This debate, I believe, has been conducted in a responsible way in an effort to analyse the problems, economic and social, which affect us. The debate was brought about by the decision of the Fine Gael Party to table a motion last November endorsing and supporting the NIEC Report and recommendations. The gravity of the deteriorating situation moved the Government, with unexpected and unusual alacrity, to table a similar motion last week. The fact that it has been possible to get a discussion on the recommendations included in the Report and the general agreement that has been shown during the debate on the causes of the present situation indicate and underline the importance of securing, wherever possible, the right measures to deal with the situation.
The NIEC Report, in its analysis of the problems which affect the country attributed them to four main causes: the excessive expansion of monetary demand, of which a major cause was the rapid rise in investment over the period, which, in the Council's words, was largely determined by Government policies; secondly, a deterioration in the relative competitiveness of Irish production; thirdly, excessive credit creation, much of it for unproductive purposes, which in the Council's Report was regarded as facilitating the excessive increase in demand; and, fourthly, the creation by these developments of an environment in which price increases could be easily passed on.
A close examination of this Report and the recommendations made in it reflects at many points strong criticism of the failure of the Government to take the necessary action and the fact that the Government did not adhere to the various figures laid down in the Second Programme for Economic Expansion. There has been a remarkable growth in the Government's capital programme, and the fact that the available resources are no longer adequate to finance that Programme is to a very considerable extent due to the failure of the Government to examine periodically and in a critical manner the terms of that Programme and the availability of adequate capital to meet it.
During the course of the last election when Fianna Fáil were criticising various aspects of the Fine Gael policy and in particular, criticising the proposals made in respect of banking credit, an attempt was made to generate fears among the community and to cause concern by attacking the proposals made on the ground that this was an attempt to interfere with or in some way control by Government appointees credit policy and that the normal reaction of individuals, farmers and business people, is to resent any Government control or interference.
That was done because at that particular time the Government had created the illusion that it was possible to spend freely, that adequate resources were available and that there was no reason for limiting the capital available either for productive development purposes or for building and construction. Although the evidence was there in the report submitted to the banks that the situation was deteriorating and that 1964 had shown quite a significant change—in fact there is, I believe, evidence to show that at least one bank sought guidance in December, 1964, on what action might be taken—the Central Bank failed to move in that direction. It is not quite certain when the Central Bank first took action on the matter but there is some evidence that at the end of April or early in May, action was taken for the first time.
It is of importance to advert to the comments that have been made by those who have a purely economic interest as distinct from those who might have a political interest as well. The quarterly Irish Banking Review had this to say in December last:
The deterioration of the balance of payments has led to many warnings. The question may fairly be asked if some of these warning should have been pronounced some time ago and some of the remedies applied earlier. Delay in facing up to difficulties may make their correction more severe and prolonged.
The proposals which we made were, I believe, reasonable. We suggested that the Central Bank should take action, as has been recommended in the NIEC Report, in respect of credit creation.
We think it is significant that the action, taken in a quiet way, unannounced until later, came within weeks of the published recommendations we put forward. One important aspect of this question is that the 33 per cent formula which was pointed out to be a reasonable ratio in respect of bank lending was departed from, though the margin referred to in the Second Programme allowed a ratio of anything from 27 per cent or 28 per cent to 33 per cent and nothing was put in its place. There is now some evidence to suggest that it has dropped to as low as 22 per cent.
The NIEC Report refers to the difficulties of foresight in the field of credit policy and in the whole field of economic management:
We believe that primary emphasis must be laid on policies of the type we recommend for ensuring that the growth of money incomes is kept in line with the growth of real output and that expenditures are planned so as not to exceed the real resources available.
A big, if not the biggest, single user of capital is the building industry and the position in so far as building is concerned has now deteriorated to quite a marked degree. Deputy T. F. O'Higgins adverted to the December figures and to the fact that there was a notable decline in employment and that these figures pointed a very serious warning. I should like to advert to this in the context of a reference to it in the document Public Capital Expenditure, laid before the Oireachtas last October. It is stated at paragraph 23:
It is hoped that it will be possible to maintain the public building programme next year close to this year's level of £31.6 million, which is the highest ever achieved. As regards the possibility of raising it above this level, in line with the projections in the Second Programme, it is necessary to point out that the Second Programme projections were made in the light of forecasts of financial resources which having regard to present conditions, must be regarded as optimistic.
What were the National Building Advisory Council doing? We have been told now it is proposed to reconstitute that body. I want to suggest, without intending any disrespect to the members, that the members of that council are hand-picked and it does not require a great deal of imagination to find the reason. They were not appointed to represent this industry. They could not communicate with all the interests concerned on matters before the Council and do not represent the building industry—there are no specifically appointed persons on the Council who represent any section of the building industry and they are entirely out of touch with the building industry.
In the light of that situation, with the acute shortage that has developed in respect of capital, this serious situation has resulted. Government Departments have delayed the placing of contracts for public construction, there is a big hold up, there is confusion and a drop in the volume of work and employment. Those of us who are familiar with Government Departments realise they never move quickly even with the green light, but with the red showing they have not only stopped but have gone into reverse. The position is that because there was not available an accurate estimate of the total construction projects in each Department, there is no properly indexed schedule of the building projects and it is not possible to decide quickly which projects should go ahead and which projects should be stopped. The result is that there is now a hold-up in virtually every Government Department and, because there was no order of priorities in the past, there is not any possibility now of getting a quick decision as to what projects should be proceeded with.
In the private building sector there will also be a drop this year. It may be true to say that the same amount of money will be made available but that is not sufficient. With the SDA loan procedure, even allowing for increased grants, it is obvious that because of the rise in building costs—it is true to say they have risen not less than 10 per cent and some people say by more— and the facilities from building societies drying up, it is obvious there will be a serious drop. I can speak with most experience of County Dublin in this respect—the area served by Dublin County Council and Dún Laoghaire Borough Corporation—and I can say the number of houses will drop considerably. The situation in County Dublin is quite remarkable and has alarmed those who have examined it. It is obvious, therefore, that the Building Advisory Council should be reconstituted rapidly on a realistic basis so that those appointed on it will have not merely authority to represent the interests concerned but the right to have discusions with those interests.
In the Second Programme for Economic Expansion, reference was made in Table IV at page 270 to the public capital building programme during the years 1964-65 to 1969-70. For the year 1966-67 the total estimated expenditure is £34.37 million and it is made clear on the previous page that it is expected total public capital expenditure during the six years inclusive in terms of present prices would amount to £569 million, or an average of £94.9 million a year. With the deterioration in money values and the rise in building costs, it will be necessary this year to spend £38 million in order to provide for the same amount of building work as was originally planned in that Programme and which the Government have departed from without giving reasons or explaining the circumstances of why the targets enshrined in the Second Programme, which have been discussed at length in the House, will not be realised.
They hope, this year, to get £31.6 million which, on the figure I have given, is a drop of one-fifth. This, as I said, is due to a variety of factors. Due to the delay in placing contracts and due to the fact that available supplies of capital are not adequate, they are unlikely to attain their own targets. Even more serious than this is the fact that the figure which was laid down in the Second Programme of a growth rate of 4¼ per cent was not attained last year and on the estimates made for the coming year it will not be attained this year either. It is, therefore, obvious that if that situation continues—and there is no evidence to suggest that there will be any likely remarkable expansion in the years ahead—then the targets will not be realised or there will have to be a very substantial increase in growth in the latter years of the target.
I believe that the Government have a responsibility and a duty to review and re-examine the Second Programme. If it is not realisable or attainable in certain respects they should say so and get public support even for a less ambitious programme. There is no advantage in publishing a whole set of figures that are incapable of realisation in practice. One of the facts that has been adverted to in the NIEC Report is the difficulty of securing adequate capital. In this connection, I want to try to get some information from the Government other than that supplied in the course of a reply by the Minister for Finance in relation to the proposed US loan. I notice a new expression has now crept in to describe the situation. It is said that because of congestion in the finance market, the loan has to be postponed. In effect, what that means is that the total number of applicants exceeds the supply available. It is important that we should be informed adequately in advance. That is the problem that is affecting, and that will affect, the building industry today. They are not able to get sufficient information in advance. There has to be planning, arrangements have to be made, tenders have to be secured and the programme of work has to be ordered in a way that will enable the resources of the industry to be utilised to the best advantage.
One of the very strong comments made in the course of the NIEC Report was that there was no order of priorities. I adverted to this on previous occasions in the course of debates here and it is adverted to at page 50, paragraph 71, of the Report, which says:
In particular, in the case of capital expenditure, a ranking of projects in order of national importance is necessary to ensure that the resources available for public and private investment, which are now scarce in relation to the demands being made upon them, are used to maximum advantage. Up to recently, such careful scrutiny of the relative return from different investment projects may not have seemed so vital because the problem was a shortage of productive projects and not a shortage of investment funds. However, the reverse is now the case: it is now resources and not projects which are relatively scarce. If the new opportunities for growth are to be exploited to the full while at the same time maintaining stability, a stricter examination of the relative benefits from the various possible projects is required. The investment projects must be ranked in order of priority based on a considered judgment of their benefits to the national economy, and an assessment must be made of the share of the total resources available for investment to be devoted to each project in order to maximise the total benefits.
That is a criticism of what has been happening up to the present. It is also a recommendation with regard to the necessary action in respect of the capital construction programme.
I want to advert to a point I made earlier and examine the Government policies in relation to the need to attract and the measures taken to attract capital to this country. It is quite noticeable that last year, completely independent of any action that we proposed, and at a time when the Government were operating their own policy, two measures, one in 1963 by the Minister's predecessor and another in the last Finance Act operated to deter capital from coming to this country. This may very well, according to estimates that are given by those who are conversant with the banking system, mean that there will be a definite outflow of capital. There is no doubt that the proviso in the 1963 Finance Act, which obliged banks and banking institutions to disclose deposits in individual cases, has meant an outflow of capital. The theory behind that decision may have been reasonable enough but there does not seem to have been anything more than a theory behind it. The idea was that people had for a long time collected and placed on deposit sums of money which, if disclosed, would make available money hitherto not available for taxation purposes. That seems all right in theory, but, in fact, you have now to take account of the nature of those deposits. Many of them had lain there for a considerable period and, even if they were there, once a person took out a deposit and put it to any use which made it liable to tax, eventually the Revenue Commissioners would be entitled to find out where this money came from and secure tax from it.
I believe that what was equally serious was the proposal passed in face of our criticism in the last Finance Act, which aggregated insurance policies with other assets for death duties. That is bound to have a deterrent effect on capital inflow, not merely from a securement point of view but from the business point of view, from the farming point of view and, as I said earlier, from the point of view of attracting outside investment. Those are factors which have been adverted to by accountants and economists. The experience of anybody running a farm or a business at the present time is one of increasing need, because of rising costs, for more capital to ensure that a business may be continued without the necessity to mortgage portion of it, to sell portion of it or to enter into unduly onerous financial arrangements to maintain the existing rate of expansion. The proposal enshrined in the last Finance Act will mean for the first time that farmers and business people who took out, or who take out, insurance policies to provide against a heavy incidence of death duties will find that it applies in many respects inequitably and unfairly. Although there is quick succession relief, nevertheless in most cases where death duties apply, it is not an easy problem to alleviate the consequences for the business or the firm. In those circumstances, it is important that any action that has been taken should be reversed and repealed in the coming Finance Bill.
I believe that those two proposals, the one introduced last year which has not yet had time to have an effect, and the other, are indicative of a wrong attitude and a wrong approach to the attraction of capital to this country. In recent years the Government have secured a much larger share of the increased capital which was available. In 1964, bank lendings to the public sector, which showed little change over previous years, increased by 27 per cent, compared with an increase of 12 per cent to the private sector. This is quite significant. In the December bulletin of the Irish Banking Review this was adverted to. It stated:
The capital programme of the Government is the section of total domestic demand which has shown by far the most rapid rate of acceleration.
It went on:
On the investment side, a ranking of projects in order of national importance is required because, at the present time, financial resources are the scarce factor rather than the number of sound investment opportunities available.
There was also this significant comment:
In the course of 1964, bank credit by way of bills, loans and advances increased at a significantly faster pace than the total of deposit and current accounts, the respective rates of growth being 13.9 per cent as against 8.8 per cent.
That re-emphasises the situation which is adverted to, and pinpoints the criticism which was expressed in this NIEC Report, that the action which is now being taken should have been taken earlier.
The recent statement by the Irish Congress of Trade Unions was, I believe, made in a constructive attempt to adopt a reasonable approach to the problem of wages and salaries. I say this without offering any view on the figure suggested. Some figure had to be mentioned, of course, and certain types of employment, and certain categories of workers, might be entitled to more than others, depending on the type of work and the trading position of the business or industry concerned, and so on. It is vital in any arrangement or agreement that the special position of the lower-paid workers should be taken into consideration. There appears to be a generally accepted view that the country at present, in the light of a rise in unit costs, and a deterioration in our competitive position, with a shortage of capital and a general weakening of the economy, cannot afford more than about three per cent in total increase.
I believe that the recommendation which was endorsed by the unions represented by the Irish Congress of Trade Unions is, at any rate, an indication of an awareness of the problem and a constructive approach to the difficulties involved in it. It is unnecessary to emphasise the desirability of agreement being reached and the dangers consequent on a free-for-all. Negotiations between the Irish Congress of Trade Unions and the Federated Union of Employers, conducted by both sides in the realisation that failure to reach agreement must react to the detriment of the nation will surely provide the necessary incentives for the reasonable, practicable and constructive approach which is necessary in conducting these negotiations.
In the face of mounting problems such as a rise in the numbers unemployed, a slowing down in industrial output, a drop in building and construction, a weakening of our export competitiveness, brinkmanship in industrial relations is good neither for the individual nor for the community. What is needed now is an indication of what Government policy on wages is, and if wages are increased, whether employers and businesses be allowed to increase prices to pay for those increased wages. I say this because I think some indication must be given in advance of what the consequence of wage and salary adjustments will be, and whether any such changes in cases where they are warranted—and not in cases where they are not warranted— will be entitled to be included in price changes.
The Minister also indicated that certain measures would be taken to meet the breach of the three per cent. I believe it is important that any such measures should be announced in advance if they are to be effective. Some positive indication should be given other than the phrases used in the Minister's speech. In that connection I want to say a word on profits. This, of course, was adverted to in the NIEC Report and reference was made to the fact that an incomes policy should be so designed as to avoid any disincentive effects and so inhibit the desirable growth of profits. It went on to refer to certain forms of taxation in the event of excessive profits or unreasonable profits being made.
I believe it is important to differentiate between reasonable profits and excessive or unreasonable profits. In any economy—and this is not confined to free democracies such as ours—there is a realisation nowadays that the profit motive is the only incentive which will secure adequate returns. I believe the Government have an inescapable responsibility to ensure that excessive profits are not earned, and that if unreasonable profits are earned, a strict examination is made to ensure that they are ploughed back or put to productive or other advantageous uses in the industry or project concerned. If the profits made are unreasonable, that naturally causes disquiet, and causes comparisons to be made between either wages and salaries on the one hand, or profits earned in industry, on the other.
These are two aspects of the matter which were adverted to in the NIEC Report and to which reference was made in a recommendation similar to the recommendation Fine Gael made in their policy document, that it was not the purpose of an incomes policy to prevent profits from growing or to prevent wages or salaries from rising but to ensure that the control of profits is not desirable where they are earned competitively, and it refers to tax and other measures to ensure the rate of increase in aggregate post-tax purchasing power derived from investment is not higher than the rate of increase in aggregate post-tax wages, salaries and other incomes. This clearly contemplated a similar tax mechanism and tax arrangements to those laid down in our policy document and which have been restated in somewhat similar phraseology in the NIEC Report.
One very definite criticism that is being made in connection with the NIEC Report, and which I want to reemphasise, is the fact that this Council does not include representatives of agriculture. The excuse given in the past was that because they could not get agreement from the various agricultural organisations, it was decided not to put them on. In any event, there was some reference made by the Taoiseach that it was dealing only with industrial matters. That excuse can no longer hold. In fact on page 7 of the Report, this significant phrase is used:
An incomes policy that does not embrace all categories of money incomes, namely, wages and salaries, farmers' incomes, professional earnings, rents, profits and realised capital gains, is repudiated as inadequate and inequitable.
That is the recommendation of the NIEC on which there are Government representatives, representatives of the trade unions and of the employers and other business interests. The time has arrived when a fresh approach should be made to the agricultural organisations and in default of agreement, the Government should select representative nominees from these organisations and put them on the NIEC.
In that connection I want to advert to one other reference and to relate it to the argument which was made yesterday. It says on page 9, in paragraph 19 that:
Decisions about the current level of support for agricultural incomes should be taken at the same time as—and recognised as an integral part of—decisions concerning non-agricultural incomes.
This week a series of questions was put down to the Minister for Agriculture about the revised prices which would operate for agricultural products in the coming year and the Minister declined to give an answer. Last night at some unspecified Fianna Fáil agricultural committee an announcement was made. I believe that shows scant regard for the Dáil and for the responsibilities of public representatives. I can accept and understand if the Dáil is not meeting where if a Minister is going to some established public function, that anything is better than a repetition of platitudes and if he is able to make an announcement then, there is something to be said for it, but where specific questions are put down by elected representatives and a Minister declines to answer, and then goes later that night to some Fianna Fáil gathering and announces decisions that affect the nation, it shows scant regard for and an undesirable attitude to the responsibilities of elected representatives and to the functions and duties which Deputies have.
This debate has been conducted in a most responsible and constructive fashion but the attitude adopted by the Minister for Agriculture in announcing that decision shows no regard for the function of the Dáil and no respect for the duties and responsibilities which Deputies are elected to discharge.