.

This needs stressing because of the volume of argument we so often hear that the State should do more in this area or that area for whatever purpose happens to be nearest the commentator's heart. The State and public enterprise here are already doing more proportionately than in most countries in Europe and this budget will increase the scope and intensity of this effort. It will push the public sector borrowing requirement to about 13 per cent of gross national product as against, for example, 4.8 per cent in the United Kingdom, 2.9 per cent in Germany, 3.1 per cent in Denmark and 0.9 per cent in France. These are figures taken from the Official Journal of the European Community dated 19 December 1977. Of necessity, the figures for other countries relate to 1977.

As the Minister for Finance indicated yesterday, the figure of 13 per cent came out exactly as we had projected in our manifesto, that is, 13 per cent borrowing related to gross domestic product. A few minutes ago the Leader of Fine Gael spoke of the higher borrowing which he said had to be undertaken in previous years. I remember [502] yesterday the cries of derision from Deputies opposite when the Minister for Finance mentioned that figure of 13 per cent which was exactly what we had predicted but I did not see any arms thrown in the air in 1975 when the figure issued with the budget statement was 15.6 per cent and, in fact, turned out at 16.3 per cent for that year.

As the Leader of Fine Gael said, the leading article in The Irish Times of today's date stated that “borrowing for this year is reckless”. I do not remember the leader writer in The Irish Times wringing his hands in 1975 when the borrowing rate was 3 per cent higher of GNP that it is this year.

Dr. FitzGerald: In totally different conditions.

The Taoiseach: We told the parties opposite at that time that the borrowing would not have been necessary if they had taken the kind of action we suggested to them in 1974, and indeed what we have done now. They did it to some extent but it was too late and too little.

Of course definitions as between the countries I have mentioned with regard to gross national product in relation to borrowing are not and cannot ever be precisely comparable. There is little point in pursuing too far comparisons between Ireland with its relatively under-developed industry and infrastructure and the developed countries of mainland Europe. I want simply to emphasise the size of the effort already being made on Government or public sector initiative and the extremely limited scope, if any, which exists for expanding it to get rid of the age-old problems that have be-devilled our country.

One of these is the problem of poverty and deprivation in our society. Indeed some people have suggested that our manifesto was totally devoid of social content. The Leader of Fine Gael repeated that today in respect of our budget, although not in these precise terms. It has also been alleged that the measures we have taken will widen the gap between the haves and [503] have-nots and that the Government were not too concerned about this. I wish to state now that there is no insensitivity on the part of this Government to the situation of the disadvantaged among our people or that our programmes will worsen their lot absolutely or even relatively.

It may be helpful if I set out our broad guiding principles. They are: first, to provide conditions in which the maximum number of our people will be enabled by their own efforts to transfer from the ranks of the have-nots to those of the haves, primarily by securing worth-while employment. Secondly, to assist those who through the various circumstances of age, bereavement or endemic and cumulative deprivation, are genuinely disadvantaged and dependent on society and who deserve the best we can do for them. We have undertaken to continue to increase social welfare payments generally at least in line with inflation. We hope to be able to do better, as we have done better in this budget. Increasing social welfare payments is only one leg of this process; in many ways a greater contribution may be made to real increases in welfare of those in need or struggling on inadequate incomes by reducing the rate of inflation. It is of little value to give people increases of 20 per cent or 25 per cent in their incomes or in welfare rates if inflation is allowed to run ahead of these figures.

Our third guiding principle is to continue the innovative approach we initiated in previous periods of office, by taking imaginative action to effect particularly noteworthy improvements in the position of groups whose needs call for such special attention. Examples of such action in the present budget are the full financing of the telephone rental charges for old age pensioners living alone, the improvements affecting veterans of the War of Independence and their spouses and the increase of 30 per cent in capitation grants for special schools for handicapped children and in equipment grants for special and remedial classes in ordinary national schools. I need only point to some previous examples [504] of these imaginative innovations; for example, free public transport for old age pensioners and assistance given in payment of TV licences and electricity charges. All these indicated our commitment and concern to improve the lot of the disadvantaged among us.

Fourthly, we have an obligation, as have any Government, to tackle abuses in the social welfare system. Here I use the word “abuses” as not relating solely or specifically to legal offences of fraud but to the exploitation of anomalies and, more generally, to the circumstances in which people in comfortable circumstances are supported, through the welfare system, by their fellows, many of whom are in worse circumstances than those availing of benefits.

The problem is to cut out the incidence of such abuses without hitting those whom the system should really benefit perhaps to a greater degree than it does. But when we have situations in which, for example, the average incidence of drawing disability by insured persons is the range 18 to 25 weeks—yes, weeks, not days— for every married woman as against three weeks for every single person, corrective action is clearly necessary and I am sure would be widely supported.

There has been criticism of the amount of the increases in social welfare benefits announced yesterday by the Minister for Finance. The simple fact is that the magnitude of the increases reflects the success of our policy in reducing the rate of inflation. It is not necessary to give people a wheel-barrow of money to enable them to buy enough to keep body and soul together, as seemed in prospect at one stage in recent years. We have given increases, in general, of 10 per cent. These, together with the full year effect of the 1977 increases, will result in average rates of payment being 14 per cent approximately higher in cash terms in 1978 than in 1977, as compared with a slightly higher increase in average take-home pay under the proposals made by the Government and an average rise in prices of perhaps 7 per cent over the year as a whole.

[505] Deputy FitzGerald referred to the fact that we are not topping up the rate in October. To do so would be to accept a defeatist attitude in relation to inflation. The topping up exercise was done solely because the Coalition Government realised that they were not able to control inflation and it was necessary, in order to keep pace with rising inflation, to top up the increases in welfare payments given earlier in the year by smaller increases given in October. Indeed one of those would have been welshed upon by the Coalition Government were it not for the public outcry against it.

One would always like to be able to give larger increases to widows and old age pensioners or indeed to all who deserve and need the support of society. But we have to strike a balance. If we push up social insurance contributions too much we penalise employment and adversely affect the incentive to work. If we raise indirect taxes or widen the gap in public finances and print money to bridge it it will kill initiative and stimulate inflation.

Broadly speaking, those in receipt of welfare have experienced a significant improvement in their living standards in this decade. Over the period commencing before the 1970 budget increases took effect and extending up to the end of 1977 a person on the contributory old age or widows' pension under 80 years of age, had an increase of 39 per cent in the real purchasing power of the pension. Over the same period the increase for a person with a non-contributory old age pension was 28 per cent; for a person getting the rural rate of unemployment assistance it was 44 per cent. For some benefits the figures are lower than this range. For example, for a contributory old age pensioner under 80, with a wife over 66, the increase was 19 per cent. On the other hand for a widow, with a contributory pension and three dependent children, it was 80 per cent. Admittedly some of this improvement took place under the Coalition and I do not grudge them credit for it. But it ought to be pointed out that the major leap forward came in 1973 with the aid of the £30 million saved to the Government by reason of our entry [506] to the EEC and, more particularly, of the saving of that amount of subsidies which would otherwise have gone to helping our farmers generally. We, in our pre-election undertakings, entirely committed that £30 million to improvement in social welfare benefits. That is exactly what the Coalition did—just something less than £30 million was about the size of the increase given to social welfare recipients in the first Budget, and has more or less continued since.

Dr. FitzGerald: Forty-one-and-a-half million pounds.

The Taoiseach: Forty-one-and-a-half million pounds in the first year.

Dr. FitzGerald: Yes.

Professor O'Donoghue: That is correct; they had their numbers wrong that year also.

The Taoiseach: Even if it was £41½ million the Deputy will hardly deny that, were it not for the assistance given by the saving on agricultural subsidies, it would have been very limited.

Dr. FitzGerald: We did not depend on that in subsequent years.

The Taoiseach: Of course they did because they did not have to pay it out to the farmers by reason of our entry to the EEC. Naturally, the Deputy and his party were in favour of the EEC—I am not denying that either and, for that, they also deserve credit.

However, we have witnessed a steady increase, indeed a real one, in welfare income over these years and it will be our aim to continue this process, both directly and indirectly, by revising rates of payment and substantially reducing the number in need of such benefits as those for unemployment and disability.

I come now to the proposals in the budget affecting the economy generally, taxation and incomes. Industrially and commercially we are one of the least developed countries in the European Community, with an average Gross Domestic Product per head of the population of about 40 per cent [507] of that of the richest country in the Community and perhaps 70 per cent of that of our neighbours in the United Kingdom. Whatever our feelings about the relative values of redistribution and incentive in the system of taxation, or about the need to raise our welfare standards to European levels, the first priority at our stage of development, must be to give prominence to those features which encourage enterprise and, therefore, economic growth. It is only on prosperity that a decent welfare system can be built. Without a sound economic base we can never have a full, satisfactory welfare system and certainly we cannot generate the extra employment we need. That is one reason that we decided to abolish the wealth tax which, in its purpose and construction, acts in a way completely contrary to the creation of capital.

The tax is difficult and expensive to administer but that is not the basic argument against it. At a time when we are seeking to encourage investment can we really encourage and advocate a tax which takes away the purpose of that investment? Can anybody seriously defend a tax which encourages a person to take his capital out of the country or, if he does keep it here, encourages him to invest, not in productive assets like a farm, factory, hotel or business giving employment, but in a personal residence and its contents which so long as certain conditions are complied with, will be free from this form of taxation? In my recent radio interview—parts of which were taken out of context and orchestrated furore started afterwards, contributed to by the Leaders of the Fine Gael and Labour parties—I mentioned in particular, and gave certain examples of, how this wealth tax affected industrial investment.

It is common knowledge now that many small industries—they were not necessarily manfacturing ones— throughout the country literally folded up. The people who operated them went away, people who have given employment to two, three, seven or 10 people. There are now a lot of these people included in the unfortunate [508] statistics of the 100,000 on the unemployment register, one hundred thousand or more. I gave perhaps a more extended example of people who, with money to invest, do it in the big houses I mentioned, stuffing them with Picassos, with Sean Keatings, with any kind of old Irish silver and, as long as it is situated in a limited acreage—not more than one acre—then there is not a penny wealth tax on that. Therefore, is there any inducement to a person who might have about £250,000 to purchase and equip a house of that nature except just to sit in it and let it appreciate in value without giving a whit of employment rather than invest it in, say, a small industry or hotel and have that taxed away under the wealth tax? The social advantages are clearly to be seen and the inequity of the tax, in the long run, has been amply demonstrated.

The bias of the tax against productive investment is totally wrong. Not half a mile from where we are now sitting one can see the effects of a system of taxation which sought to tax windows. Of course, the intended victims simply blocked up their windows. The physical and psychological consequences of a wealth tax are not as easily visible as this but they are no less real and far more damaging. Wealth or capital can be just as volatile and as hard to tax as daylight.

I should add for the record that the yield of all the capital taxes in 1977 at £9.5 million was disproportionate to the cost of collecting them, and that if the old estate duties had been left as they were—and I am not arguing that they should—they would have yielded approximately £25 million in that year. After all the talk about taxing the rich, we found that we had only slightly more than one third of the total input into our tax revenue from the much lauded and much heralded efforts of the Coalition.

Our approach to taxation in this budget has been based on the essential principles that the success of an industry, a business or a farm depends on personal commitment, and that this is so to an outstanding degree where small businesses or farms are concerned. If the person running the [509] business or farm sees the fruit of his efforts disappear in taxation, he will not take long to get wise to the conclusion that an easy life, with moderate comfort, is preferable to expansion for the benefit of the tax gatherer. Multiply this decision a thousand times over in farms and enterprises throughout the country and the extent of the damage to the economy from a system of taxation biased against effort and enterprise will quickly become apparent. The influence of taxation system seeps right through business and trading life. Indeed, if there is one lever that can be used to make or destroy a nation's enterprise it is taxation.

There is no more potent combination for the destruction not only of incentive and effort but of capital itself than the combination of high inflation and capital taxation. Carried to its logical conclusion, the combination could mean the destruction of the capital base of the nation, since what is being taxed may not be any real accretion in value but capital itself. Thus a person buying a business, farm or industry in a period of high inflation and seeing its value go up by 100 per cent in nominal terms—at the same time as inflation has gone up by 100 per cent —has not made any real gain, but under the capital gains tax he may have to pay a large proportion of this illusory “profit”. In other words, he may have to pay over some of the capital which is essential to sustain his business as a viable concern. There can, I imagine, be nothing less conducive than this to the desire to expand and create employment, prosperity and even personal profits. The proposed changes in the system of capital gains tax are designed to get away from this anomaly while, at the same time, getting more effectively at the quick buck speculator.

In our approach we have as far as possible ensured that the tax system is made less onerous. The tax proposals relating to small businesses, free depreciation, stock relief are all further evidence of this approach. We have extended the system of farm taxes so as to take in farmers with a rateable valuation of £60 or more and increased the multiplier to £90.

[510] In his address a few minutes ago Deputy Garret FitzGerald made a reasonable comment. He suggested that in the case of the notional system a period of three years was too long because a farmer may not know in the second or third year what the rateable threshold will be or what the multiplier might be. That is valid up to a point, but one might say the same about any other form of taxation. Companies do not know from one budget to another what the rate of tax will be.

Dr. FitzGerald: They do not have to opt.

The Taoiseach: They do not know and therefore they are in the same position. In raising the threshold and the multiplier we have been fully conscious that other taxes paid by farmers have to be taken into account and that farming is unique as a way of life in its exposure to the risks of accident, weather and market. Indeed, it is not so long ago—between 1973 and 1974 a Coalition year—since farm incomes showed a decline in real terms of over 25 per cent. In that year most other incomes increased, or at least maintained their value in real terms. I do not know how many of those who criticise the farmer have themselves suffered a fall in their incomes of this magnitude in so short a time.

Any system of taxation must take into account the exposure of the farming community to varying fortunes as well as the need for equity in the distribution of the total burden as between the different sections of the population. Approximately 20 per cent of the labour force working in agriculture, forestry and fishing, produce approximately 17 per cent or 18 per cent of gross national product but pay only a few percentage points of the total amount paid in income tax. There is no necessary reason why the proportions of this tax paid by each section of the community should reflect precisely the numerical position of that section in the community, but while accepting the special circumstances of farming I think there can be little question that the distribution of the burden as between the different [511] sections at present is in need of the kind of adjustment proposed in the present budget.

The change will not affect the incentive of the farmer to produce since he will be allowed to choose assessment on the notional system according to rateable valuation or, if he wishes, on accounts. But once he has made the choice he must remain with it for three years.

Finally, I come to the system of taxation on personal incomes. The Government have deliberately tied up proposals for tax changes with developments on incomes, just as they will consider other measures if the changes they have proposed in company and capital taxation do not lead to the increased investment they expect. Taxes and incomes are in real life part of the same package. And in the economy the amounts dealt with in this budget and wage or salary incomes will be of approximately the same order of magnitude. I mean that each will involve expenditure of over £3,000 million or so in 1978.

Time and time again we have said that the tax reductions we proposed before we came into office, and which we have now effected, were part of a package related to incomes. There is no point in anybody suggesting that our income tax reduction proposals were made irrespective or independent of any other feature or element of our economy. Naturally wages and wage rises are a very important element in this. We repeated that statement before we came into Government and since. There is no point suggesting we said otherwise.

It has been said that the last national agreement led to a decrease in real incomes. It may be possible to make a case for this allegation on the basis of a selective choice of groups or a selective definition of pay. But the broad picture is clear—and, in giving it, I am using as my source estimates given in the Autumn 1977 issue of Trade Union Information, a journal published by the Research Service of the Irish Congress of Trade Unions. Their estimate at that time was that real earnings of industrial [512] workers in manufacturing industry in 1977 would be 3½ per cent higher than in 1976. So far as earnings per person are concerned their estimate of the nominal increase was a bit on the high side perhaps, but as the average price increase turned out to be also below their estimate they were not far out as regards the real increase which was, it now seems, about 3 per cent. This was, of course, apart from the significant additional gains in purchasing power resulting from the tax cuts given when our predecessors belatedly adopted the approach we had suggested two years previously.

I am saying that because it is important to emphasise that a wages increase restraint does enhance the real value of wages whereas inordinate income rises put the value of the pay packet in jeopardy by encouraging inflation.

It has also been claimed that workers' living standards have been eroded by the whole series of national agreements. Again, I refer to the Congress of Trade Unions' journal which concluded that the real earnings of industrial workers engaged in manufacturing rose by 32 per cent between 1970, when national wage agreements were inaugurated, and 1977. That is a 32 per cent real increase in that seven-year period. The increase compares with an estimated increase of 26 per cent in GNP per person at work in the same period indicating that industrial workers did not fall behind other groups.

Coming back to the question of a further national agreement, the tax cuts are now a reality. In illustrating the benefits to purchasing power of the package we proposed, I will use the 5 per cent figure in our manifesto. Other figures have now been put forward on both sides but, as I hope negotiations will resume, it would be invidious for me to take up any of these figures here today. A combination of the carry-over into 1977, the increased tax allowance and a 5 per cent increase in pay would lead to an average increase of the order of 15 per cent—it is difficult to be precise in view of people's varying tax circumstances—in [513] the take-home pay of non-agricultural workers in 1978 over 1977. The comparable increase in prices, which is the average increase over the year as a whole, is expected to be close on 7 per cent. Indeed, even without the tax concessions the package would lead to a significant increase in real incomes on average in 1978. Taken with the budget generally, it will enable workers generally to further increase their living standards in the present year.

It is, I think, a matter of fact that it is immaterial to the individual worker whether the increase in his take-home pay comes from a reduction in this tax payment or an increase in wages. It is all money in his pocket. But the way in which the increase is given is not immaterial to the economic health of the community. Wage and salary increases are justified and a welcome feature in any economy, but they must be related to the increase in the quantity of goods and services which the economy produces. Here, we estimate that the underlying growth in productivity would justify the increase of about 5 per cent.

If increases are above that level costs must inevitably go up. Increasing costs will force the private employer to raise prices. In this way excessive increases are self-destructive. One estimate is that for every 1 per cent by which the increase exceeds 5 per cent, the consumer price index would be pushed up by about 0.3 per cent and this increase would erode the value of the total wage, not just the pay increase, in addition to the deduction of perhaps 35 per cent which would be made from the increase by way of income taxation. All this is on the assumption that the worker manages to retain his job in face of competition from other industries and countries which, in the unfortunate circumstances I have suggested, would be a very unlikely prospect.

The destructive effect would not stop there because with increasing prices the costs of government would go up. Every 1 per cent increase in the cost of pay in the public service is estimated at about £8 million, that is £8 million extra on the public service pay bill. [514] The inevitable consequence is still higher taxation in one form or another. The £8 million would have to be made up in taxation and this additional taxation would, in turn, serve to destroy the value of the nominal increase.

Excessive increases also mean that some persons who are now at work will lose their jobs. The possibility of creating employment for those without work will be further diminished. Welfare costs would have to increase because of higher unemployment. All these consequences lead to even higher taxation. Therefore, the net effect of excessive pay increases would be that the entire economy would move on to a new and higher cost plateau and a new and lower level of stagnation and unemployment.

This is no threat. It is simply a fact of life. It is only common sense to look to the consequences of an action before it is taken. The Government would be failing in their duty to the nation if they did not make these consequences absolutely clear now, at this point, when something can be done about them. The package on pay and taxation which the Tánaiste outlined yesterday will mean real and substantial increases in income for workers. They will give the economy a chance to get away from spiralling prices, low growth and intolerable rates of unemployment. The consequences in the form of measures to recover excessive income increases if the package fails will also be as the Tánaiste said. What we have provided in this budget is a balanced package to increase the rate of growth to a point where it will become self-generating and where the slack in the economy, represented by the high rate of unemployment, will be taken up.

There is no doubt that we are running risks. The percentage of our national output going on public expenditure is extraordinarily high by international standards; public sector employment is being increased substantially and borrowing is high and at a point where it simply cannot be repeated. It certainly cannot be maintained for very long.

We believe that we are right in [515] taking these risks. We believe that what we are doing will be appreciated in tangible ways. Under the budget all sections of the community will be made beneficiaries, directly or indirectly, of our economic growth and all sections are being asked to contribute in this great national effort to break away from stagnation, from rising prices and from increasing unemployment. We spelt out exactly in our manifesto what we proposed to do in the first year. Never have a Government implemented so fully, so expeditiously what they promised.

If I might revert to The Irish Times leader today—the Fine Gael Leader referred to passages from all the leading articles today, which seems to suit his book—it seems to suggest that we should have done something other than what we had promised in our manifesto. We said we were going to prime the pump, and that is exactly what we have been doing. We said it time and time again and that is what this budget is about. The Irish Times leader stated that we should take chances now and go for four years ahead. Again, we have done what we promised to do in the manifesto. The Irish Times wanted a more imaginative budget. I think we can safely claim that our manifesto was an imaginative one. It was described as very much so; indeed, it was described as over-courageous. We said we would implement it if we got into Government. Its strategy stated specifically that it was not a strategy of imposing new taxation. I wonder do The Irish Times suggest that we should now go back on our manifesto, that we should do something other than we promised. It did not matter to us whether we had a majority of two, ten or 20. That did not give us the right to do other than what we have undertaken to do and that is exactly what we have done. We have no intention of going back on our promises. On the contrary we believe that what we have done in this budget is exactly the kind of thing that we promised in our entire strategy.

Listening to what has been said, I have been struck by the degree to [516] which, if we are to believe the com-mentators, society is sectionalised. The public sector is segregated from the private; farmers are distinguished from urban dwellers; the interests of workers are held to be separate and distinct from the interests of the entrepreneur or investor; and people on welfare, are in some way, regarded as a class apart.

I do not think that arguments based on these distinctions can be sustained or, indeed, that the community would benefit much from stimulated confrontation of this sort. Even if we are not all in the same boat we certainly are on the same island and there could be no more pernicious doctrine than that a benefit to one section of the population must inevitably be at the expense of others. The prosperity of farmers means jobs for workers; and the earnings of the worker by the farmers' produce. We all depend on the existence and success of investment. The humanity with which the social security system can be operated depends, in turn, on the health of the economy generally.

We have sufficient faith in the good sense and practical patriotism of the people—I spoke about practical patriotism last week—to believe that all our people will see the opportunities presented to them in this budget, will grasp them and so move on to that higher plane of economic activity that fainter hearts in the benches opposite would deny us.

Mr. Cluskey: I have spoken many times in this House but never have I stood up trying to suppress anger like I am now. My anger arises not only from the budget but because of the total dishonesty of the speech made by the Taoiseach. I do not have a prepared script and it is my intention to give my thoughts on the effects on our society this budget will have. One of the proudest boasts which we have heard repeatedly over the last few days, and which was made by the Taoiseach this morning and the Minister for Finance yesterday, is that their approach is a pragmatic one. The Minister stated that is was not dictated by ideological dogma. I accept that. [517] Fianna Fáil are saying that they are political atheists and I accept that. As political atheists they have no sense of political morality which they can use as a criteria for the actions and the directions in which they are trying to move this country. That was clearly demonstrated in the budget.

The budget has a number of purposes. It is to direct our economy, to prime the pump—as the Taoiseach said—or, in other circumstances, to slow down a little. It is also used as a means of providing the money to run our public services and meet our financial commitments as a State. Another purpose of the budget is to provide the opportunity of directing and pushing our institutions and the sections in our community towards the kind of society we want. It can create the atmosphere and the climate for bringing about the kind of Irish society we believe we should have. The budget will have the opposite effect to the creation of a fair, equitable and united society which we need, a society with a common sense of purpose and aspiration.

In strictly political terms, if this party had no sense of political morality we would welcome the budget. Were we to judge it purely on political terms we would see it as being politically to the advantage of the Labour Party because it has exposed Fianna Fáil for what they are, a party that looks after the better financially fixed sections of the community and who cater for such sections at the expense of the less privileged members of our society. It is my intention to illustrate that. The Taoiseach quoted from one of this morning's newspapers extensively.

The Taoiseach: Just one.

Mr. Cluskey: I will quote another, the Irish Independent. A banner headline in that paper reads: “HAUGHEY COUP WITH 10 p.c. HEALTH AND WELFARE PAYMENT RISES”. The author of the article under that heading has written other stories in connection with the operations of the Departments of Health and Social Welfare in recent months and they could only be described as being disgraceful because they totally misrepresented [518] what the situation is with regard to those Departments. To describe the provision for social welfare recipients made in the budget as a triumph for the Minister for Social Welfare, or the Government, is not only misleading but dishonest. In another article in that newspaper we are told that the big spenders are coming home from their tax havens.

Mr. B. Desmond: The people's party.

Mr. Cluskey: That article states that 5,000 people were returning. I did not know any of those people but one of them was identified in that article.

Mr. B. Desmond: They came home for the races.

Mr. Cluskey: I intend quoting from that newspaper and, consequently, I cannot be accused of quoting a person's name that is not already public knowledge. It states:

Mrs. Nora Barnes, wife of Mr. Dermot Barnes, founder-director of Smurfits and who also has his own company, Dermot Barnes & Son, was in Dublin last week on a flying visit to celebrate her birthday.

An Leas-Cheann Comhairle: The Deputy should not mention names of people outside this House.

Mr. B. Desmond: They have come home for the races.

An Leas-Cheann Comhairle: It is not fair to mention names of people who are not Members and, consequently, cannot defend themselves. Deputy Cluskey can make his speech without doing that.

Mr. Cluskey: The reason I mentioned the names was that they were mentioned in the newspaper article. They are public knowledge.

The Taoiseach: That does not justify the Deputy's behaviour.

Mr. B. Desmond: They left the country to avoid tax. They had to go to Belfast overnight.

An Leas-Cheann Comhairle: The Deputy is not in possession.

[519] The Taoiseach: The Deputy's hum-buggery comes through so often.

An Leas-Cheann Comhairle: Deputy Cluskey is in possession and I am asking him not to mention the names of people who are not Members. It has not been done down the years and it should not start now.

The Taoiseach: Decent standards are all we ask for.

An Leas-Cheann Comhairle: The Deputy may quote the article without mentioning names.

Mr. Cluskey: I will quote the article without mentioning the names.

The Taoiseach: It has been done.

Mr. Cluskey: The article goes on:

They have been away from Ireland for a year now yachting and enjoying the Spanish sunshine but she said she was hoping for a change in the budget that would allow them again to live in Ireland.

They are the people who are being catered for in this budget. Let us have a closer look at how well they have been catered for and at whose expense. There was a cheer and loud clapping for the first time from the Government benches when about three quarters of the way through a nearly two hours speech the Minister for Finance announced the abolition of the wealth tax. This was the first time they gave any reaction to any announcement by the Minister in the presentation of his budget. It meant by those few words “abolition of the wealth tax” that 5,000 mainly unidentifiable people in our society benefited to the tune of £5 million, approximately £2,000 per annum.

The Minister, with no reaction from the Fianna Fáil back benches, announced that £21 million is to be made available for social welfare recipients of whom there are 900,000. That means approximately £20 per annum for the 900,000 in our society who depend on social welfare. Let us compare that with the £2,000 for the 5,000 mainly unidentifiable people in our society. The Taoiseach, in his address to the House a short while [520] ago, spoke about the contribution to the common good. He said we must have a commitment to building up our society and our industry. Does he think that the 5,000 people who got a bonus yesterday of £2,000 per annum made a greater contribution to the building up of our society, our industry and our agricultural sector than the 900,000 who got the £20 per annum extra? Is that the reason they got it, or are there other reasons?

We are told that if the Government do not abolish wealth tax those people will flee the country. There are very few havens they could go to. The fact is that in nearly every industrialised country in Europe with strong industries, that have been able to attain full employment over the years— something we have not been able to do—those taxes apply. There is no way in which one can come to the conclusion, if one examines what has happened in other countries, that a tax of this nature would harm the development of our industry.

The Leader of Fine Gael implied this morning that there is some other motive for this. If that is the kind of approach the Government have, if that is the Fianna Fáil interpretation of an exercise in practical patriotism —the Taoiseach has used those words on a number of occasions—God help the country.

I do not intend to go too much into the employment situation because the Taoiseach gave me a commitment last Tuesday that we would have an opportunity to debate the White Paper on National Development in the very near future and it would be more appropriate to go into depth on employment on that occasion. There are, however, some aspects of employment creation which can be usefully mentioned. Yesterday the Minister for Finance told the House that 4,700 jobs in the public sector had been created. When we went a little further into it we found that out of those 4,700 jobs which were created only 2,000 were filled. We have this play of words going on now in Fianna Fáil circles, even by the Taoiseach, where they switch from one description to another description with regard to [521] job provision. In one sentence we get job creation and in another we get jobs filled. They are very fond of their manifesto. Their commitment with regard to employment is a reduction in the live register. That is very clearly the manifesto published by Fianna Fáil.

The Government are trying to get away from the commitment they gave and are doing this in many ways. They are doing it by switching from one description to another, from jobs created to jobs filled, jobs advertised and jobs in the pipeline. The commitment they have to honour regarding jobs is a reduction in the live register. We will go into that a little more fully when we get around to the White Paper.

The Taoiseach also spoke at some length about unemployed people, social welfare recipients of one kind or another and tax concessions and their relationship to the national wage agreement. As far as tax concessions, the abolition of rates and taxation on motor vehicles are concerned, these were separate and distinct commitments given by the Government in their manifesto. They have no relationship to wage negotiations.

I believe the trade union movement are adopting the proper attitude in that respect. They will not be conned and will not allow their members to be conned into a switch after the election from what was put before them before the election and a new form of arithmetic engaged in in order to try to juggle up the combined package that would confuse and make difficult the issues involved in those negotiations. If one were to combine the two and examine a little more closely what effect they would have if they were combined, a number of illustrations could be given. The effect of the budget proposals and a 5 per cent increase on a typical family at different levels of income could be usefully looked at to see what effect they have and where the priorities of Fianna Fáil lie regarding the different sections in the community.

A man with a wife and two children on £10,000 per year who owns a motor car and a house with a rateable valuation of £30 comes out as follows with [522] regard to the package Fianna Fáil are now trying to give. The gain on rates relief is £300 for that man, his car tax relief £96, income tax concessions and salary increase £578, and his total benefit would be £974. Down the scale we talk about a man with a wife and two children on unemployment benefit living in a corporation house and with no car. For that man with the rates relief and increase for unemployment benefit, his benefit from the packet would be £250. There is quite a difference. One gets approximately four times what the other gets.

In this we have at least a consistent philosophy and approach by Fianna Fáil, that the more you have the more you deserve and the more you will get, and the less you have the less you will get.

Mr. Callanan: I hate interrupting, but that goes for a lot of things.

Mr. Cluskey: I accept interruptions from the Deputy because he is the only one on those benches who has ever displayed any social conscience.

Mr. Callanan: If you have a percentage increase it is the man with the most who gets the greatest amount.

An Leas-Cheann Comhairle: Could I point out that interruptions are not in order no matter how much they might be welcomed.

Mr. Callanan: The point I wanted to get across is that in percentage increases the big fellow always comes out the best.

Mr. Kelly: He pays more tax. He pays back more of it.

Mr. Cluskey: I accept the Deputy's approach, but when you compound that by assuring that a man who has no financial resources, who has no car and so cannot get any relief in that respect, who does not live in a big house and cannot get any relief in that respect and also may be on such a low income with so many children that he is not liable for income tax anyway and gets no relief in that respect——

Mr. Callanan: He gets his rates off anyway.

[523] Mr. Cluskey: ——you see how unjust this approach is.

Mr. Callanan: I know, but the Deputy has not come out against percentage increases.

Mr. Kelly: The percentage increase for income tax.

An Leas-Cheann Comhairle: Deputy Cluskey is in possession. We are not on Committee Stage in this Bill.

Mr. Cluskey: The Taoiseach mentioned in his speech the question of social welfare recipients and how well they were going to do. In order to try to get some presentation of his speech I tried to combine what had happened between 1970 and 1977. That was the presentation the Taoiseach was forced to make in order to get any kind of acceptable level of improvement of the plight of these people in our society. There seems to be widespread opinion in Fianna Fáil that there is very little social injustice in our society, that there are very few underprivileged people here and that they could be adequately catered for with what is left after every other section of our society have been allocated what Fianna Fáil would consider to be their due.

The Taoiseach in an extended radio interview on a Sunday three or four weeks ago made some very interesting points. Unfortunately some of the points he made at that interview were lost or obscured by over-emphasis on his reference to the North. What he had to say with regard to Northern Ireland and particularly about the prospect of amnesty for convicted criminals left other aspects of that interview not covered by the media. In the interview he was asked about the underprivileged in our society. I now paraphrase what he said which was that there was no great number of underprivileged people in our society and no real want. That philosophy is quite clearly shared by the members of his Cabinet and by the 84 Deputies who support him in this Government.

The unpleasant fact is that in excess of 20 per cent of our population are below the poverty line. The last administration tried to do something [524] about it. I have not since last July, heard one word uttered by any Minister, or indeed by any Fianna Fáil Deputy, regarding the underprivileged, because they want them forgotten, they want them pushed aside. They are there and the last administration kept them to the forefront because during that administration's time of office speeches were made repeatedly emphasising that this evil existed in our society and that a commitment by everyone was needed in order to cure it.

During my period as Parliamentary Secretary I met a lot of people who are members of various voluntary organisations. They would come in deputations and they put forward their point of view. I found them very decent, mainly hard-working people with a tremendous generosity of spirit and a tremendous personal commitment to do something in their personal capacity to try to help those less fortunate than themselves. They gave a lot of time and effort and, in many cases, of their own money in order to do this. They have failed to grasp one essential, that poverty cannot be eliminated except by a Government acting on behalf of our society. It cannot be eliminated by small groups or even large groups of voluntary organisations. It can only be eliminated by a Government with the political will to do it, and that does not reside in Fianna Fáil.

I will not refer to what the Leader of Fine Gael had to say today. I have heard that party being described by young members of my party as being the rich man's party. I have heard them being described as being a party who cater for only the well-off members of society. On the other hand, I have heard Fianna Fáil being described as a party, founded on radicalism, with a social conscience, a party with a commitment to establish a decent society in Ireland. That may have had some truth: I think that at one stage they had a social conscience, but now they can be described truthfully as a rich man's party whose concern is to ensure that the better off become even better off. That is the mantle Fianna Fáil have assumed.

[525] Fine Gael were the majority party in a Coalition Government and in that role they displayed a social conscience. They supported the Labour Party in improving considerably the lot of the underprivileged in our society. Fine Gael are not and have never claimed to be socialists but in their term in office they displayed clearly that they have a social conscience. Fianna Fáil have shown us that they are pragmatists. They have shown us that the only thing that motivates them is political expediency.

If the Labour Party were motivated by political advantage, if we were to assess the budget on the criterion of how it would affect us in relation to the electorate, we would be welcoming it. But I believe the budget, in the middle and long term, will prove to be disastrous for our society. It indicates no way in which the private sector can provide the new employment we need. The private sector have not done that in the past in more favourable circumstances, and with the best will in the world they cannot do it in the future.

The Labour Party and the trade union movement moved for the establishment of what we called a national development corporation which would allow the State to play its legitimate and rightful role in job creation, and this has been totally rejected by Fianna Fáil. I do not welcome the glaring fact that the economic and social policies of Fianna Fáil will be disastrous. We in the Labour Party have a commitment to the country. We believe it is possible at this time to create a decent, prosperous Irish society. We would marshall all sections of the community towards the achievement of that common goal.

This is not possible on the basis of the Fianna Fáil budget yesterday. It is divisive and from start to finish it shows total disregard for social justice and equity. For instance, this morning the Taoiseach said that married women were drawing sickness benefit for periods of weeks and he complained about this and said effective action would be taken to ensure that this would not continue. I do not know the kind of effective action he proposes to take against people who are [526] sick. Perhaps the Taoiseach was implying that the medical profession were providing those people with false certificates. Did he mean that the medical profession are not examining patients, that they are giving out medical certificates which are not justified by the physical or mental conditions of the patients? If that is what he meant, surely it is the medical profession he should be talking to and not to the women concerned.

The Taoiseach calculated that £2 million will be saved by a cut-back in unjustified social welfare payments. How will that be effected? Are we to have an extension of the present situation when a married woman who becomes unemployed and goes to draw unemployment benefit on the basis of the stamps she has contributed will automatically be refused benefit on the basis that she is not available for work? Is there to be an extension of the situation in relation to married women's entitlement to draw benefit? Is there to be an all-out attack on social welfare recipients? Is that the manner in which the money will be raised to provide the £10 million given in relief to the 5,000 people who fall within the wealth tax bracket?

This is a budget which made me angry when I stood up but which leaves me sad as I sit down. It holds out grim indications of the kind of society Fianna Fáil want to create here. They had an opportunity to do something but they threw it away. This is a budget that discriminates in a blatant, savage way against the people who are described as have-nots. It is a budget which does very little for those foolish people who regard themselves as having little and who aspire for more. The only way they can get more under the approach by Fianna Fáil is at the expense of those who fall into the category of the have-nots.

To talk as the Taoiseach talked here this morning about practical patriotism and to compare it with the budget and its effects on Irish society, if that is the kind of society which inspires Fianna Fáil, the sooner they are out of office the better. We know they are there for four or five years. One can only hope they will realise what they did yesterday, [527] the damage they did to Irish society and to the prospects which could be there for us.

Dr. Woods: Deputy Cluskey referred to Fianna Fáil as political atheists. I should like to assure the Deputy that I for one am not a political or any other form of athiest, nor are the vast majority of people in Fianna Fáil. I believe in God and I believe in the people of Ireland. I have confidence in the people of Ireland. I believe in work and in the right of our young people to be employed, to be given the means to improve their position and not to be dependent on the State. I believe the young people of Ireland have the capacity, the intelligence and the energy to compete and to succeed within the context of Europe in these difficult days.

This is a good budget. It provides substantial personal income tax reliefs for the ordinary working people. It removes the anomaly in that the working wife now has an allowance equal to the single person's allowance. In addition, it increases the single person's allowance by £200 and the married person's allowance by £630. So far, no one has referred to the effect of this marriage allowance increase. This is a substantial increase for a married couple and gives a clear recognition of the importance of the role of the family in Irish life. It removes the discrimination which has existed against the married woman who works. I presume she will be allowed to claim separately for her part of the allowances if she so desires in particular circumstances.

This is a very important aspect of the budget. The married couple and the family are recognised and given an incentive. It is also a good budget because it provides opportunities for investors and for entrepreneurs. It will encourage enterprise and job creation. It recognises the fact that the worst of the depression has passed, although unfortunately it has not yet passed for Deputy Cluskey. It is now time to plan our way out of the depression and into new growth and job creation.

Above everything else, this budget inspires confidence in ourselves. It [528] delivers on the election promises made in the manifesto. It calls for a response from many different facets of Irish life, and from many people in our society. It calls for a response from investors. The wealth tax has gone. Its benefits have been clearly seen to be illusory. These were readily quantified, as had been clearly shown by the Taoiseach. What is not so easily quantified, and what is probably far more important in money terms and in terms of jobs and job creation, is the money which ran away from the country when the wealth tax was introduced, money which is now needed and which can be used intelligently to create the jobs we need.

This budget calls for a response from people who have money. It calls for a response through investment in Ireland. It provides incentives for investment. It asks the people of Ireland, whether they have small or large amounts of money, to put their money into Ireland and run the creation of jobs and new wealth in Ireland. It calls especially on those people to put their money into Irish business, Irish-based and Irish-owned business. It calls for a response from the financial institutions and, in particular, from the banks and the insurance companies. It makes it quite clear to these institutions that the Government are planning for growth. It calls for a response with finance and investment in Ireland.

It calls on the banks to be more enterprising and to support those who have limited finance but proven ability in management, in technology and in their creative capacity. It calls on the banks to support those who have limited equity. I should like to see some new and more constructive thinking on the part of the banks. They have the ability; they have the management; they have the technical advice; they have participation in the country; and they have a dependence on the country. I should like to see them rising to this budget and offering some new initiatives to the people of Ireland which are badly needed at present. I believe that they can do and will do this.

The budget also calls on the financial institutions to look seriously at their [529] social contribution to the country. The insurance companies could respond by providing a higher percentage of medium and long-term finance for housing. Traditionally, this role was undertaken happily by the insurance companies. In more recent times there have been efforts to restrict and reduce the proportion of finance committed to this less directly rewarding yet extremely important investment for the social fabric of our country.

The banks also should look to their social contribution. They are getting the support of the Government in this budget. They should look particularly to what they can offer to our young people. They should encourage small savers. I do not mean just the with-it, swinging, “mod” young people who have secure, very well paid jobs. I am thinking also of the thrifty small saver who may have difficulties at the moment. The banks should show their contribution in a social sense by encouraging such people.

Another way the banks could make a contribution is by reviewing their sponsorship of community and local development. It was traditional for banks in Ireland to take a major part in local activities, whether they were sporting or community activities. In more recent times, with more sophisticated and centralised management systems, with the introduction of the slide rule in banking, much of this human face has been taken from the local bank manager. I should like to see more of this kind of sponsorship in the community.

The financial institutions have an important economic contribution to make. It has been shown clearly that the potential exists for tremendous development in agriculture. Here the banks are participating. They are providing a large share of the money required in agriculture but they could be more liberal in providing finance for farmyard enterprises. They could help the sons of farmers who want to set up their own projects that may be of a more intensive kind than that of their parents. In this way they can help to stem the migration from agriculture to the cities and thus reduce unemployment and prevent emigration.

[530] In their economic contribution the banks should refocus their emphasis towards job creation. The people in the election and the Government in their manifesto, and now in the budget, have made it clear that they are determined to make a major effort to tackle the jobs problem. The banks could respond to this budget and the Government by analysing their contribution to economic development and job creation and by providing special schemes of assistance for small businesses. This could form a major part of the development of job creation in future years.

We know that the combined profits of the Allied Irish Banks and the Bank of Ireland were almost £70 million on a pre-tax basis in 1977. Consequently we know there is room for more productive risk-taking on the part of the banks. This budget will be welcomed by investors and by the banks who have a major stake in the country. I should like to see them respond enthusiastically to the measures introduced in the budget and to the philosophy of the budget.

The budget also calls for a response from the workers. The Fianna Fáil manifesto was quite unambiguous in relation to its targets and its promises. It spelled out clearly that tax concessions are part of a package involving wage restraint. It also made clear the order of wage increases that were sustainable in addition to the total package. I emphasise these were about 5 per cent. Deputy Cluskey has indicated that in this package those further up the scale can gain more from the percentage increases than people at the lower level. As the Deputy knows, and as Deputy Callanan has pointed out to him, it is the unions who insist on percentage increases. Therefore, it is hypocritical of him to come here and to say that in practical terms it is possible to have any other form of increase which does not involve some aspect of percentage.

The full package has been laid on the table. There has been the removal of rates and car tax, the £1 from the stamp up to £50, the 10 per cent social welfare increases, substantial increases in tax-free allowances, investment in jobs by the Government directly and [531] the incentives given to industry for job creation.

Again, Deputy Cluskey would have us believe that there is nothing in the budget for the corporation tenant, or that he may benefit very little. While he was speaking I made some brief notes, although I admit they are not comprehensive. I can see a few measures that will benefit the corporation tenant. I can see that as part of the package there is a very low increase in rent for corporation houses, that a corporation tenant will benefit from the improvement in the pupil-teacher ratio which affects to a greater extent the schools to which his children go. I can see that the assistance for handicapped children will benefit corporation tenants because very often they have large families. I recognise that remedial classes are badly needed in our large and overcrowded schools and the assistance here will also be of benefit. I can see that the removal of rates was a direct removal of an equivalent amount from the rent of a corporation tenant. For those on the lower income levels £1 has been taken from the stamp and the 10 per cent social welfare increases apply to corporation tenants. I see also that the increased marriage allowances by the substantial amount of £630 will assist corporation tenants and that it will enable the breadwinner to gain, especially from overtime.

I know that most of all the people to whom Deputy Cluskey referred want work. They want productive jobs where they can have as high an income as others enjoy. They also aspire to having a car. Deputy Cluskey singled out the car. Admittedly many may not have cars now but certainly it is much easier for such people to aspire to own a car and it is quite clear that they, too, have a right to own a car. With the improvements in growth, incomes and real take-home pay that come with this budget they will be in a better position in the not too distant future to realise that aspiration.

There is a need for a response from the workers. The package has been placed on the table clearly and unambiguously, and it is up to the workers [532] of Ireland to respond. The housewives realise that inflation is a fool's paradise. They are well aware of the rapidly devaluing money in terms of purchasing power. A 7 per cent inflation rate has been forecast for 1978. That is the target in this budget. On that basis the housewife can go out in the reasonable belief that she will be able to continue her present purchasing.

I say particularly to the workers, especially the better-off workers, the youth and jobless: we await your response to this budget and package. Employment is the main requirement. The creation of jobs is and has been the main requirement and is the central objective of the budget. It was that on which our manifesto was based and on which the election was won. The essential feature of the manifesto and of the election was that people wanted work. They wanted somebody to get us out of the depression and get the country moving. This budget is all to do with the creation of jobs. The manifesto referred to 20,000 jobs directly created in the first year. The budget provides 24,500, if we include the 1,500 which will arise indirectly from the grants and aid to housing.

Consequently, not alone are Fianna Fáil living up to their election promises, in their first year in office they are planning to exceed them. The Minister for Finance has given already a number of very badly needed additional benefits, such as the example of reducing the pupil/teacher ratio by providing more teachers—with 900 new posts in teaching—increasing the number of gardaí and introducing foot patrols. Anybody now walking in the suburbs of Dublin will notice the gardaí presence there. Foot patrols will be increasingly in operation with the implementation of the plans and promises of the Fianna Fáil manifesto and this budget.

The provision of these new jobs will continue to provide the housing which is very badly needed. In addition to those measures taken directly by the Government if industry responds, as I believe it can and will, to the incentives given by the Government, industry could add substantially to net job creation in 1978.

[533] Deputy FitzGerald says that industry is getting very little from this budget. I was surprised to hear a man of his knowledge, with all the facts, information and statistics at his disposal, make such a comment. At times perhaps it is difficult to see the reality of a business amidst the mass of statistics. If industry is to grow, be strong and compete, surely the first essential is stability in wages? If one examines the costs of the vast majority of industries one will discover that wages are the dominant factor. Consequently their stability is essential to industry. It is essential also that inflation at home be controlled and be kept within reasonable limits. A reasonable approach to wages is vital so that industry can progress and compete, as we know it is capable of doing and as has been demonstrated by its performance in recent times.

Deputy FitzGerald forgot to mention that we have debated in this House for quite some time the many provisions of the IDA Bill to assist industry, the increased capital allocated for industry and many other provisions. Therefore, this budget and the many other accompanying facets offer industry stability, a climate in which to develop within itself, thereby increasing net employment, adding further to the hopes of our young people. Industry must take off at this juncture in our history but needs wages stability to face competition. It has adequate assistance for the purchase of machinery. I do not know whether Deputy FitzGerald wanted us to go even further in that regard.

The creation of jobs is the first requirement at present. This is an expansionary budget for industry. At long last tremendous emphasis is laid on the contribution which home-based industry can make to our economy. I believe that confidence to be timely. It has become clear to me, through attendance at conferences and visits to factories and businesses, that we have, within our industry, experienced and committed native management which can form the basis for development; committed Irish management that does not run away and close shop when things become difficult; committed [534] Irish businesses prepared to weather out difficult periods, even in economic terms at a loss, because they are committed to the country and their businesses.

The infrastructure has been provided in this budget for such industrial development. It is quite clear now that any small man in business with an idea will be given support. It is interesting to note that in the EEC, there are 29 million people employed in small businesses. It is time for us to place greater emphasis on the employment potential of this area and that is what is being done in this budget. That is what was done also in the recent IDA Bill—through the provision of increased capital, guarantees of working capital, venture capital, which is guaranteed and training.

AnCO is now one of the most effective training centres in Europe. Never before in our history has such a backup package been available to Irish industrialists. I find it difficult to understand how Deputy FitzGerald can come into this House and say there is nothing in this budget for Irish industry. The budget also demonstrates the Government's confidence in the ability of home-based industry. Perhaps it is timely also to issue a warning to our industries that there is a response required from them. They must play their part and be seen to do so; through their management they must give a lead. The time for progress is now; the opportunity is afforded now. We look to Irish management to show their ability, sincerity, their commitment to the country, to our young people, by responding generously, giving of their time and ability, in the creation of a better country for us all.

Also in the context of industry it is evident that Dublin is now the major centre of unemployment and the focal point of the youth of the country. I do not see this in a narrow or restrictive way. I realise that there are many problems in urban towns and cities, in the countryside, in western and deprived areas and in the disadvantaged areas. Nevertheless it is a fact that Dublin is now the major centre of unemployment. I suggest that [535] the Minister might consider a novel approach to these problems in a city like Dublin. It would be fruitful if he considered community-based enterprises. The community can provide small industry employment for many of the young people in their area. Communities must begin to provide such small industries if they are to survive and provide outlets for their young people.

Dublin Corporation have provided sites in all the new communities for industrial development. This development must be integrated with the local community. We have seen too often that these industrial estates have been hived off for some process or business which is not related to the needs of the local community. Before this land is taken up, we should have a very serious look at the possibilities for integrated local development in these areas. It is time to introduce a scheme of advance factory units to be used for community enterprise. I know these units are being sponsored and promoted by the Minister for Industry, Commerce and Energy but I believe this approach should be brought to bear urgently on the problems of the city of Dublin.

Over the last 24 hours, in the discussion of the SFADCo Bill we have seen a practical example of what can be done. Small industries, such as the craft industry, engineering and service industries, have been developed in this special community style local project. In the course of the discussion I noticed that they have a problem with 2,044 children at school who will be looking for jobs in the future. Even in my own micro community in Kilbarrack, a small part of the numerous communities on the north side of Dublin, we have 3,000 children of school-going age. These children need that kind of concentration. The Minister might consider bringing some of his very valuable proposals to bear on this kind of community-based enterprise.

In agriculture we have also fulfilled the promises made in our manifesto. The Minister introduced what can be seen as an equitable form of taxation. [536] We have seen an increase in the total take-in of agricultural taxes from £14 million to £24 million. In last year's budget Deputy R. Ryan proposed that 15,500 farmers would pay approximately £30 million and in this budget 22,500 people will pay approximately £24 million. Consequently the burden is more evenly spread and agriculture is seen to provide an equitable amount of taxation.

Nevertheless, the notional system has been retained. As those engaged in agriculture will know, at present the notional system is and can be an incentive for intensification. If there is one thing we want from agriculture at this time it is more production and output. It is very important that people in the cities and urban districts appreciate the contribution which agriculture and its increased output made to the economy over the last few years. It is also important that the ordinary worker appreciate the added and further contribution which agriculture can make, and which we are asking for. Under the notional system some increased allowances have been given, particularly in terms of contractors' fees and rates.

There will be no double tax on agriculture. That was one of the promises which was made in the manifesto and has been delivered in the budget. The accounts system is there as an alternative for any farmer who wishes to use it—and many are using that system. We believe agriculture is poised for development at this point in time.

We have been full members of the EEC since the beginning of this year. We now have EEC prices which affect a large part of our agricultural production. We also have the guaranteed outlets about which we heard so much in the past, I have not heard anybody mention them recently. These markets were one of our earlier objectives and we have now achieved this. What we now need is development and increased efficiency in agriculture.

The Government have made and encouraged investment in jobs. I trust the public service provision will include an expansion of the advisory services. Their contribution has been directly measured and clearly seen in [537] the success of the pilot area scheme in the west, the small farms incentive scheme which is one of the most successful schemes and in the success of the World Bank loan scheme.

I also expect a positive response to the measures in this budget from the co-operatives. They have been given freedom from tax. If wealth is to be created this must be done at production level. It is important that co-operatives remember why they are there—to service and develop basic producers. I would like to see the co-ops financially helping their members to increase their yields and outputs and introduce and support new projects. I would also like to see them employ more graduates. They should use this opportunity— freedom from tax—to create jobs and increase output. I would like to see them play a major part in processing more of our agricultural produce. It is surprising how the people in Dublin, in some of the very largely developed urban communities, respect and realise the importance of processing agricultural produce at home. By processing more of our beef and milk we will create more jobs. I would like to see the co-ops turn their attention particularly to such developments and respond to the Government's measures in this budget.

I also believe that the ACC have a vital role to play in the development of Irish agriculture. In addition to the measures which have been taken recently in the Agricultural Credit Bill, I would ask the Minister for Finance to review now the role of the ACC in agriculture. I have no doubt that there is scope within the Bill to widen the influence of the ACC in the development of agriculture. I believe the ACC should involve themselves more in the development of potential projects and not simply duplicate the role of the banks.

The ACC was set up as an instrument of Government policy in what were more difficult times in agriculture, at a time when we had no guaranteed prices, at a time when the ACC often had to stand behind the farmer. We have moved into a new age, a time of wider community in which the ACC must be re-examined as an instrument of Government policy.

[538] I believe that the work of the ACC should be directed more towards the creation of jobs in agriculture, particularly by intensive investment, to mirror what is going on in industry, to provide for venture projects, to provide for youth farm projects and for small farmer development. I believe we could usefully consider implementing another part of the manifesto proposals through the ACC, that is, that of providing funds for farmers with the potential for development. This would fit in with our promise and our belief in the manifesto.

I should like to see the ACC matching the IDA and Fóir Teoranta in relation to the agricultural sector. I note from recent debates in this House that the Minister for Industry, Commerce and Energy wants to alter the position of Fóir Teoranta so that it is less associated with closures and companies which are in serious trouble; some companies are afraid to have their names mentioned in the reports of Fóir Teoranta in case their creditors would foreclose on them. With the provisions in the Bill, particularly in section 9, I believe that the ACC could provide what Fóir Teoranta would like to be able to provide for industry. They could, with some modification, make this provision for agriculture and smooth some of the rough periods for developing farmers and for intensive business in agriculture generally.

Again, I should like to see a response with some imaginative thinking about how the ACC can help to put into practice the proposals of the Government and the objectives set out in the budget.

It is for youth that the budget offers hope and belief. It offers hope in that somebody is seriously tackling unemployment and offers belief in the sense that somebody has confidence in young people. The Government are directly providing 5,000 jobs for young people and they will have a major share in the 18,000 public service and construction jobs which will also be available. I note that there will be equal benefit for girls, particularly girl school leavers, which is long overdue. I am very pleased to see this measure included in the budget.

[539] Industry has already responded in relation to youth, particularly towards the end of last year when examination courses finished, by recruiting 841 extra apprentices. This response is a healthy and welcome sign and I hope that that trend will continue in the future. It is important for us to realise that the biggest future for youth in numerical terms is in industry and agriculture. Incentives are being given to young people to become involved and to take control. In the past we have been too reluctant to own something, to build something, to make something, and not be afraid to call it our own. The budget and the measures in the IDA Bill offer this kind of incentive to young people.

The manifesto projected an inflation rate of 7 per cent and the budget projected an inflation rate of 7 per cent. The promise that social welfare would keep pace with inflation has been met by the provision of a 10 per cent increase in benefits. I welcome this increase and the tax benefits which have been given to families by increasing the family and married allowance from £1,100 to £1,730. This budget is growth-oriented and is a three-year package. I believe that we should work to make this growth and to further improve the benefits for those who are less able to cater for themselves.

Another important aspect of the budget is that it calls on us to buy Irish. Plans have recently been introduced to encourage the selling and stocking of Irish goods and the industrial purchasing of Irish goods. These plans, which were recently introduced by the Minister for Industry, Commerce and Energy, are well designed and strategically well thought out. If they are followed through properly we will get a swing towards Irish goods. Few people are aware of the fact that a 3 per cent swing to Irish goods will mean the creation of 10,000 jobs. It is important that we buy Irish goods and this budget will stimulate demand.

It is also important for our industries that we have a good home base from which to develop our exports. It is important that we have a response from Irish industry, that in their industrial [540] purchasing they will buy Irish goods. We do not want to see any more deals like the Irish Life furniture deals. All the semi-State bodies should consider the job content and the national cost-benefit of their purchasing. I hope they will respond to this budget by examining their purchasing procedures. It is all too common for an accountant who is distant from the floor to run the slide rule over the prices with a view to saving half a penny an item without considering what it means to our young people who need employment. Industry will also get benefits from the taxpayer and worker in this budget and I believe that industry should respond by buying Irish goods.

It is also important for our shops and stores to stock Irish goods. Irish-owned supermarkets have been specifically relieved of the wealth tax imposition—the unfair wealth tax imposition—which was a disadvantage in relation to foreign stores based here. I would like to see these Irish supermarkets respond to the Government's measures in the budget by stocking Irish and giving prominence and display to Irish goods. We can talk as much as we wish and the housewife may have the best intentions, but unless the Irish supermarket stock and give prominent display to Irish goods there is no way they will be purchased.

I should also like to see a response from the public service to the buying of Irish. I understand there are in the region of 250,000 employees in secure jobs in the public service and they will be benefiting, as we all will, from the measures adopted in the budget. It is the responsibility of all in such positions to concentrate, as far as possible, on the purchase of Irish products so that those in less secure positions, those unemployed and our young people, can get jobs in Irish production. We are all aware that 50 per cent of our people voted for our manifesto and I hope they will show their support for this budget by buying Irish.

We might also usefully turn some of our attention to our own people. We could well have a community information service in relation to buying Irish. There is a tremendous lack of awareness of the importance and the value [541] of buying Irish in job creation. Even a small group of Buy Irish promotion people, attractive as they often are, could tour around our communities and cities promoting Irish products that could have a major effect in real terms on our people who are anxious to buy Irish. Such promotion work is done abroad and we have trade stands in France and Germany and Irish wares on display all over the Continent. We should now start positively to promote Irish products at home. We should bring some of those trade promotions around Dublin, Galway, Cork, Limerick and other centres. Let us get serious about this question of buying Irish. We should go out to Irish industry, retailers, wholesalers and community organisations and create a real awareness. If we do this our people will buy Irish.

I should like to stress the importance of the measures for saving introduced in the budget. We will have extra incomes and these, in large measures, must go back to buying Irish and saving in Ireland. I welcome the Minister's incentives to saving and the encouragement to invest in Ireland and provide jobs here. That was the message in the budget. I welcome the other measures introduced. I was glad to see the reduction in the SDA loan mortgage rates of 1 per cent, the special measures for small businesses and the special aid for textiles of £5 per week per worker. I was glad to see there was no increase in the price of the workers' pint and was pleased that recognition was given to heritage houses and gardens in that they have been relieved of the capital acquisition tax if they are opened to the public. I should like to congratulate An Taisce for highlighting this problem. The onus is on us all to preserve these houses and gardens which are part of our heritage.

The Opposition have described the budget as a gamble and said it would not work. The budget is designed to show confidence in Irish industry and agriculture. It is designed to show confidence in the Irish worker and, above all, in our young people. This budget calls for a response from every sector of our economy and our community. [542] The National Coalition did not ask for this response. They do not have confidence in our businesses or in our working communities as was clearly shown today in the House. They do not have confidence in our youth. Fianna Fáil have this confidence and we said so in our manifesto and when we put our plans to the electorate. We said we would encourage enterprise and provide jobs and the Minister for Finance has done this in the budget.

Fianna Fáil also said they would provide the framework for growth and development in job creation and this has been done in the Bills dealing with the IDA and ACC and again in the budget. I have every confidence in the people of Ireland, in their commitment to their children and their country. I have confidence that they will respond positively to the package that Fianna Fáil has presented. I welcome and support this practical budget which brings into action many more of the promises we made to the electorate on 16 June last.

Mr. Donegan: It is rather amusing to hear Deputy Woods say that the National Coalition had no confidence in the people. He should remember that the National Coalition went through a period of four years in Government when one of the major difficulties was the oil crisis. If one considers what would happen in this budget if petrol was put to £2.50 per gallon then one realises the magnitude of what we faced in Government. We got through that most difficult period. It required restrictions on Government spending and the setting aside of legitimate desires in the way of extensions of tax relief and of various things to the people but we came through it and left a good sound economy, one that was rising from the recession and was ready, because of the steps taken by the National Coalition, to avail of the opportunities that arose.

I suppose it is right that one should gamble a little and try to retrieve what inevitably had been the results of that recession for the ordinary people. But the question is: have Fianna Fáil gambled too much? It is not possible to answer that today; it will be possible to [543] answer it in a large measure in 12 months time but certainly, it will be possible to answer it by the time a further 12 months have passed. If the economy is to rise to the point that when we approach next year's budget we will not have the same borrowing requirements as we have now then the target produced by the Minister for Finance of reducing the borrowing from 13 per cent this year to 7 or 8 per cent next year will be possible. If the economy has not risen to that extent then the results will be extremely painful for the breadwinners of this country, their dependants and social welfare recipients. There will not be a reasonable existence for anybody except those who have large sums of money and large amounts of property. It has to be painful if the gamble does not come off. It has to be painful by way of extra taxation, casting aside legitimate expectations such as a reduction in taxation, building new schools, new roads and capital expenditures which are the easiest things to cast aside when a Government are in trouble.

The Irish Independent today were right when they called it a gambler's budget. I do not mean that in a critical way. Perhaps the Minister for Finance and his advisers have pitched the budget high enough, not too high in their spending and their extension of goodies to the people and that that achievement will occur, that we will get down to 8 per cent of our gross national product by way of borrowing next year. It is wise to point out, however, that if we do not do that, the results will be very painful.

I have been in the House since 1954 and I have seen various Governments, the first Coalition Government, the second Coalition Government and the Fianna Fáil Governments in between, faced at various times with a recession, faced by necessity to spend less money. The first thing that Governments have to do in such a situation is reduce the capital budget. This means less employment, house building, roads and very necessary things which are being done now and to be done in the future by the Government. It very often takes a decade before there is a recovery.

[544] We came into Government in 1973. The figures produced to us regarding housing in this city were that if what was proposed to us by the Department of Finance to spend on housing in this city was spent, 6,000 people would remain on the housing list and at the end of our five years, which we did not succeed in completing, there would still be 6,000. It was largely on the basis of that and on similar figures for the rest of the country that we decided to build 25,000 houses a year. We built them right through the economic recession, the oil crisis and all the other things we had to face. It is so long ago now that I am sure it could not even be talked of as party politics.

There is a comparison here with what happened when Fianna Fáil took over in 1957. When they took over after the Inter-Party Government they had to face a lack of finance. They were in the position that they had to spend less. They spent less on housing. A series of questions were asked by the then Deputy Costello regarding housing in this city. The replies given told us that they built approximately 4,000 fewer houses in this city in a four-year period. It took one and a half decades of Fianna Fáil Government after that four years to bring the situation up to something like what it was when they took office in 1957. You cannot switch on housing, switch on expenditure, create jobs and do all the things like turning on an electric light switch. The Minister's speech yesterday indicated that that was all that was necessary. Any business man or any civil servant in charge of work that has to be done at high level or any politician who has had experience of Government knows that cannot be done.

The Minister for Finance yesterday took credit for 11,000 more jobs in the manufacturing industry this year than last year as if this was his achievement. He did not come into Government until the third week of June. That means, in political terms, that he is there now for about a wet week-end. It is quite dishonest of the Minister to claim credit for those things which have happened as a result of Coalition work. The Minister also spoke about the 11 per cent rise in inflation in the [545] 12 months up to mid-November. In that year we had seven months of Coalition Government and five months of Fianna Fáil Government. I remember the Government meetings and the reports by Deputy Bruton, who was in charge of prices in the National Prices Commission, as the Parliamentary Secretary who is here at the moment is.

Mrs. Geoghegan-Quinn: I am not in charge there. The Minister is.

Mr. Donegan: I thought the Parliamentary Secretary was. The Parliamentary Secretary under the Minister is.

An Leas-Cheann Comhairle: We do not have Parliamentary Secretaries any longer. The title is Minister of State.

Mr. Donegan: I am sure the Minister of State has the duty of coming to the Cabinet and with her Minister putting before the Cabinet the work of the National Prices Commission and what the Government could do in relation to inflation, at least monthly. I remember seven months during that 12 months up to November when I heard those reports and I saw what steps the Government took month by month. The advantage taken by the Minister for Finance of implying that he was responsible for the lot of it is not fair because he only got his feet warm in the job before he brought this budget before the House.

The Minister spoke about strong investment, strong growth in industrial exports and said they were notable features of 1977. After coming right through the recession and the oil crisis we did not do badly to have as the Minister said:

Strong investment, strong growth in industrial exports, as well as in private consumption, were notable features of 1977. The growth in industrial investment and exports—the latter rising by over 17 per cent in volume for the second year in succession——

The first year was a year of Coalition Government——

is particularly encouraging. The balance of payments deficit remained ereasonable at about £160 million. [546] Buoyant tourism, yielding a large surplus on invisible trade, was a major contributory factor.

Why had we buoyant tourism? We had at the start of the Coalition Government very bad results from tourism. The work on security which the people seem to have forgotten completely and the belief by people abroad that the Coalition Government, notably the then Taoiseach, Deputy Cosgrave, the then Minister for Justice, Deputy Cooney, and to a lesser extent myself, meant that people came here. The question to be asked now is: “Will they continue to do so?” We hope they will and that the Government will be as strong on security as the Coalition Government were. I can promise them that as far as I can see they will not gain one vote on it, that the people want security and want the IRA suppressed. They will not vote for a bomb in their back yards. They will vote for anything else they think will give them advancement in their income or personal position.

He points out that the deficit on current account was £201 million compared with the original estimate of £220 million. That is an improvement and that is again something that can be put down to the work of the Coalition Government.

Let us consider now the ban on public service recruitment. I quote from the Minister's speech:

Immediately we took office, the ban on public service recruitment was lifted and new job-creation in the public sector got under way rapidly in the second half of 1977, with particular emphasis on recruitment of extra gardaí and teachers; the system of marriage differentiation in public service pay scales was abolished with effect from 1 July 1977; capital spending on roads, local improvement schemes and environmental works was expanded and effective measures were taken to ensure that there would be no repeat of the massive underspending of capital allocations which was a feature of the previous year.

There was certainly a need for extra [547] Garda overtime and for some extra teachers. Garda overtime had been at an extraordinarily high level, in fact a ridiculous level; but in cutting it down there was probably too great a cutback.

Regarding persons working for contractors and for county and urban councils on roads and such like, it is extremely doubtful if there is a need for extra employment there. I do not wish to criticise the Government on hearsay, but I have been told that in certain Government Departments where physical work is involved labourers are standing around with nothing to do. I will not pursue the matter any further, but I am informed that it is not in one instance but in many instances that such is the case. If Fianna Fáil are bolstering up their employment figures by putting large numbers of extra labourers into the Department of Posts and Telegraphs and various other places, that is wrong. My knowledge in four and a half years in Government has been that there was full staff of that sort of decent working man everywhere. If there are too many people employed in the Board of Works and Posts and Telegraphs now at that level I would not like to be the person to cast them aside and put them back on the employment exchange queue. But in the long term this will create bad results. I agree that there was need for extra gardaí and teachers, but we in the Coalition Government did increase the number of gardaí by 1,000. The only thing that could fairly be put down to the credit of the Minister for Justice is the fact that we now have more gardaí on the beat. That is a relaxation of overtime, and perhaps we did come down too heavily on overtime. Even if we did, there is no doubt that it was used to excess at the start of the period of office of the Coalition Government.

We come now to the farmers. Farmers will in some years' time reach the situation where the figure of poor law valuation at which they are asked to pay income tax will be on the basis of what the average farmer at that valuation would earn, in the same way as the threshold is calculated at which a person in employment would pay [548] income tax. The farmer must face what has happened, namely, that his agricultural grant has been removed. That must be applied to the farmer at the different stages of valuation and then the rate in the £1 for the county must be considered. The average farmer has suffered a considerable blow as far as income is concerned and he will find that he is at quite a loss. His fertiliser subsidy has gone. He now has an increase in the multiplier and a reduction in the threshold at which he pays income tax.

The farmer who voted for Fianna Fáil during the election on the basis of the Coalition being too hard on him is very much worse off now. We have to consider the promises made, and the public promises from the platforms in the months preceding 15 June are not the promises I am thinking about. There were promises galore in all sorts of local and national situations calculated to get votes, votes to be cast in secret and votes to be cast openly for Fianna Fáil. Some of those promises to the farmers were secret promises and because they were I am not in a position to say exactly what they were. However, I can say that my phone is ringing off the wall since yesterday's budget because the farmers feel they were duped and tricked. I calculate that some of the farmers who would not tell me of the secret promises before now will tell me in the next few days. The pity is that my party asked me to speak this morning, because I have not got those secret promises to tell the House. However, the House can be assured that somebody else will be there to tell them.

I think the House knew how I felt about the wealth tax. I was not in agreement with the rest of my Cabinet colleagues at the time the wealth tax was instituted and I said so in this House. I want to say now that the wealth tax was instituted at a time of very serious financial difficulties; at a time when death duties had been abolished and when, as a result of the oil crisis and the consequent recession, there was no money available to the Cabinet except by reducing employment and other forms of public [549] expenditure, £17 million had to be found to substitute for the abolition of death duties.

Happily, that financial state of affairs does not exist today and Fianna Fáil have removed the wealth tax. In my personal view they were right because I regarded it as an impediment to investment here and to the use of risk capital which is so important for the employment of our people. To use a colloquialism, I regard the change in respect of capital gains tax as fair enough because that tax hit people on short-term gains. Now a situation has been created through which the burden will be reduced over the years and after ten, 12 or 13 years the impact will be small.

We must consider whether the budget is job-creative. It is in respect of the public service and I fear that is only a way to bolster up failure. Apparently the target set in the Fianna Fáil manifesto is to be achieved by creating a large number of jobs in the public service when, as I said earlier, the use of computers and other technological aids should mean a reduction in the hordes of people who go into civil service jobs every morning.

Of course the budget creates spending power in the pubs because there will be more money in people's pockets and the price of drink has not been touched. There are no other advantages. Those who benefit from the income tax restructuring will have their advantage eaten up by Fianna Fáil's inflation target of 10 to 12 per cent. As well, the 10 per cent given to social welfare recipients will be more than eroded by this inflation rate. During our four-and-a-half years in office we multiplied the benefits paid to social welfare recipients two-and-a-half or three times and if I were to criticise our administration in that respect it is that we did not give more generous social welfare increases to those at the bottom of the scale than at the top. Do not let anybody tell me that the 10 per cent being given in this budget will not be eaten up totally when it comes to be paid next April.

I admit that while in Government we did not do enough for the old age [550] pensioner, the widow or widower living alone, those on pay-related benefits, but my chief worry always has been in regard to those at the bottom. This time again they are being treated miserably.

I will tell the House about an incident last Wednesday night during the holding of my clinic in Drogheda. Two old ladies came to see me. Both have the same contributory widow's pension, £14.50 or £14.75 per week. Both reside in one of the new small houses provided for old people by Drogheda Corporation. They came to me because they could not afford to pay the electric heating bills, and they wanted a transfer to any old house which had a fireplace. One of them showed me her ESB bill for nine weeks, £20.14. She could not afford to use electricity for heating.

Therefore, it is untrue to talk about the generosity of this budget to social welfare recipients. I repeat that those at the bottom should have been treated far more generously and those at the top given more modest increases. What has been done in the budget is crude and miserable. I have spoken about how the Coalition Government were remiss in the matter of social welfare recipients. Fianna Fáil have been miserable and mean and any boasts about what has been done for our social welfare classes can be discounted.

I want to talk specifically now about the job creation element of the budget. The manifesto referred to 20,000 jobs. Yesterday with great simplicity the Minister said there were 10,000 extra jobs in the public sector for which the Government proposed to allocate £50 million, 5,000 extra jobs and £30 million investment in the building and construction sector, and 5,000 extra jobs from spending £20 million on youth employment projects. The first thing you have to say when you address yourself to that parcelling out of possible job creation is that it is heavily loaded towards the public sector. Do we need these jobs in the public sector? It is extremely doubtful that we do. This year, next year or the year after the taxpayer will have to foot the bill. Anybody who [551] thinks a budget affects only one year is a financial fool.

Does anybody think every one of these 10,000 jobs in the public sector will give something back to the State? If I take somebody on in my small business and he works for 52 weeks of the year, less his holiday period, he will have a foreman to look after him, goods are produced and sold, and there is tax for the Government if there is a profit. That man is gainfully employed in the private sector on a job which is producing goods. Will the 10,000 jobs in the public sector produce one ton of goods? The Government are setting aside £30 million for investment in the building and construction sector to provide 5,000 jobs. The 10,000 extra people working in the public sector, unless they are working in the office of Public Works, will not be making a road, constructing or repairing a building, putting on a roof, or doing any of those worthwhile things. I know the Office of Public Works pretty well. While they can expand to employ 500 more people on repairs to Government buildings, and so on, I cannot see where the extra 10,000 jobs will come from. People will be standing about doing very little.

Mr. Kelly: Consuming wealth instead of producing it.

Mr. Donegan: That is right. I have already said I know of instances in the Office of Public Works and the Department of Posts and Telegraphs where there are labourers at the lowest level standing around doing nothing. Are these millions of pounds to be spent to prove the Fianna Fáil manifesto came out right? When the money is spent, what will the end result be? The money will be spent and there will be nothing there to show for it. Because the State will have put itself more in debt by the spending of that money, the State will have less borrowing power to employ somebody else next year.

During our period in office we did extremely well in the building and construction industry. Quite frankly, I was surprised that, with all the difficulties [552] there were, we succeeded in building 25,000 houses each year. This involved very great effort on the part of Deputy Tully, then Minister for Local Government. He made those efforts and it was done. Now by a glib stroke of the pen we are to produce 5,000 extra jobs with £30 million extra investment. The question arises as to whether the construction industry is so geared as to take up that £30 million and employ 5,000 extra people. It will be interesting to see whether they are, or whether they are not. Particularly in this city, we got the maximum effort from the building and construction industry to produce 25,000 houses, and a large number of men were not disemployed at any time.

Mr. Moore: 25,000 building workers were unemployed.

Mr. Donegan: That figure has been bandied about, but I wonder whether it is true.

Mr. Moore: It is.

Mr. Donegan: I do not think it is.

Mr. Moore: It is the official figure.

Mr. Donegan: If I were asked to fill in my occupation on a form I could probably put it down as about six different things. The Minister for Health could probably put his down as about 40, all of them complimentary to himself.

Mr. Haughey: That is about right.

Mr. Donegan: I am not in the Minister's class. I could probably put mine down as about six.

Mr. Horgan: The Minister could probably put down a few more uncomplimentary ones.

Mr. Donegan: The thought of my being uncomplimentary to the Minister for Health or of the Minister being uncomplimentary to me absolutely galls me. I would never be uncomplimentary to him.

Mr. Haughey: We will leave that to the new-comers.

Mr. Horgan: The Minister is well able for it.

[553] Mr. Donegan: We are to have the activation of AnCO and various other things. As I read the budget speech, it will be quite difficult and quite different from anything we have experienced before if we can take 5,000 people with their leaving certificate or vocational school certificate and put them into 5,000 jobs. If at 54 years of age I have a skill, could I not say legitimately: “I have the skill. I am fit and well. Why have I not got an equal chance with that young man of getting that job?” I look on this with some degree of doubt. It will take us until the end of the school year in 1979 to find out, but I wonder will it be possible to provide these 5,000 extra jobs by spending £20 million on youth employment projects.

I am 54 years of age. When I left the national school and went on to secondary education, about one-seventh or one-eighth of the class went with me to vocational school or secondary school. The other seven-eighths went into employment or unemployment at 14 years of age. People are now trained in vocational schools and secondary schools and we have this number of trained people as distinct from children of 14 years of age who were never listed among our unemployed.

Debate adjourned.