The W-Turn: Charlie's Gyrations

In his now famous television address of Wednesday January 9, 1980, within a month of becoming Taoiseach, Charles Haughey told the nation in solemn tones:

" ... we have been living at a rate which is simply not justified by the amount of goods and services we are producing. To make up the difference we have been borrowing enormous amounts of money, borrowing at a rate which just cannot continue. A few simple figures will make this very clear."

"A t home, the Government's current income from taxes and all other sources in 1979 fell short of what was needed to pay the running costs of the State by about £520m. To meet this and our capital programme, we had to borrow in 1979 over £1,000m. That amount is equal to one-seventh of our entire n"ational output for the year. This is just too high a rate and cannot possibly continue. "

Far from not possibly continuing, entirely because of the policies he pursued, the exchequer borrowing rate increased from 14% of Gross National Product in 1979 to 16% in 1980, to 18.5% in 1981 and is expected to be 19% in 1982.

He emphasised the line of the television address in his budget speech on March 5,1980. He said then:

But by August 17 of that same year the first "U" turn was made. In a speech at Ennis he was able to announce:

"Because of the success achieved by the budgetary strategy in correcting the deterioration in our public finances and in our balance of payments, there is some scope now for limited action to stimulate investment and employment. "

This was a remarkable assertion as it was already apparent by then that the target for the current budget deficit for 1980 was going to be substantially exceeded. The current budget deficit target for 1980 was £353.9m but the actual deficit turned out to be £547m.

In his 1980 budget speech, as Minister for Finance, Michael O'Kennedy stated that if there was any slippage on the budget deficit target during the course of the year then he would be forced to introduce supplementary measures to correct the situation. In a speech in the Dail on the Finance Bill before the summer recess O'Kennedy said he regretted that it was not possible to take corrective action in 1980 to achieve the budget deficit target. Clearly, he was signalling that he was not allowed to do so by Haughey.

But by the time that the Coalition Government got into office in July of that year, borrowing for current purposes was 90% of that projected for the year as a whole and it was projected by the Department of Finance that the budget deficit would be almost 9.5% of GNP, as compared with the projected 5%. Excesses then emerging on capital expenditure would have resulted, according to the Department of Finance of a total exchequer borrowing requirement of £1 ,973m, 20% of GNP.

Thus Haughey's achievement in his first term of office was to bring the current budget deficit from 7.3% of GNP in 1979 to a projected figure of 9.5% in 1981 and the exchequer borrowing requirement from 14% of GNP in 1979 to a projected figure of 20%. But the really frightening prospect was that the current budget deficit for 1982 would be £1,500m, about 12.5% of GNP.

The Coalition's Government supplementary budget of July 21, 1982 sought to restore the situation to a level of manageability. The deficit for 1981 was reduce targeted from a projected figure of £947m, to £787m, or 8% of GNP and the total borrowing requirement was reduced from a projected 20% of GNP to a targeted 16.5%.

It was in this context that the Fianna Fail spokesperson on Finance at the time, Gene FitzGerald, said immediately after the introduction of the July 21 supplementary budget:

Haughey himself dismissed the supplementary budget on July 21 thus:

"Our general approach to this budget is that these increases do not have to happen. This is very much a political exercise which we are going through here. After all the preaching of gloom and doom and all the drama and the state of the nation broadcast and around the clock cabinet sessions, what the Government are engaged in here today is, from the point of Government finances, a minimal exercise. "

On the following day, July 22, he said in the Dail that had Fianna Fail remained in office:

"There would have been no budget until January."

By the end of 1981 Haughey had evolved the "hypnotised" line which was to become a feature of the subsequent general election campaign. He said in the Dail on December 18:

"It seems to me that the members of the Government parties have become hypnotised by their own propaganda about public borrowing ...

But it was his performance at the first press conference of the first 1982 election, January 28, where he made his most remarkable statements on the borrowing issue, statements which contrasted most sharply with what he said in early 1980 and what he got around to repeating in the latter part of this year. The following quotations are taken from a tape recording of his January 28 press conference:

Asked if he thought the current budget deficit for 1981 was unacceptably high (it was 8.4% of GNP as compared with the 7.3% of GNP which he decried in his TV broadcast of January 9, 1980), he said:

"No, no. I don't believe there is any such thing as a quantitative figure on these areas. "

Asked if he thought it correct to wait for economic growth to reduce the level of the current budget deficit, he said:

"Yes certainly. I think you cannot make any major impact on your current budget deficit without an increase in your growth rate, yes. "

Incidentally, he was asked in the course of that January 28 press conference if he would honour the public sector pay agreement negotiated by the Coalition Government. He replied:

"Oh yes, certainly. "

Asked if there was any question of reneging on the terms of that agreement, he replied:

"Oh, no, no, no. I would certainly be very - I would never (approve) of a situation where any government coming into office would renege on the solemn undertakings of its predecessors or indeed on its own solemn undertakings like the Coalition Government. "

By the time of the 1981 budget, the concern about the public finances and the level of borrowing had disappeared entirely. He said in the Dail during the budget debate on January 29, 1981:

"There is nothing wrong in foreign borrowing if funds are available at the right price and on the right terms and if the borrowing is used to create productive and remunerative projects which add to the wealth of the country and provide the new employment opportunities which are so badly needed. There is a great deal of talk about the risks inherent in greater dependence on foreign borrowing. This Government believes that those risks are overstated given the improvement in our productive capacity and efficiency which will result. "

There was hardly a mention at all of the problem of the current budget deficit in that speech, apart from one comment:

"I would point out that the budgetary strategy of reducing the current budget deficit and expanding productive investment is broadly in line with the recommendations of the National Economic and Social Council in their recent report on the social and economic policies they recommend for 1980-83. "

In fact the policies pursued by Haughey in the first six months of 1981 were far removed from anything the National Economic and Social Council or any other body would have recommended.

First of all there was a vast underestimation in the 1981 budget estimates (Magill dealt in detail with this issue prior to the last election), and then because of a massive splurge of public expenditure, for which no financing provision was made, prior to the June 1981 election.

In his budget of January 28, 1981, Gene FitzGerald, as Minister for Finance, stated that the current budget deficit for 1981 would be £515m, 5 1/4% of GNP. The overall exchequer borrowing requirement was to be £l,296m or 13% of GNP.

While his early speeches on becoming Taoiseach reflected the boom and bloom mentality of the January 28 press conference, by May 5 last the line had begun to change yet again. He told the Dail that day:

"A central feature of our budget is the targets we have set for a reduction in the budget deficit and in the level of borrowing as compared with 1981. We intend to adhere to these targets through rigid control of the public finances. "

He said on the adjournment motion in the Dail on July 16:

"Our current budget deficit, which in common with most countries was increased as a result of the defensive action taken against the recession, is too high. It must be phased out progressively and in a sensible way which does not abruptly deflate the economy. "

But the extent of the second "U" tum did not become apparent until the publication of the national plan. "The Way Forward". It stated:

"The current budget deficit will be phased out by 1986 . . . This will progressively reduce the growth in the public debt and in debt service, the balance of payments deficit, the burden of taxation and the rate of inflation and interest. This fundamental correction in our fiscal balance is essential for our credit standing and to permit greater investment in the capacity, efficiency and equity of our economy. Such a reduction in the current budget deficit cannot be achieved painlessly."

Just nine months previously Haughey was assuring all and sundry that our credit standing was not in question and that the current budget deficit could indeed be phased out painlessly.

Speaking in the Dail on the debate on the plan on October 27 last, Haughey said:

"The extent of the borrowing required to meet these yearly (current budget) deficits and the burden it places on our income have now made it urgently necessary to act firmly to reduce and eliminate the budget deficit over a reasonably short period.

The "W" turn was complete.