Wednesday, 5 March 2008
Dáil Eireann Debate
Deputy Enda Kenny: The Green Party Ministers are again absent this morning. I raised the issue of economic performance with the Taoiseach a month ago. On that occasion, the response was the situation was being monitored and that there would be no changing course. Yesterday’s figures clearly demonstrate that there is a problem. This is disturbing news that needs to be looked at seriously by the Government.
Figures show that taxes are down by 8% on the same period in 2007 and that spending is up by 14% over the same period. On closer examination, which is even more serious and of greater concern, one can see that this is clearly no longer confined to the construction sector. VAT receipts are down, as are capital gains tax and corporation tax profits. This has now leaked out into the broader economy.
If this is not corrected or confidence in the economy is not restored by mid-year, there will be a knee-jerk reaction from Government. Does the Taoiseach recognise that the economy is not on the trajectory as proposed and outlined by the Minister for Finance two months ago? What is now happening amounts to the worst deterioration of the economy in the history of the State.
Deputy Enda Kenny: If Deputy Brady will be defending the €300 million cutbacks proposed in the HSE later this year, we will see how confident the Government will be. I am asking the Taoiseach, as head of Government, whether he recognises that there is a problem in respect of the trajectory outlined for the economy by the Minister for Finance two months ago. Does he recognise that the economic ship is off course and that this is a matter of concern to all sectors of Irish society? In recognising that, what is the conclusion of the monitoring of this situation by the Cabinet? What action will the Government take to restore confidence to our economy and what corrective direction will the Taoiseach take?
The Taoiseach: The end of February Exchequer returns were published yesterday, as Deputy Kenny noted, and the overall position is that the Exchequer deficit is €125 million at the end of February. The forecast for the Exchequer deficit for the year is €4.866 billion and a general Government deficit of 0.9% of GDP is forecast. The general debt level is projected to be around 26%. Trying to place it in anything other than its historically good context is wrong.
Taxes to the end of February were €516 million, which is 6.4% below expectations. Income tax, excise duties, stamp duty, capital acquisitions tax and customs are very close to target. Capital gains tax, VAT and corporation tax are significantly below profile. I am always slow to make any great judgment on two months’ figures. February is an important month for capital gains tax. Looking at those figures, it would seem that capital gains tax figure is substantially down. There is no argument about that. That is based on the last quarter of 2007 so this means there was not a great deal of land purchase or closing of deals in construction in that period. That obviously pulls down that tax.
On the other side of it, house building is down from a historic high of 88,000 in 2006. The figure this year is projected to be 55,000. The rule of thumb is that every 10,000 houses not built pulls 1% off the growth or about 0.5% off the tax base. Most of this in the analysis of two months, which I would be loath to read as a year, is based on capital gains tax on one side, with construction and developers’ deals not going through in the last quarter, which substantially pulls down the revenue base, and on the other side, the fact that we are down so many thousand houses on the construction side. It again shows, as I have said here for years, the importance of the construction industry’s knock-on effect on the economy. The fact that developers, builders and others have a significant knock-on effect on the economy has always been a positive factor even though I have always had to argue in this House against there being something negative about that position.
Deputy Kenny does not need me to go through it at great length. We are now the sixth strongest country in the world in services exports, which are extremely high. If one looks at the position in manufacturing, exports, financial services and the services industry, which is extraordinarily strong, and what has gone on for the past few months, one can see that developments in the stock market, the credit crunch, the US economy and sterling-dollar movements have been substantially negative. However, we are still not that far off our targets. As I said at budget time, it is a year where there will be some increase in unemployment mainly in the construction sector. We will still create a significant number of jobs if, as is projected, we build 55,000 units and this is broadly in line with the consensus among economic commentators. As the year progresses and as we get the wash-out of houses that have already been constructed in 2007, we will see this improve as the year goes on. It is a year for tight and close management of the economy and for watching expenditure. The Government is wholly conscious of this and will continue to monitor the situation very closely, in particular, looking closely at the first quarter returns in a month’s time.
Deputy Enda Kenny: If this is a year for tight and close monitoring of the economy why, just last month, did the Taoiseach say there would be no change of course? If we are actually spending 50% more than the economy is generating, this is a situation that cannot continue. The unemployment figure is rising and redundancies are up by 20% in the first two months of this year. The cost of living is increasing for everybody and this is obvious to anyone buying food and paying for energy. People are being squeezed to an unprecedented degree. This is no longer just a construction sector problem. The Government will not be able to trade its way out of this because we have lost export share for each of the past five years.
The Taoiseach still has not told the House that he recognises the problem. Unfortunately it is the case now that when members of the Opposition speak about a matter of national importance or the national economy, they will be accused by some people sitting behind the Taoiseach of being guilty of either personal or national sabotage.
In the context of the economy over which the Taoiseach and his first mate preside with sloppy and wasteful management of public taxes, does he recognise we have a problem? Does he recognise that if this continues, by mid-year the usual response of his Government will be a knee-jerk reaction? It is reported that future further cutbacks of €300 million in the HSE will apply across every sector with the bureaucracy being the one area protected while front line staff will again be hit, be they home helps, nurses or specialist teachers. This is what happens in mid-year when the Taoiseach recognises we are on a wrong course and that corrective action should be taken and confidence restored. This is the Taoiseach’s duty and also that of his first mate.
I refer to this leaking of confidence from the economy. Given that the European Commission just last month published a report which spoke clearly of the deterioration of the public finances in Ireland and given the figures that emerged yesterday, how many more reputable bodies will have to produce reports or make economic commentaries before this Government actually recognises that there is a problem, that we are not on the course plotted by the Taoiseach and the Minister for Finance two months ago and that this is now a situation where confidence is leaking away and where corrective action should be taken immediately? I ask the Taoiseach to say what this corrective action will be and how he intends to restore confidence so that this situation can be corrected.
The Taoiseach: I wish to confirm that the budget day forecasts, both economic and fiscal, have not been changed. The Tánaiste at budget time noted the internal and external risks to economic forecasts. Some of those identified risks are now emerging. I do not think the House can ignore the fact of what is happening internationally. We must at least look at what has happened in the stock markets since the beginning of the year and what is continuing to happen in the sub-prime rate, in the credit crunch and what has happened in the US economy and the movements in sterling. Nevertheless, our economy has remained extremely strong in the services sector, the agricultural sector, manufacturing exports and financial services. We have been closely examining our figures every week, particularly the full monthly figures. These show where most of the slowdown is occurring. I do not need to go through the figures. If the figures for house construction show 80,000, 78,000, 82,000 and 88,000 houses were being built for a few consecutive years and then there is a reduction to 50,000 houses and every 10,000 of those are providing a growth rate of 1% and probably somewhere in the order of taxes to the amount of €0.5 billion, one can clearly see the figure. While there has been unemployment in the construction sector in 2007, it should be noted that the rate of redundancies was very small at only 15%, 4,000 redundancies, out of the total for the year.
As I said previously, the Government’s response as on budget day will continue to be as in other countries — the input of a large fiscal impetus into the economy under the national development plan. Rather than increasing the capital programme for this year we have given an injection of an enormous amount of resources into the national development plan which will drive both construction and services and development in infrastructural projects throughout the State. If this were not in place, if the Government had not opted to take that position, both the employment and taxes positions would be far worse this year.
Without going through all the economic forecasts, when one studies the economic forecasts from the various stockbroker houses and others, they all indicate that all of the underlying measures are strong and that all of the policies which we are pursuing should not be altered and changed. The Government is not going to alter them. This year was always going to be a difficult year. It will require close management. I am not in any way denying that the revenues in the areas I have specified are down and we must manage this with care during the year 2008.
An Ceann Comhairle: Before I call on Deputy Gilmore I do not need to remind Deputy Kenny that he cannot refer to the Tánaiste as the first mate. Iarraim ar ceannaire Pháirtí an Lucht Oibre, an Teachta Gilmore.
What worries me about the Taoiseach’s reply to Deputy Kenny is that he seems to be somewhat in denial and seems to be taking the position on the economy that something will turn up. As I understand, the position is that in the first two months of this year, the State took in almost €700 million less in tax than it did in the first two months of last year and €0.5 billion less than what it had expected to take in.
I wish to address how this affects people. Significant numbers of people have lost their jobs in the first two months of this year. There has been a 30% increase in redundancies, with 11,000 more people on the live register in January than at the beginning of last year. The level of unemployment in January of this year is the highest since 1999. Where is this going? It is all very well to keep throwing out figures and percentages and projections but where is all this going in terms of the lives that people lead in this country?
Last week in the House I raised the fact that money for the homeless services has been frozen, presumably as a result of the tightening revenue situation. Today we have a report that the Health Service Executive is looking for another €300 million in cuts in the health services that are already strained. We had a debate on this subject yesterday. My colleague, Deputy Joan Burton drew attention yesterday to an extraordinary tax break which the Minister for Finance proposes to introduce, whereby he intends to give a tax break to developers for developing private hospices. There is quite a sad irony that we will give tax breaks to people developing private hospices for people dying of cancer in a country where finance cannot be provided to provide them with tests and services in the public health service in the first place. Meanwhile we heard on the radio yesterday our former colleague, Tom Parlon, saying that the building workers, who will be building these hospices, should be paid 30% less.
Deputy Eamon Gilmore: We know and understand that tax revenues are dropping. We expect Government to manage this and have a strategy to deal with it. What assurance can the Taoiseach give the House that as this is managed — he used the term “managed” on a number of occasions in his reply to Deputy Kenny — it will not be those who are least able to bear the burden who are asked to take the pain here? We should not have cuts in essential public services, such as the health services. Low-paid workers, including those working on building sites and elsewhere in the economy should not be asked to take pay cuts as they were by Mr. Parlon yesterday morning. If pain must be inflicted it should be inflicted on those who have benefited most. We should not see a recipe for the future of the economy which will continue to give big tax cuts to wealthy people and inflict pain and income cuts on those least able to bear it.
The Taoiseach: I have said and I repeat it again that the budget day forecasts, both economic and fiscal, have not been changed. The expenditure figures were very generous in the budget. Overall current spending is budgeted to increase by approximately €4 billion — that is all for the services area — which is 8% in a difficult year. Capital spending will increase by approximately €1 billion, which is 12%. Obviously with tax revenues down, that puts pressure on the budget. There is no doubt about that, but on a two months basis we have to monitor that as the year goes on. I have specified the areas in which tax is down.
On the tax break, I am sure the Deputy, like everybody else, was lobbied by the charitable groups around the country, which have done such a good job in developing hospices of which we only have a few, as they want to try to develop more. They wanted to get a tax break to help them develop more hospices. It does not seem an unreasonable thing. We have given tax breaks for a lot of areas over the years and it seems not a bad idea to help those organisations. If the Deputy is against providing those services, that is a point of view.
The Taoiseach: On the construction side, it is always interesting to listen to the inconsistencies. When we were building 80,000 houses and everybody in construction was getting enormous salaries — the highest in Europe — the developers and construction people were all bad news around here. Now when it tightens up a bit everybody looks to the construction industry to pick it up. The Government has continued and will continue through the national development plan to put large amounts of money — approximately €6 billion over the next few years — into areas to improve our roads, transport infrastructure, sewerage and drainage, and continue to develop the country into a modern country. That is necessary. We have always recognised that employment in construction is important and we will continue to do that in the period ahead.
Regarding what Mr. Parlon, representing the CIF, said yesterday, negotiations on the social partnership in this round have started. Everybody is putting down their views. I do not believe in any area we should be organising to have races to the bottom. I do not think that is a good idea for any sector, but I understand negotiating positions are put forward by everybody. Some wanted a race to the top. As the Deputy has said, there are redundancies. Unemployment this year will increase. There is no doubt about that. To go from building 80,000 houses to 55,000 houses cannot require the same number of workers. Predominantly it is in construction and in some of the service industries linked to construction. So unemployment will drift up.
As far as the European forecast is concerned, it is not the case that people are putting doom and gloom about regarding the country. There are difficulties to manage in a more difficult climate, but the European Commission has delivered a very good assessment of the Irish economy. It has stated that what we are doing in the stability and growth process is a good improvement for us at a more difficult time. It stated its assessment represents a reasonable and broadly balanced view of the economy. It acknowledges the overall strength of our public finances. It acknowledges that we have a debt to GDP ratio which is very low. Deputy Kenny was saying it was the worst ever. At 26% and if one nets off, as one would under rules of accounting, the national debt, we have the lowest national debt in the European Union, maybe apart from Luxembourg which has never had any.
All of the indications from the European Commission are that we have a dynamic and well-educated workforce, that we are responsive to changing needs, and that our markets for goods, services and labour are flexible by international standards. In most of those areas we are increasing. We have effectively a regulated pro-enterprise society. Our burden of taxation is low, and productivity and inward investment is good. Yes, it is difficult for the reasons I said at the outset. We will have to manage it in a more difficult year and revenues will be down in a more difficult year, but manage it we will. Whatever we have to do we will do during the course of the year to keep this country and the economy strong and keep employment as strong as we can.
Deputy Eamon Gilmore: If the Government were as good at managing the health service and at resourcing it as it is at providing tax breaks for those who want to invest in it, we would not have as many people presenting with and dying from cancer in the first place. The Taoiseach does not need to remind us of how close he is to the building industry — he is too close.
Regarding the fall in employment in construction, it is estimated that approximately 60,000 building workers will lose their jobs in residential construction over the course of the year and that approximately 40,000 of those will be absorbed back into construction activity in the type of construction the Taoiseach described on NDP projects. That will leave a net of approximately 20,000 building workers who will be out of work at the end of the year. What is the plan for those 20,000 workers? Is there a plan for retraining and re-education to allow them to re-enter the economy in some other way? That is the question they and their families want answered. They do not need a lecture from the Taoiseach on the various European assessments of the economy. They want to know where they will get a job next year after they are told to leave the building site. What is the future for those 20,000 building workers who will be out of work by the end of this year? Is there a plan to retrain them? Is there a plan for their re-absorption into the economy? Is there a plan for job opportunities or business opportunities for those people so that they can look forward to a future in employment and in work rather than on the dole?
The Taoiseach: It was for that reason that we decided to up the capital programme last year so that other construction projects away from the residential market would have the fiscal impetus, which was putting vast amounts of resources into other areas to keep it strong. The other areas are holding up very well, whether it is retail, commercial or infrastructural development. The one that is down is the construction industry. If we go from building 80,000 houses to 55,000, we cannot have the same number of workers in construction.
The Taoiseach: We are going to get unemployment. FÁS and the other agencies have already put in place integrated support services for those made redundant and those who might lose their jobs in the construction sector. When we saw this coming a year ago we moved on that. It involves information sessions, skills analysis, training, retraining and courses in job replacement. In delivering those services, FÁS has been working with Enterprise Ireland, the IDA, and city and county enterprise boards. All that is already in place. Over the next few years, the Government has earmarked over €7.7 billion in public funds to support training and skills development in order to maintain as many people as possible in various sectors.
Last year, a forecast published by FÁS and the ESRI predicted that 90,000 to 100,000 skilled building workers would be employed by 2012 compared to 85,000 in 2005, so it is not the case that such people will not be needed. All the indications from FÁS and the ESRI show that all of those will be required, although they may move around to different sectors. Over the past three years, we have seen an increase in the number of non-Irish involved in these sectors. A large proportion of those are mobile and we can see what is happening in that respect with a number moving to London to work on contracts in preparation for the Olympic Games there in 2012. That will continue to occur as our construction industry moves around to fulfil contracts, so the market economy will not change.
Yesterday’s figures showed a downturn in construction and related areas, particularly regarding capital gains tax which fell quite sharply. This means that in the final quarter of last year development deals in this country dropped fairly dramatically, by probably close to 40%. We must ensure that we can keep other areas of the economy growing as strongly as we can. There is no doubt that will create budgetary difficulties for us. With less revenues as the year goes on, it will create a tighter position which we will have to manage. In the interests of keeping the economy strong in the medium and longer term, we will have to do that. It is the right thing to do regardless of how difficult it is.
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