Wednesday, 25 March 2009
Dáil Eireann Debate
Deputy Jimmy Deenihan: As I was saying before the House suspended, Ireland must return to its successful export-led model of the 1990s. A number of challenges will have to be met if the economy is to capitalise on the global upturn when it arrives. We must reduce our cost base, particularly in respect of public services. We will have to restore Ireland’s reputation as a good place in which to do business. The House is aware that recent events have damaged and tarnished this country’s reputation. We need to identify niche sectors in which Ireland can provide the “best of breed”, as it is sometimes described. We should draw on our competitive advantages in sectors like renewable energy, which the Minister for Communications, Energy and Natural Resources, Deputy Ryan, has discussed in the Silicon Valley. I visited the Silicon Valley recently to promote the exact same concept. We have opportunities in such areas.
We have to do something about the public pay bill, which will reach approximately 13% of GDP this year, even when the recent pension savings are taken into account. The bill accounted for 11% of GDP, on average, between 2003 and 2007. Fine Gael’s proposals for reducing the public pay bill start right here in the Oireachtas. I believe one should start at the top and move down when taking action of this nature. Those of us at the top need to make sacrifices in the first instance if we want people at the bottom to accept similar sacrifices.
We need to prevent any future rapid deterioration in the fiscal balance, of the kind we have recently experienced. I suggest that we should adopt a golden rule to the effect that borrowing is permitted only for the purposes of capital spending. The best way to ensure such a framework stays intact is to siphon off any cyclically adjusted surpluses, such as those enjoyed over the last ten years, into a “rainy day” fund that can be used in more difficult times. If such a fund were available to us now, we might not be in such difficulty.
An obvious candidate for special focus is the renewable energy sector, which I have mentioned. Ireland’s climate is ideal for harnessing wind and wave power, as the House is aware. I am sure the Minister has studied Denmark, which is an example of a country from which we should learn. Denmark produces a large percentage of its energy from renewable sources. We should try to attract more European hubs to Ireland. Many companies, including Google, have already decided to base their European operations here. We can attract many more hubs if we target the right companies.
This country will face major challenges on 7 April next. I have been a Member of this House for the same length of time as the Leas-Cheann Comhairle. Those of us in Fine Gael have always made proposals in opposition, which is something Fianna Fáil did not do when we were in government. I ask the Government to examine some of the proposals we are making at this time. They have merit and should be considered when the Government is framing its solutions to the crisis faced by this country.
Minister for Communications, Energy and Natural Resources (Deputy Eamon Ryan): There is no doubt that we are at an unprecedented point of crisis. I would like to draw attention to various aspects of the crisis, with specific reference to the useful work done by the National Economic and Social Council. I am aware that a number of Deputies referred to the council’s report, which was published recently, in their contributions. The approach advocated by the council in its timely report involves an integrated national response to this crisis. People are looking for simple reassurance from this Parliament. They want to know that Members on all sides, as leaders of the people, have a plan to get us through this unprecedented crisis. I believe we have such a plan and we will get through this crisis. An integrated approach is needed if we are to tackle the banking crisis, the crisis in the public finances, our crisis of economic competitiveness, our social crisis and our reputational crisis, as set out in the National Economic and Social Council’s report. I would like to address each of those five areas in the ten minutes available to me.
I mentioned the banking crisis first because we are, first and foremost, in the middle of an unprecedented global financial crisis that has developed in the past 30 years. The roots of this crisis go back to changes in the political system 30 years ago that allowed for a change in the economic and banking system with the emergence of a market-based philosophy, a belief that markets would self-correct and would manage themselves, that they required light regulation, that the new financial system could overcome any economic difficulties that would be encountered and would provide a sound basis for future economic growth. That model is shattered. It is seen now to have completely failed. Those markets were not able to self-regulate and the normal human instinct to lose the run of oneself, to increase the level of credit beyond that which was in any way sustainable, has occurred across the globe and will, regardless of what we do, require us to manage a remarkable contraction. Inevitable and unavoidably, that credit which was spectacularly beyond the measure of what would be proper, that expansion in money supply, must contract on a global basis and we, as an open economy dependent on a buoyant international global economy, must manage that contraction carefully.
We have a particular problem in that regard. While we did not get caught up in purchasing some of the worst type of toxic debt, such as the internationally-traded securities that had no real value, we made a fundamental error in our banking system, only in the past three or four years and particularly from 2004 to 2006, I would argue, when the property bubble or price increases here went beyond what had been caused by supply-demand imbalance to where people were merely chasing out of either fear or greed. It may have been fear that they had to buy property because the market would continue to rise and they would not be able to afford it at any point, or else greed on the basis that it would forever rise and people wanted to get into that market to profit from it. It is that greed, and particularly that lack of foresight in our banking system which lent ridiculous amounts of money for commercial and residential property speculation, which is our particular difficulty that we must manage.
We can manage it. It is largely within our own shores, unlike the tulip bubble or the South Sea bubble of the past. It is in south Dublin and in the towns and villages of Ireland where there are land banks and properties that we now must manage, and we can do that over a proper timeframe. That is why the Government’s approach, in commissioning Dr. Peter Bacon to look at a range of options in terms of how we can manage these assets on the back of the guarantee that has been introduced, will allow us to manage our finances through this period. This is particularly the case because we are backed up by a European currency which gives us the strength and stability in what would otherwise be an impossible situation to manage, while recognising that the euro and access to cheap money at a time when we had such fast growth was actually the cause of the problem in the first place. It was that access to cheap money which did not involve a currency risk. We were able to get money in from Germany and there was spectacular growth. According to the National Economic and Social Council’s report, this expanded in the short period of between 2004 and 2006 beyond what was in any way sustainable. That is the mistake or fundamental problem we must manage. It is of a large scale but it is manageable by ourselves over time.
The second issue we must manage, which is a consequence of that, is the contraction in our public finances. The simple fundamental flaw in the taxation system was that it became too dependent on revenues based on the construction industry and house-selling, be it from stamp duty, VAT from the construction industry, or the employment or other taxes that came out of it. That structural imbalance is what we must address today, next autumn when we produce a further budget and in the following two or three years.
The majority of the response must be a widening of the tax base, and I believe it should be a widening away from a concentration on taxation on income as the response to this but towards taxation on resources which give us long-term benefits in terms of how we develop as a society. We need, as the report states, short-term solutions that have a long-term logic and broadening our tax base to bring it closer to what exists in other northern European countries to which, in truth, we are closer as an economy must be the outcome of the next three to four years planning by the politicians in this House. In the interim, we will have to address the short-term deficit with further taxation and cuts in expenditure in the next two weeks. That is what the Government is doing, sitting down and trying to establish what is the best way to make that first short-term response.
There will be criticisms outside that there has been a series of events, such as the public service pension levy. Perhaps people in the public service felt that was unfair because they were the only ones suffering. However, last October people felt the withdrawal of the medical cards — subsequently reintroduced — was unfair because they were the ones bearing the unnecessary burden. The way those measures were introduced is a difficulty, but it was a response based on the need to react to an evolving situation, and it is still not easy to do that. It will never be easy for us to withdraw services that have been introduced or to introduce new taxes, but that is what must be done.
An example of how difficult that is, and why it takes a series of changes rather than being able to do it in one fell swoop last July when we first had to start making adjustments, was highlighted in the House this morning when we had two completely different and, it can be argued, equally valid approaches. One from Fine Gael, to paraphrase Deputy Kenny if I can, stated that we should be going in hard, that we need to make greater cuts at this time, as was stated at the time of the October budget. The Labour Party held an equally valid alternative position, stating that one should not deflate the economy too much and one should not make cuts. They are valid arguments.
The Government, in the extensive Cabinet meetings that are taking place this week and as it did earlier this year and in October and July last year, is trying to work through what is the best balanced approach to take that will not further increase unemployment or further deflate an economy that is deflating because of the contraction in the construction industry, the problems in the global capital markets and the global economy, but at the same time consider what changes we can make that will give confidence that we are bringing our public finances onto a path that leads us back to a 3% Government deficit in 2013.
The key for politics is to lead now with new economics. Perhaps for the past 30 years we have allowed economic market philosophy to determine politics. It is the opposite now. We need a new politics which determines the economics. It is an economics or business model which is not the fast-buck model where one can make a 20% return in a year or experience 20% growth, as the banks were looking at over the past five years. It is one that will not repeat the mistakes in the banks of such massive pay differentials. It is remarkable that those individuals, particularly in the banks and building societies — mutual societies — have so little shame about the model they adopted of self-aggrandisement rather than the proper practice in banking of prudence, security and strength.
We need a new business model that is not based on such wide pay differentials. We need one that is green because we must trade our way out of this and sell to the rest of the world; that is what the world will need and we can do it. In providing that economic and business model, we can provide what the report calls for, a sense of common purpose for our people that in solving this problem we have a task in which we can all take part, that in a collective response we will succeed and get out of it, and we will be better people for it.
Deputy Lucinda Creighton: I am pleased to have the opportunity to address the House in this crucial debate where we have an opportunity to put forward ideas. We must also critically assess some of the proposals which have been already floated by Government and try to get to grips with the type of reforms required to get the public finances back on track. More important, in the long term we must examine ways in which we can begin to stimulate our economy and reintroduce a competitive edge to put us back at the centre of Europe in job creation and the opportunities we afford to the people of this country.
It is time for the Government, the public and everybody in political life to get real about the economic tsunami around us. In the last number of months unemployment has exceeded 10% and we face a very real possibility of unemployment reaching almost half a million Irish people by the end of this year, a figure of almost 15%. This is catastrophic and I am very concerned that I am not seeing the Government putting forward any solutions to deal with this calamity or making any effort to explain to the people of Ireland how serious and grave is the situation. Nor is there any serious effort by the Taoiseach and his Ministers to instil any form of confidence in the public as to a plan, solutions or a big idea to get the people of this country out of this crisis.
Our deficit has grown to 9.5% of GDP, which we all know is over three times the acceptable EU limit. Let us remember that these are standards to which we have signed up in the Stability and Growth Pact and of which we have been enthusiastic advocates over the past nine years, since the introduction of the single currency in the eurozone. It is extraordinary. There must be latitude and a certain amount of wriggle room in the parameters of EU rules and regulations when we face an economic crisis such as this. It is extraordinary that we were the example all the central and eastern European new member states looked to as the golden child of the EU, the wonderful example of how to do it right. Clearly, we have fallen to the back of the class and are the prime example of how to get it spectacularly wrong.
There is a number of reasons for this. We are all well versed in the level of mismanagement by the former Ministers for Finance, Deputy Cowen and Mr. Charlie McCreevy, and the type of inflationary budgets we saw during their reigns. The economy had an over-reliance on the building industry and the Government allowed a situation to develop whereby 25% of all revenue into Government coffers was generated by one sector. One does not need to be a doctor of economics to understand the basics. That was a very dangerous strategy and left us far more exposed than any other country. I am tired of listening to the nonsense from the Government, its “get out of jail card”, that global forces and the worldwide economic crisis caused the Irish economic crisis. This is untrue. The Government put us in this position by leaving our economy completely exposed.
The second key feature of the gross mismanagement of our economy has been a complete incompetence in managing the public sector. We have seen creeping incompetence growing in our public sector in the past ten or 12 years
Deputy Lucinda Creighton: I am about to tell the Minister of State. Hang on a second. The Government has allowed a situation to develop where deals were struck behind closed doors through the social partnership process——
Deputy Lucinda Creighton: I am so frustrated at what has been allowed to happen. The Government engaged in deals which led to government by stealth. Benchmarking deals were struck behind closed doors which led to inordinate and unjustifiable pay increases in the public sector without any demands for increased productivity or public sector reforms.
Deputy Lucinda Creighton: The Minister of State’s Government commissioned a benchmarking report headed up by Mr. Jim O’Leary, who in frustration resigned from the process because the Government completely ignored all the recommendations in the report. That is just one element of where the Fianna Fáil Government sought to buy and curry the favour of public sector unions when faced with the reality that our public sector was growing out of control. It insisted public sector pay be benchmarked against the private sector on very questionable and suspect premises and data, which have never been put in the public domain. Now the Government’s policies have led to the collapse of small and medium-sized businesses around the country and multinationals such as Dell being forced to let thousands of workers go.
Deputy Lucinda Creighton: We have seen tens of thousands of people forced to sign on the live register over the last six months. What has the Minister of State’s Government done about it? Absolutely nothing. We face into the Government’s fourth attempt in six or seven months to come to grips with the gaping hole in the public finances and we still see no commitment to reform in the public sector or any measures put in place by the Government to stimulate our economy or bolster our struggling SMEs and private companies around the country. It beggars belief that we are in a situation where we are all being threatened with massive tax increases, because that will clearly help stimulate the economy. We will see swingeing cuts across all Departments. Over the last number of months we have seen that what this Government means by “cuts” is targeting the vulnerable and those it feels are least likely to vote and to take it out on the Government.
Deputy Lucinda Creighton: I have outlined precisely what the Government has been doing. We see no recovery plan to stimulate employment or small and medium-sized enterprises, no credit flow opening up to SMEs in this country. The Government is walking us into another budget with no solutions to stimulate our economy and get us out of the crisis we are in. It is an abdication of leadership and responsibility and the Minister of State ought to be ashamed of himself.
Deputy Cyprian Brady: I will perhaps bring some constructive comment to the debate and I welcome the opportunity to contribute. Nobody in the House is unaware of the tough and unprecedented times we face. The forthcoming budget must be fair and equitable. If that is our bottom line, we can ensure the required changes will be made in such a way that people will support them, including those who have lost their jobs. The changes will be made primarily to ensure workers retain their jobs.
Members have debated how and why we have arrived at this point. Members of the public watch and listen to news broadcasts 24 hours a day, seven days a week and, therefore, we cannot blame those who are worried and extremely concerned. As a small, open economy, Ireland exports more than 80% of what it produces and, as a consequence, we are more vulnerable in a downturn. However, over the past six months the so-called tiger economies in Asia have contracted more than our economy has over the past three or four years. We must compete with these economies.
Over time through prudent investment in education and business, Ireland has managed to punch above its weight globally. In the early years of this decade, Ireland was the largest exporter of software in the world. That did not happen by accident. The employees of the companies involved should have had jobs for the ten or 15 years of this success. That happened through prudent management of the economy and an enabling fiscal programme. We must maintain that confidence in ourselves. We can talk ourselves into this or out of it. However, to compete as we did in the past, we must concentrate on the areas over which we have control, including taxation and Exchequer spending, and how we spend money on services to which people have grown accustomed over the past 20 years and on the public service, which provides day-to-day front-line services in our hospitals, on our streets and in offices. These services are not provided of their own accord, as they must be put in place.
Last year, circumstances over which the Government had no control changed and it has had to adapt to an unprecedented rate of change. No Opposition Member has read the framework for sustainable recovery document, which sets out what the Government is doing. The document highlights that the gap in the Exchequer finances must be tackled, the banks must be sorted out, jobs must be protected and created, those who have lost their jobs must be supported and Ireland’s international reputation must be restored by strengthening our domestic corporate governance arrangements. The Government parties are in the middle of doing this and the budget is part of the strategy. It is necessary because we must demonstrate to the public, foreign investors and businesspeople who will create jobs in Ireland or who will provide money for borrowings, that we can manage our way out of the downturn. Basic economics dictate there will be peaks and troughs and when the economy inevitably picks up, we must be in a position to take advantage of that situation.
It does not matter who is sitting in the Taoiseach’s position. The decisions he must make now and in the future are not easy but, as with a business or household budget, one cannot spend what one is not taking in. Over the past decade, Fianna Fáil has reduced the national debt. Where would we be if we had not done that? Many countries are saying they are in a worse position than Ireland. We have a proven track record in prudent management and we should take advantage of that. When times are good, people have a different outlook and, therefore, we cannot blame people who are concerned and worried. Every day I meet people in Dublin city who are greatly concerned about what will happen over the next six months, never mind over the next two or three years.
There are areas in which investment needs to be maintained and, where possible, we must ensure such investment takes place. Education is the key. Successive Governments have invested in the education system and third level graduates are much more confident and educated. We must provide them with a future. People who have lost their jobs in recent times must be supported and, while we accept the number unemployed will increase, we must do something about it through training, further education, upskilling and so on, which must be paid for.
A banking system is necessary to run the economy but it needs to be overhauled and the Government is engaged in this process. The vast majority of bank officials are talented and they do a good job. A small number lost the run of themselves in recent years. Everybody accepts that and we must deal with that. Practices must change radically and customers must be protected. When one considers how banks have changed the way they do business, for instance, over the past decade, it is no wonder people do not trust them. They have done everything to discourage customers from using branches. One almost needs an appointment to talk to a teller. They have changed the way they do business and this has resulted in people losing trust in them. This issue must be tackled.
We are in a particularly tough place but the most vulnerable in our society must continue to be protected. Fianna Fáil ensured pensions and social welfare rates increased over recent years as well as an expansion of services. Special needs assistants did not exist ten years ago but they play a significant role in our society today. We must protect such services and the only way to do so is to ensure money is available at the end of each fiscal year to pay for them. In the present climate, it must be ensured that the changes that are made are seen to be equitable. Many people have said they are willing to make sacrifices and we must tap into the acceptance that we are where we are and we need to do what we need to do. This is another step in the Government’s plan.
People cannot be blamed for being worried. The Government must strike the correct balance between the amount it takes out of the economy to pay for services and social welfare payments and protecting jobs, while encouraging employers to create and retain jobs. We need businesspeople who are willing to take a chance to get into the marketplace and sell. The more we support such people, the more we will get back in the long run. The Government has a plan but we must have the courage to stick to it and to implement it.
Deputy Aengus Ó Snodaigh: We are now in the course of an entrenched equality crisis which, like our society for years, is characterised by extreme income inequality, a gross concentration of wealth at the top and the persistent experience of discrimination among key groups, including lone parents, the non-Irish, people with disabilities and the unemployed. It is also characterised by the absence of any demonstrable Government ambition to achieve meaningful socioeconomic equality, the manifestly unfair distribution of the burden of economic recovery which has been laid on the shoulders of the vulnerable the low and middle income workers and the ever-increasing working poor, and the active dismantling of the equality and human rights infrastructure. This Government sought and achieved the demise of the National Consultative Committee on Racism and Interculturalism, NCCRI, the elimination of the Combat Poverty agency, the sole independent agency responsible for those in poverty and for economic equality, and the decimating cuts in the budgets of the Equality Authority and the Human Rights Commission. The Government has further threatened those in the community and voluntary sector who advocate equality. The accountability of the State is being actively undermined. This trend must be reversed.
During times of recession the risk of discrimination and experience of inequality increase. Various studies demonstrate that equality is good for business. It increases productivity and is good for the country because it enhances social solidarity. The upcoming budget must be subjected to an equality impact assessment. It must be used as an opportunity to introduce an effective equality infrastructure incorporating anti-discrimination work and redistribution.
International income ratios are similarly grotesque. In 1980 the highest earning executives in the United States earned 33 times the average industrial wage. By the 1990s their earnings had increased and risen to 100 times the average industrial wage and by 2005 these high earners were taking home an income 50 times that of the average worker. This was replicated in Britain where the ratio of the chief executives’ pay to that of average staff members was 98:1. The distribution of wealth and income in this State is obscene as the spectrum of income ratios has moved in a direction comparable with that of the US and Britain. Revenue figures demonstrate that 30% of all income earned in 2008 went into the pockets of just 6% of the population. Almost 1,500 people earned an average of €2.4 million each last year at a time when the average industrial wage was a little over €30,000 a year. The upcoming budget, and every budget thereafter, must consciously and actively work towards a radical reduction in this income gap. This is the patriotic duty of the Government. Excess wealth must be taxed. The grotesque expenditure of €50 million on a yacht or a helicopter or several holiday mansions, while people live in squalor and poverty, and those with special needs are denied special classes to save a fraction of this sum must be addressed. The Fingletons, Smurfits and U2s of this world must be made pay their fair share of tax.
The upcoming budget must rectify and reverse the recent Fianna Fáil and Green Party attack on children with special educational needs. Last month I received many e-mails from parents, teachers and students in my constituency who were angry, depressed and despairing at the abolition of the special needs classes. I visited several of the affected schools and saw the benefit of those classes. Now the Government is intent on consigning those children to the scrapheap again. This cut will directly affect hundreds of children who will lose the vital support they need to achieve a robust education. Thousands more children will be affected by the extraordinary additional pressure on teachers already working in overcrowded mainstream classes. Robbing children of their futures for a paltry saving of €6 million when executives of publicly guaranteed banks are walking around with €1 million bonuses and multi-million euro pensions is obscene.
I asked the Minister for Education and Science to point to an educational rationale to underpin this ruthless decision. He could not do so. He claims that the needs of these children will be adequately met in the mainstream classes with limited learning support. That is not true. He has no understanding of special needs or the educational system. Parents know best. One couple who contacted me said they know that this will have a detrimental effect on their child’s education and social learning. Their son had been in a mainstream class in the past but a special class is without doubt the best place for him to learn, develop and thrive, to become a responsible and independent young adult reaching his full potential, an opportunity which should never be denied to any child. This budget should be used as an opportunity to reverse the cuts in special needs education and reinstate the classes for those with mild general learning disabilities.
The budget should also be used as an opportunity to raise fairly and progressively the revenues desperately required. It should be used to remove the pension levy which is manifestly unfair and creates real hardship for many already struggling to make ends meet. In addition to putting people’s homes at risk, it diminishes the spending power of a significant number of those who remain in employment thus further stifling the economy and resulting in more job losses in the private sector. The levy never concerned pensions. It was a form of unfair and selective taxation. Certain categories of workers subject to this levy will derive no additional pension benefit, for example, many fixed-term contract workers, including researchers. It also hits local councillors although they do not receive a salary, and the income of the brave retained fire service workers who are paid only when called out.
The Minister has an interest in overseas development aid, ODA, and attended a briefing on the matter earlier today. I appeal to him not to cut ODA. This is a matter of life and death for many around the world whom Ireland has thankfully helped in the past. We have an opportunity to continue to do so. I urge the Government not only to retain but to increase the ODA figure thus achieving the promised 0.7% of GDP sooner without having to put in a large extra sum of money. By doing so we will set a standard not only for ourselves but also for the European Union and our partners there and in the rest of the developed world. We will send a message of solidarity to those who are much worse off than us even in this recession. We have traded on our flathiúileachas and our reputation worldwide. We have been generous and do not have the imperialist past that many of our neighbours do. We can embarrass them and force them to follow our lead. We should not be selfish. We can save lives, improve human security and increase goodwill for Ireland.
I dtaca leis an Ghaeilge, ón méid atá cloiste agam, tá ciorruithe de bhreis is 20% i gceist do chuile eagras Gaeilge. Má smaoinítear ar an méid a chaitear ar mhadraí agus ar chapaill rása i gcomparáid leis an chaiteachas ar eagrais Ghaeilge, is léir cá bhfuil tosaíochtaí an Rialtais. Caithfear díriú ar chosaint a dhéanamh ar an Ghaeilge agus ar an Ghaeltacht go háirithe san am seo mar ní ghá ach féachaint ar an staidéar teangeolaíochta a rinneadh le déanaí chun an dainséar don teanga náisiúnta a fheiceáil. Caithfear déanamh cinnte nach gcuirfear leis an dainséar sin don teanga sa chruachás atá romhainn faoi láthair.
Now is not the time to cut budgets in the fight against illegal drugs. To do so would be detrimental to the justice programme and to the development of communities. Times may be hard but in the past recession has bred drug abuse for which society pays a huge price. We have an opportunity to at the very least retain the money dedicated to tackling the drug problem. That is my appeal to the Government. I hope people have been listening.
Deputy Michael Moynihan: I welcome the opportunity to contribute to the debate that is taking place now in every corner of this country. We speak about the dire economic circumstances in which we find ourselves, the pathway we must put in place and the proper foundation to build for the future of our country.
A number of speakers have said the world is facing one of the greatest crises since the 1929 Wall Street crash and the subsequent Great Depression. All the graphs world economists produce show us that the figures of today are proportionate to those pertaining in that period of the late 1920s and early 1930s. Many similarities can be seen between the lead up to that crash and elements in the world economy today.
Our current considerable difficulties concern our public finances, our trading and our trading partners. This is particularly the case because we are an open economy that exports 80% of our products into markets in the UK, Europe and the United States. These countries are all in recession and are pulling back from exporting. As many speakers have noted, confidence has gone from the economy. People are not confident. They think ten or 15 times before they spend money. Prior to this our difficulty, especially during the latter years of the Celtic tiger, was that people spent money without too much thought. That may be a side issue but economies have contracted and confidence has gone from the world economy. How can we ensure there is confidence in our economy in the future?
We must set a number of matters straight and the most important of these is to get our public finances in order and ensure they remain so, permanently. Other matters relate to the banks. Many commentators, economists and, indeed, ordinary people have been disgusted, frightened and shocked by many of the events that have taken place throughout the banking industry. Many of these related to the implementation of regulation and the question remains whether principle-based regulation is strong and concise enough to ensure compliance. In many countries regulation went down the same road as ours and the real difficulty lay in separating the regulator from the Central Bank and putting in a new regulatory framework. Ordinary people had a sense that somebody was watching the house because there was a regulatory system and they saw the media commenting on the Financial Regulator regulating the banking system. The Celtic tiger purred on and credit was freely available in our economy but we know now that this was not the case.
As we try to get our economy back on track, a great number of people have mentioned the importance of getting more credit flowing freely within the economy and making more money available to small and medium sized businesses. There is a need to get money and credit in place because there is a significant squeeze in respect of overdraft and other facilities that financial houses across the country are making available to small and medium sized businesses. However, there is also a need to ensure that the reckless lending practised by certain financial institutions, especially in the Anglo-Saxon world — Ireland, the UK and the United States — will never again be allowed to happen. Many people have said this is the first time the situation has disintegrated but I have stated on many occasions that it is not the first time. It has happened before.
The credit squeeze is having a detrimental effect. Heretofore, the agricultural industry was one of the pillars we could always rely on in times of recession. The dairy industry is under fierce pressure at present, especially the Irish Dairy Board which has acted almost as a financier for the industry across the country. The banks are now squeezing available credit even though product is being sold through the board and co-ops around the country, particularly the smaller ones, have been able to access their accounts, at whatever stage. Now the banks and other financial institutions are squeezing them. The Minister should be very concerned about this. Discussions are ongoing but the dairy industry is a significant and vital one and prices for milk and milk products are hugely deflated around the world, causing enormous pressure to these people. There must be freedom of credit here. The situation arises directly from the credit crunch, the mismanagement of the financial institutions and the lack of proper and accountable regulatory framework.
We must remember those economies, particularly during the 1930s, that tried to balance their books and took so much from the economy they almost killed it. There is a creeping return to the protectionist policies that were pursued in the Great Depression. Given the strength of the European Union of which we are so solidly a member, that will be stopped but we must be mindful not to go towards such a regime and must continue to work and trade in global markets, try to build up our trade and make sure we have the markets.
Concerning research and development in our country, we must be very innovative as we go into the future and new ideas must be thought out. It was grand when the Celtic tiger roared and everything turned to money but we must have new ideas now and new vision to go forward and ensure there is a sustainable market for the product we are building and for all we can create in this country. We have always been a very innovative nation and have been to the fore in ideas and we must ensure we give people an opportunity with training and grants for research and development.
As we face this budget, and because of the difficulties that have occurred, particularly during the past six or seven months, many people have cited as factors the global economy and downturn. It is true that we face the biggest financial crisis in the world economy since the late 1920s and early 1930s. Those are the facts of the matter. We are a small open economy trading into those dire financial situations and we must have the resilience and the leadership to go forward.
Last week we saw the new US President give a reception and warm welcome to the Irish nation. We must go back to the very strengths that created the Celtic tiger in the first place and the expansionist policies we had in the 1960s and onwards. We must return to those strengths and rekindle what we have. We have a very well-educated workforce that is ready to participate and an education system that has benefited us considerably.
A number of measures should be taken to get our fundamentals right. The first is to have our financial system in order. The one we had did our reputation untold damage in the world economy. We must have concern about that. We have to ensure our research and development are to the forefront and that we have new and innovative ideas. I would be concerned about the issues affecting the agricultural industry, particularly the dairy industry. There are significant difficulties caused by the financiers, the banks and the dairy board which need to be examined. Credit must be made available for co-operatives in order that they can draw down against their products. The tough measures in the budget should be as fair as possible to all society.
Deputy Dan Neville: I welcome the opportunity to contribute to this debate. I also wish to raise the issue of farm incomes which are under serious downward pressure in 2009. It is important to flag this issue prior to the budget to ensure the Minister responds to the needs of the agricultural industry which has served this country since the foundation of the State and before and has supported many farm families. Unfortunately there have been many changes in recent decades but the current situation is dire, and I wish to raise our concerns with the Minister.
The Central Statistics Office figures for February 2009 show that national farm income was down by about 12.4% in 2008. The main factors which affected farm income last year were significantly increased input costs coupled with a fall in output prices for key sectors, including dairying, which is of enormous significance to the economy of my constituency in County Limerick. Dairying is very prominent in the area and contributes significantly to the economic wellbeing of the constituency.
Farm incomes are projected to fall significantly further this year with major and sustained downward pressures across the major commodities. For example, producer prices in the dairying sector have dropped below the cost of production and even the most efficient producers will generate little or no income from their production in 2009. The situation needs urgent attention in that the intervention prices of milk at the current level of 20 cent to 21 cent per litre is inadequate to give any return to the dairying community producing it. The effective intervention viable price is around 27 cent to 28 cent. I ask the Minister to examine this with a view to ensuring the survival of the dairying industry.
The previous speaker referred to the problems affecting the co-ops and I reiterate that the absence of working capital has created enormous pressures for the dairy co-ops especially at peak times. The Minister should endeavour to ensure there is a response by the banks to the needs of the dairying industry.
The depreciation of sterling against the euro and the retail price war have also impacted on the return to the dairy farmer. I also wish to raise the issue of the mark-up on farm products by the supermarkets. The various farming organisations, especially the two with which I deal regularly, the Irish Farmers’ Association and the Irish Creamery Milk Suppliers’ Association, over a number of decades have raised the issue of the mark-up price, the price to the farmer of produce leaving the farm gate and the cost to the customer in supermarkets. With the present downturn in the dairying sector being an issue, prices for cattle, vegetables and other commodities are falling, due to a large extent to the depreciation of sterling against the euro. The Government decision in last October’s budget to cut funding for essential farm schemes also adds significantly to the fall in farm incomes this year. While input prices have turned down, this has not matched the downturn in producer prices. It is estimated that due to a combination of falling prices and the October 2008 budget cuts, farm income in 2009 is set to fall at least by another 12.5%. Based on the current outlook, farm income could drop below an average income of €20,000 for a full-time farmer and to below €16,000 for a part-time farmer.
Employment in the agricultural sector has proven more resilient to the downturn than other sectors. During 2008, employment in agriculture fell from 118,000 to 116,000, a drop of only 2,000. This is in marked contrast to the significant fall in employment in other sectors. The numbers in the agricultural sector can be maintained and sustained and increased. With the right support from Government, there is an opportunity here to ensure that the numbers employed in agriculture can be sustained and increased.
The absence of alternative employment in construction will result in a return to farming for a large number of young people. Family farms have simply no more to give as incomes are under serious pressure and any further cuts in farm schemes will be a direct hit on already low farm family incomes. I am flagging the Minister that the cuts in the last budget were highly significant for the small farmers, the small to middle income producers and any further cuts in the forthcoming budget will have very serious consequences for the livelihoods of those in the agricultural community.
Farm families are facing increased income pressures in 2009 and require all existing EU and national supports to be retained in order to remain viable. The majority of these schemes are co-funded by the EU and are vital to farm incomes, and farmers have made their investment plans and bank repayments commitments on the basis of their continuation. To preserve jobs in the sector, to help maintain family farm incomes at a viable level and to keep families out of the social welfare system, the Government must avoid further cuts in essential farm schemes.
A number of cuts in farm schemes were introduced in the previous budget and these will impact directly on farm incomes this year. At public meetings, concerned farmers raised three areas of concern, namely, the suspension of the EU support measures to promote structural reform and encourage new entrants — the early retirement scheme and the installation aid scheme — the cutback of €34 million in the disadvantaged areas scheme which represents a significant loss for the 37,000 farmers affected — these are not middle income farmers but low income farmers — and the cutbacks in the new payment rate for the new suckler cow welfare scheme. The decision to suspend entry to the early retirement scheme and installation aid scheme must be reversed as the long-term cost to the economy will be greater than any short-term savings achieved. A number of farm families had bona fide plans in place to avail of these schemes.
In this April budget I urge the Government to make provision to fully discharge its responsibilities to these farm families. This is an issue which raises its head again and again when we meet the people involved. These farm families had plans in place and had expenditure completed in order to avail of the schemes referred to and when the schemes were cut it left them at a great disadvantage. I urge the Minister for Finance to make provision in the budget to fully discharge what I believe is the Government’s responsibility to these farm families. The cutbacks in the payment rate for the disadvantaged areas scheme will disproportionately affect lower income farmers and must be reversed. The €80 rate per cow for the suckler cow welfare scheme must be maintained and the €250 million allocated to the scheme must be honoured.
The Minister for Health and Children has decided to cut the allocation to the National Suicide Prevention Office by 12.5%. This is a retrograde step at a time of recession. International research from 1897 has shown that there is an increase in suicide and psychiatric and other emotional conditions. We would urge the Minister to respond to that need and increase the funding. We again refer to the precedent exercised by the Minister for Social and Family Affairs, Deputy Mary Hanafin, who has given in the region of €11 million extra to families to deal with the interpersonal crises in relation to people affected by the recession, particularly those who have been rendered unemployed. The unemployed are six times more likely to take their own lives than those in employment, and the young and middle-aged have a higher propensity to commit suicide in those circumstances than other groups. I appreciate the time I was allowed by the Ceann Comhairle to raise these two issues.
Minister of State at the Department of Foreign Affairs (Deputy Dick Roche): Ireland’s economic wellbeing, indeed our economic future will be built on four pillars: a public expenditure system that is sustainable; a tax system suited to our present needs; a banking system that is functional, focused and properly regulated; and a social support system that is just and equitable. The upcoming budget must be a statement not just to the people of this country but to those who examine our economic performance, that we are serious about addressing the challenges and that we have a programme which we will put in place over the coming years to address each of these issues. Public expenditure is an area that requires special attention. Ireland’s current rate of public expenditure is not sustainable. A state like any household or business cannot spend that which it does not have. It is wrong for politicians, commentators or interest group leaders to suggest that Ireland uniquely can come through the current economic maelstrom without some pain.
It is a disservice to the people who elect us to this House and who expect us to show leadership to suggest that somehow or other there is a magic formula that can be applied to our current condition. There is not and we all know that to be the case. In the context of our discussion on public expenditure, I was particularly pleased to read this morning that the Irish Congress of Trade Unions has agreed to look positively at the Taoiseach’s invitation to take part in talks. At a time when our economy is faltering, I could not understand the logic of closing down the country for a day of inaction. I say this as one who has been a lifelong supporter of the trade union movement. While I fully appreciate the pressures that exist on trade union leaders, I believe that unions and Government sitting around the table with other social partners is the best way to find an appropriate way forward.
The editorial in The Irish Times yesterday said it all. It stated that the extent of the economic downturn has been so violent and dramatic that this was not a time to retreat to traditional attitudes. On the question of public expenditure there are two elements in the current deficit and this should be recognised as we discuss the extent of the gulf that has to be bridged. The first is the cyclical element and that arises when people lose their jobs or when economic activity drops, taxation revenue ceases to flow and social support costs increase. There is little that can be done in the short term to address the cyclical element of the public expenditure problem and that should be recognised.
There is, however, a second element to the deficit, namely, the structural element. The structures of our public expenditure and of our taxation system both require urgent attention. It is clear that we have entered into a new economic landscape and structural adjustments in public expenditure must be made to reflect this. Equally, we need to make structural adjustments in our taxation system. Addressing expenditure by making it clear that we have a coherent programme to address its structural deficiencies over the period ahead will send out a powerful message to our trading partners and to the international markets that we are serious about resolving the problems we currently face. Such a clear message will benefit everybody in this country. It is clear, also, that we need to make fundamental alterations in our taxation system — the tax structure that served us well in the boom times is no longer appropriate to the new conditions in which we live.
Contrary to popular myth, Ireland’s current taxation system on individuals is remarkably progressive. The top earners pay most of the personal tax take and an enormous proportion of income earners are outside the tax net. These arrangements worked during the boom years, but now we are operating in an entirely different environment, and they have to be examined. Our taxation structure needs to reflect our current position and our immediate prospects. Changes will have to be made. Everybody will have to carry some of the burden but the heaviest imposition must obviously fall on those who have the greatest capacity to pay. New tax impositions must be fair. Nobody wants to pay more tax but the public will accept change if they believe the burden is being fairly distributed.
Turning away from personal taxation, it is clear that our tax system needs to be broadened. If we are to aspire to public services such as those offered in other advanced European nations, we must also look at the funding arrangements that apply there. If we are to remain the master of our own affairs in this country, we have to take the decisions that will steer our economy through the worldwide recession. That will require us taking both timely and politically difficult decisions about taxation and expenditure cuts. That is the reality that we face. It is a reality that we cannot dodge and neither should we try. As in the case of public expenditure, firm decisions on restructuring our taxation system would send out a clear signal to markets and to our international partners. As with public expenditure, the changes cannot all be achieved in the upcoming budget, but a start should be made there.
The third element I mentioned was a functioning banking system, and we should be in no doubt that the one we have is malfunctioning. We need to re-establish in the shortest possible time a functioning, credible and working banking system. In recent years leaders within our banking system have behaved shamefully. Greed has replaced logic. Basic banking rules that stood the test of time right back to the Medici family were simply torn up for a “quick buck”. This was not, of course, unique to Ireland, and the global recession was triggered by the collapse of the US and other international financial sectors. The report by the French central banker, Jacques de Larosière, provides an excellent analysis of the cause of the banking and financial crisis and identifies the key issues that now need to be addressed on the supervisory front. The recommendations made in the de Larosière report need to be given careful consideration, particularly in this country and throughout the eurozone.
The report, highlights one key fact, namely, that those who argued, and some are still about, that we needed lighter regulation in the financial services industry were wrong. Regulation needs to be tightened at national level — we have to accept that there have been some appalling failures in the Irish financial regulatory system — at regional level within the European Union and at world level. In a highly globalised industry such as financial services, common regulatory systems and fundamentally sound rules must be applied universally. This again highlights the importance to Ireland of staying at the heart of the European Union and within the eurozone.
At a domestic level, we were given a very interesting insight into practices in Irish banking yesterday at an Oireachtas committee. This was the second occasion when an internal auditor from Allied Irish Bank had the courage to go on record and portray what was happening behind closed doors within the group. In considering a new regulatory regime for banking, consideration needs to be given to protecting whistleblowers from within the system. It was appalling to read yesterday that the internal auditor as part of his severance arrangements was required to sign a confidentiality agreement. Enforced silence in the face of wrongdoing is not in the public interest. Whistleblowers should be protected where their actions serve the public interest and this is particularly the case in the banking sector.
The social support system in this country is just inequitable and it must stay that way. Over the period of the boom years we have invested very heavily, and prudently, in developing public services. We now have an advanced social support system in which we can take real pride. In the case of the elderly, for example, Ireland, has better supports than those available in many other countries. This is as it should be and that is something that we should seek to protect. The very best way to protect core services is to reign in expenditure in areas which, although desirable, play a less central role. In controlling public expenditure, cuts must be targeted.
A second element is the challenge of protecting jobs. A challenge we face is to protect as many jobs as possible and to restore competitiveness in order to protect jobs into the future. Caution is, therefore, necessary when we turn to the area of capital expenditure programmes. A balance must be struck between taking money out and protecting jobs and investing in the future. On the capital side, any savings that are to be made must, therefore, be measured against the overall effect of the reduction on the economy as a whole.
If we look at the four areas I mentioned at the outset, there are two principles which, above all, must inform our actions, namely, firmness and fairness. We need to be firm in our resolve to reign in and contain the problems we have with our public expenditure. There is no other way to ensure our economic recovery and there is no other way to ensure the future both of those in jobs at present and those who will be seeking jobs in the period ahead. We simply cannot continue on the existing public expenditure path.
The second principle is fairness. Everybody will need to be part of the battle to restore Ireland’s economic stability. Everybody will have to play their part. Our taxation system needs to change but it must change in a way that ensures that those who can bear the challenge carry their fair share. Our tax system needs to fit to our new circumstances in a way which is based on the ability of people to pay.
The period ahead will not be an easy one. The true extent of the challenge is, in all probability, yet to be fully measured. One thing, however, is certain. If we pull together, we can weather this storm and if we make the changes that are necessary in terms of our tax structure and our public expenditure structure, Ireland will be in a good position to benefit from the recovery which will come in due course.
Deputy Pat Breen: I am delighted to have an opportunity to speak on this important matter. I have heard those statements from the Minister of State, Deputy Roche, and other members of the Government over and over but, unfortunately, they got it wrong last October.
Over the weekend there were twin successes in the field of sport with the Grand Slam win in rugby and the win by our boxing star, Bernard Dunne. This gave the country a major boost. Last Saturday was one of Ireland’s greatest sporting days and proved that the world of sport can lead by example in saying “Yes we can”, to borrow the phrase used by a famous American man.
We can have better days, we can recover and the country can get back on its feet. Our sporting heroes have shown great leadership and I congratulate them, in particular Marcus Horan, who is from Cloonlara and who kept the Clare representation going following on from Anthony Foley. It is a pity we do not have that same leadership in Government Buildings. Unfortunately, there is no roadmap or plan in Government Buildings on how to get the country back on the road to recovery.
Deputy Pat Breen: We all know how the coffers were emptied and how the Celtic tiger became extinct. Today’s edition of The Irish Times carries a survey on economic confidence in 19 countries across the eurozone. Some 39% of adults claim the Government is at fault for the ongoing crisis compared to the banking industry, 19%, the Central Bank, 12%, and corporate creed, 7%. The number of people blaming the Government is significantly more than the global average. Why do the people believe the Government is at fault? The reality is that 78% of the people believe the Government is not doing enough and that its response to this crisis is totally inadequate.
The country’s finances are in dire straits and a rapid response is needed. The Minister must come into the House on 7 April and address these issues in real terms. I fear we will probably get more of the same — a rehash of the same old half-baked ideas and the ordinary man and woman on the street being forced to pay up while the bankers will walk away with huge bonus payments and no accountability. The budget must be fair and equitable and everybody must be willing to pay their fair share.
Unemployment is a big issue. Live register figures at the end of February 2009 showed that 352,800 people were unemployed. We are losing jobs in every sector. In my region of the mid-west, the chairman of the Government-appointed task force, Denis Brosnan, predicts that 50,000 people could lose their jobs there before the end of the year. Yesterday, the media reported that Forfás predicts that 9,500 jobs will be lost in the region as a result of the closure of the Dell manufacturing plant. That is not scaremongering; these are the facts. Last week Dell announced that it will shed another 100 jobs in a research and development facility in Limerick on top of the 1,900 jobs lost. It is very worrying to see research and development jobs lost in the region.
However, there was some good news in the region. The Tánaiste was in Intel in Shannon recently and announced 134 jobs in a research and development facility. I welcome that investment, which is good for the area. I had the privilege of being given a tour of the research and development facility to see first-hand the work being carried out there, which would amaze one as would the expertise and the calibre of graduates there. Unfortunately, many of the graduates are coming from abroad.
There is a bright future for research and development in this country but we must invest in third level institutions and the Government must make the necessary resources available. Students must be encouraged to do mathematics and physics, otherwise companies requiring research and development graduates will be forced to employ graduates from abroad, which is happening at present. Our education system needs to be overhauled to deal with the competition out there.
In regard to the potential job losses in companies associated with Dell, the Government should sit down with the mid-west task force because these companies could still have a role to play in supplying Dell’s emerging markets in Poland and other overseas locations. We should look carefully at this in order that most of the 9,500 jobs can be saved. The Government should do that to try to remedy the huge unemployment problem in the mid-west region which affects one in ten people. I believe every household has been affected.
Last October we saw an unwarranted attack on the over-70s by this Government. The savings of €100 million targeted by the Government could have been achieved by a capitalisation grant to GPs and savings on prescribed drugs with a move to the generic area. Many of the older people to whom I have spoken have lost huge retirement investments over the past 12 months.
The decision of the Minister for Social and Family Affairs, Deputy Hanafin, not to proceed with the national strategy for carers has been universally condemned. The Carers Association described it as a slap in the face. There are more than 161,000 family carers in the country, 4,671 of whom care for family members in my constituency of Clare. They contribute over €2.5 billion to the economy each year and their invaluable work is not adequately recognised or acknowledged.
In my constituency, a support structure is provided for family carers under the umbrella of Caring for Carers Clare which does trojan work that often goes unnoticed. The carers’ network in west Clare, which is based in Kilkee, is extremely worried about the possibility of cutbacks in the carer’s allowance for pensioners. This payment is not a bonus or a handout but is hard earned by people who care for loved ones. Pensioners are already under attack by the Government. There is a very small amount of money involved and I urge the Minister to take these points on board.
My colleague, Deputy Neville, spoke about farmers about whom I also wish to speak. Last week I met a delegation from Clare IFA. In 2008 national farm incomes fell by 15%. There are 3,752 farmers in Clare, with an average beef cow herd of 17.82 cows, who were hard hit last time with the reduction of €713 in the suckler cow welfare scheme. Some 6,121 farmers in Clare have been hit with a reduction of at least €979 in disadvantaged area payments. The outlook for farming for the rest of the year is not good. There is a reduction in milk prices and farmers’ incomes have dropped considerably. The Minister for Agriculture, Fisheries and Food, Deputy Brendan Smith must clarify the situation regarding the REPS 4 scheme. There are already farmers who signed up to the farm waste management scheme who will only receive 40% of the payments they are owed before the end of this year.
I ask the Minister to clarify the situation regarding REPS. I tabled a parliamentary question on the issue recently and he told me only €355 million had been put aside for REPS. The Minister must make it clear that the budget will not be affected by the proposed cutbacks. Many farmers are depending on that money.
I met many hoteliers over the weekend and the last few days and they are extremely worried about the tourism industry this year. We understand there is a global aviation recession but the wisdom of introducing the air travel tax at this time must be questioned. This is something I have raised with the Minister for Finance, Deputy Lenihan on several occasions but, unfortunately, it has fallen on deaf ears. Is the Minister for Arts, Sport and Tourism aware of the extent of the problems facing the tourism industry? There are serious concerns out there, of which I think he is unaware.
I understand several group tours from the US have cancelled their trips this year. This tax is counterproductive and at this late stage I appeal to the Ministers for Arts, Sport and Tourism and Finance to think about the damage they are doing to tourism in regional areas, an effect to which hoteliers have testified.
This is a defining moment in history. There is too much at stake here and it is important the Government get it right on this occasion. There are other areas I would like to have touched on but unfortunately we do not have the time.
Minister of State at the Department of Finance (Deputy Martin Mansergh): There is general agreement on the depth of the economic and financial crisis facing the country and the necessity of taking further action now to, to the greatest extent possible, lift some of the uncertainty. There is no merit in half measures. The unprecedented global downturn forms the backdrop to the problems we face and has no doubt massively compounded them.
The differing analysis of causes, though important in terms of lessons for the future, must not distract us from taking fair and balanced necessary corrective action now. I stand on the side of those who seek a more equal society. I note the research which suggests people in such societies enjoy, on average, greater opportunities, a higher quality of life and better living standards, as well as a high degree of social stability.
The model where people were almost encouraged to become extremely wealthy and to collect extraordinary rewards in the belief that everyone else would benefit to some degree has collapsed, causing widespread difficulty and hardship. Not only did we allow our tax base to become seriously eroded and far too dependent on speculative activity, but we all loosened our grip on the purse strings without always ensuring a proper return, the best value for money or sufficient prioritisation.
Many business and professional people were so well rewarded they had more money than they knew sensibly what to do with, while others were still going seriously short. Not too many called on us to slow down and many voices suggested we should be going even faster.
However, as The Economist, not always a champion of the Irish economy, pointed out this week, to focus on the bursting of the housing bubble would be to miss the lasting gains that were made. There has been a lot of worthwhile investment in education and training, health and transport and environment infrastructure, as well as in arts, sport and heritage, which will stand to us for a long time to come.
We have also identified many more gains which would be lasting if we could still afford them. More than once, the European Commission complimented us on the strategic way we were spending our Structural and Cohesion Fund allocations, although we no longer enjoy those. We used the opportunity to drive down our national debt to a very low level and put aside, at its peak, more than €20 billion in the National Pensions Reserve Fund, without which we would have found it very difficult to handle the banking crisis, in addition to the fiscal and employment ones.
What we must do and are already doing is very clear. We are now reaping the consequences of being in the eurozone. There is no dispute that we have lost competitiveness far beyond the natural consequence of catching up with average EU incomes. This occurred particularly in recent years. As members of the eurozone we are prevented from devaluation. The only alternative is to achieve an equivalent effect by accepting lower incomes and salaries and driving down costs.
Remarkably, we are now experiencing, for the first time in our lives, significant deflation which will mitigate, to some degree, the effect of pay freezes and income reductions, whereas our UK neighbours have inflation of more than 3% due to the weakness of sterling. The same article in The Economist states “Ireland’s response to austerity goes against the grain” and that “Ireland seeks salvation in lower wages, even though its households are also heavily indebted”. The Minister for Finance, Deputy Lenihan is quoted as saying, “The key is to turn the model back to export-led growth”, a point he has made on many occasions.
With more realistic and competitive costs and wages, companies and investors may look again at the advantages of locating export functions in Ireland rather than outsourcing them to distant countries which have problems of their own. The Economist also states, citing the late 1980s, that “Ireland has form when it comes to retrenchment”. It is quite a positive assessment of our current situation in all the circumstances.
As a small country we have shown, on many occasions, a determination to survive economically and overcome difficulties. In the 1920s we established basic financial viability following the chaos of civil war. In the 1930s we came through the economic war, having built up an indigenous industrial base. We survived the Second World War thanks to tremendous diplomatic skill, backbone and economic organisation.
In the late 1950s we took stock and changed around our whole economic strategy, which was not working in the post-war world. We tackled high debt, low employment and bad industrial relations in the late 1980s. There is no doubt we can do what is needed today, if possible through co-operation and agreement with the social partners. I am very glad there is to be a return to talks and that the national day of action on 30 March has been called off.
We should be grateful for the understanding of our EU partners for this unprecedented situation in which we all find ourselves. We have been given until 2013 to bring the public finances back on track. When we come back to the Lisbon treaty we need to remember the value of belonging to a partnership of neighbouring nations, including the inner circle of the eurozone.
What we have to do now is bound to be difficult. Most people do not have significant room for manoeuvre or reserves. A few, but not enough, do. Most of what we have to achieve at the end of all of this is to put ourselves on a sounder footing. We will again be able to compete with advantage with the rest of the world which, assuredly, has plenty of problems of its own.
A revival of confidence in our ability to turn the corner will help us get through a difficult period. We need the maximum social understanding and solidarity in rebuilding a true social market economy.
Deputy Liz McManus: We all know this budget will be tough but we have no guarantee it will be fair. In fact, the record of this Government so far has been to attack the vulnerable and protect the powerful. It is a Government bloated with too many Ministers of State, but there is the honourable exception of the Minister of State at the Department of Foreign Affairs, Deputy Dick Roche who has a valuable task and I wish him well in terms of the future challenge he will face.
Deputy Liz McManus: One of the problems is that there are so many Ministers of State that they are falling over each other. Meanwhile, the Government has been using private consultants to a ludicrous degree but there is little to show for all the money spent. The Government flounders from action to reaction when its decisions prove inadequate to the task of leading us out of the quagmire in which we find ourselves. While thousands join the dole queues, thousands more worry that their jobs are in jeopardy. Yet we are still waiting for the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Coughlan, to provide us with the jobs strategy that has been sought and demanded across the board.
At a social level, while the elderly and the young are battered by the effects of cutbacks, there are examples of greed and excess continuing uncontrolled. The payment of a bonus of €1 million to Mr. Michael Fingleton is an obscenity that demands swift and effective retribution. Instead, what we get from the Taoiseach is a promise of a report within a month. While residents in housing estates are suffering from endemic anti-social behaviour that goes unpunished, we have the ludicrous sight of gardaí entering a radio station premises to force information to be handed over in regard to an artist who played a practical joke on the Royal Hibernian Academy and the National Gallery of Ireland. It is difficult to believe that gardaí have nothing better to do. The craven apology given out by RTE for its temerity in covering the artist’s caper only serves to undermine public confidence that our national station is truly independent of political interference.
Is it any wonder that recent research shows us to be the most pessimistic people in Europe? When it comes to debating this or any other issue, what is required above all is public confidence. The trust of the people has been totally undermined by the way in which the Government fuelled the worst excesses of the property bubble and banking scandals before proving itself so defective in coping with the impact on our economy when the bubble burst and the banks were exposed for their part in the debacle.
There must be lean and keen government that offers leadership to a demoralised public. A general election would at least give a mandate to a new Administration to begin the reconstruction of public confidence. We may get that opportunity. In the meantime, however, we are faced with a budget in which certain key issues must be addressed. The first and foremost must be the creation and maintenance of jobs. It costs more than €20,000 to support a person who is out of work. The bulk of those unemployed are construction workers. The Minister and I have seen the most extraordinary mushrooming of people out of work in our constituency. The dole queues are so long that social welfare offices cannot cope with the demand.
Many of the construction workers who have lost their jobs could be employed in the implementation of the many essential projects that require to be undertaken, including the building of schools and hospitals, the upgrading of our housing stock to make it more energy efficient and the implementation of improvements to the living conditions of the elderly and disabled in our communities. The allocation for the disabled persons grant scheme is a pittance. The little that was available has now disappeared.
Deputy Liz McManus: I am aware of an 86 year old woman in my constituency who is ill but ambulant. She wishes to remain living in her home with her elderly husband. She has sought a grant to install a downstairs toilet, which is a fairly basis provision, because the existing bathroom in their old house is up three flights of stairs. I can do nothing for this woman. I am ashamed to live in a country in the 21st century which cannot meet the needs of a person who has lived through good times and bad and who only seeks the dignity of living in her home for the last years of her life.
We must look at these types of yardsticks in seeking to measure Government performance and in assessing whether or not the forthcoming budget is fair. What is the impact on those who do not have the power of bankers or the influence of builders and developers? In one sense, such people are not even on the radar. The only power they have is that of their vote. They should have an important position in our society but instead they have been betrayed and denied in a despicable fashion. The forthcoming budget must be judged primarily by the yardstick of whether it ensures that those on the outside are supported.
Those who care for the elderly and disabled, including mothers with autistic children and people looking after spouses with Alzheimer’s disease, came to Leinster House today to make their case and to express their deep disappointment at the Government’s refusal to publish a national carer’s strategy. It is a testament to their spirit that rather than whining ineffectively, they instead put forward an entire set of proposals that are cost neutral. I urge the Government to give those proposals serious consideration. For example, formal recognition of family carers would make a difference without involving any cost to the Exchequer. Another proposal was for a sharing of the carer’s allowance where people are sharing caring duties on a part-time basis. Other simple and practical proposals include the introduction of appropriate quality standards and training for carers and the provision of a website. I hope they will be taken on board.
I welcome the introduction of the home energy efficiency scheme, for which an allocation of €50 million has been made by the Minister for Communications, Energy and Natural Resources. The significant and welcome interest in this scheme is evident from the 94,000 queries that have been logged by Sustainable Energy Ireland. While I appreciate that many people cannot afford to carry out the insulation work, even taking into account the grant, there are many others for whom this provision will be sufficient to allow them to proceed with the work that will reduce their own energy bills as well as reducing the national energy bill and providing construction jobs.
I listened with interest to hear whether the Minister, Deputy Ryan, would offer some commitment that funding for the scheme will be safeguarded for next year. He has observed on other occasions that interest in the scheme is growing and that an increased allocation may be required next year. I am not convinced he will able to deliver the funding required to carry this scheme through.
Deputy Mary Alexandra White: This debate provides an opportunity to hear the positions of the various parties before the upcoming budget. While the Government is determined to take the right actions for the country in difficult times, I have yet to hear any good practical suggestions from the Opposition.
Deputy Mary Alexandra White: The statements of the finance spokespersons of the main Opposition parties last night included not one constructive proposal for what should be included in the budget on 7 April.
Deputy Mary Alexandra White: I hope I will have my time uninterrupted. I heard one constructive suggestion from Sinn Féin about recent job proposals. The coming budget must strike a delicate balance — like a high wire act——
Deputy Mary Alexandra White: ——between raising more revenue in a sustainable way and cutting expenditure where justifiable and providing new incentives and confidence in the economy. On the tax-raising side, the upcoming budget must be built on the progressive changes to the tax code during the lifetime of the Government. We need an emphasis on getting those most in positions to contribute to bear the load without making taxation too burdensome down the chain. Increases on capital gains tax, DIRT and the levy on second homes were all examples in the last budget and more most follow in this budget. I look forward to the recommendations of the Commission on Taxation on how we can progress new taxes in the future.
Deputy Mary Alexandra White: Spending on water services, housing and broadband are also vital to the development of communities and region as are front-line services in education. I want to speak about the carers. We were all at that carers’ briefing today.
Deputy Mary Alexandra White: It is very interesting if the Deputy would listen. Carers save the State €2.5 billion per year. We need to protect that and we also want to protect the half carer’s allowance——
Deputy Mary Alexandra White: Noli me tangere. The Deputies opposite can translate that. That is my message while we are on social welfare. That little bit extra at Christmas is appreciated and shows the Government has a good heart beating.
There is also the need for new stimuli for the green economy. I urge the Government to hasten its plans to develop the supports and grants available through State agencies for those looking to establish green and renewable energy enterprises. People are constantly coming up with amazingly innovative ideas for businesses in clean energy, waste management and other environmentally protective services. We must support them.
Deputy Mary Alexandra White: I hope the Acting Chairman will give me a few extra minutes. Oireachtas reform is being debated in the House tonight. However, in the rainbow coalition, the first action with Fine Gael in power was to expand the machinery of government. It got rid of one Minister of State — the one with responsibility for environmental protection — but increased from 15 to 17 the number of Ministers of State.
Deputy Mary Alexandra White: In addition, a “super junior” Minister position was created with a State car and programme manager as part of the package. In its programme for government, the rainbow coalition had a commitment to Dáil reform which would introduce a system where Dáil business hours would approximate to the ordinary working year. It had plans for a 34-hour, four-day week. It never happened.
Deputy Mary Alexandra White: Its commitment to reform of sitting days was so strong that in its first full year in government the summer recess was from 6 July to 4 October. In its first lease of life it also created two new Oireachtas committees——
Deputy Mary Alexandra White: Their salaries were increased from £48,000 under the previous administration to a whopping £78,000 by the Fine Gael-led Government. The Opposition is in no position to start lecturing the Green Party on reform.
Deputy Beverley Flynn: I welcome the opportunity to speak on the pre-budget statements. The approach by the Government so far in dealing with the economic downturn has been unfolding day on day. The situation has changed day after day.
Deputy Beverley Flynn: The problems being faced in Ireland are global. Obviously the Deputies opposite do not realise that. I did not think I was saying something new, but obviously it is coming as news to those on the Opposition benches. However, the problems are global. Countries which in the past had similar problems to Ireland’s have recovered and achieved social and economic success, as we will also. It is about time we brought some confidence into this debate to show that we can and will find a way out of this situation.
Deputy Beverley Flynn: That needs to be recognised. On 7 April I hope we might get some support from the Opposition. We would like to think we would have an integrated approach to dealing with the problem and a plan over five years, with the Opposition’s support with the help of God.
Deputy Beverley Flynn: We have a five-year objective that has been highlighted by the Taoiseach in the House today. The objective is to bring the budget deficit below 3% by 2013. We have signed up to that commitment under the Stability and Growth Pact. There has been much talk today about the 9.5% GDP deficit this year and whether we will maintain that figure. I believe we need to keep as close to that as possible and in order to realise the objective we seek within the five-year period. Circumstances are constantly changing and we need to respond as positively as we can to the situation in which we find ourselves. I ask the Opposition to join the Government in presenting a comprehensive integrated approach to solving our problems.
Deputy Beverley Flynn: We must restore our international reputation as far as the financial markets are concerned. The Opposition has done a fair bit to undermine that and it must take responsibility.
Deputy Beverley Flynn: ——this country is capable of getting our public finances under control within the five-year period. We have the confidence of the European Central Bank in that regard. The ability of the banks to lend money is a key issue to our recovery. I look forward to the proposals on 7 April that will deal with the bad asset situation in our banks and free up money for businesses big and small. I am particularly concerned about the retention of existing jobs. The national development plan should be redirected to protect existing jobs in our economy. It is a priority for me and something I have highlighted in every debate on this issue in recent weeks.
While the Government’s target must be to consider the structural deficit and will involve a new approach to taxation, as Deputy White has said those who are in a position to pay more will be asked to pay more. We must also do everything we can to protect the vulnerable people in our society at this time in particular. We must reduce prices and wages and become more competitive as a country. Ireland’s problems have been compounded by the contraction in the construction industry and the fall in exports. If we did not have the problem of the contraction in the construction industry, we would still be in a very difficult economic situation today. In 2007 our exports grew by 6.8%. The forecast for 2009, however, is for a reduction of 2.6%, which unfortunately speaks for itself.
We must bring back construction to a level at which it is sustainable, which is 10% of GNP. In the budget on 7 April the Government should introduce short-term measures that meet our long-term objectives. Earlier I heard a Fine Gael frontbench spokesperson mention a stamp duty holiday.
Deputy Beverley Flynn: It was one of the only positive suggestions made. We should refund VAT to people purchasing property. I would also consider incentives for the motor trade, including providing for a scrappage scheme, as well as the retail sector which has suffered a savage decline and for which I would perhaps consider changes to PRSI to help protect jobs. The sector has seen a decline three times the level in any other country in the euro area and is a very important one. Personal savings have increased due to the issue of confidence.
Deputy Ulick Burke: I welcome, as most would, the decision of the trade unions to accept the Government’s invitation and call off the proposed day of action next week. This is a first positive step and part of the solution.
I heard Deputy White talking about the high wire act, but she totally missed the point. The Government has on three occasions attempted this high wire act and failed — it has fallen off. There is only one opportunity left for it, which is presented by the emergency budget. The country at large — taxpayers, employees, small businesses and everybody else with an interest in the country, including those involved in agriculture and the other pillars of the community — is giving the Government one last chance to resolve the matter, given its inability on three previous occasions to resolve the difficulties. It stated €2 billion would get us out of this situation but it was wrong and it is wrong again now. We heard Deputy Flynn give an indication that once more the Government had brought itself into a comfort zone where there may be further mistakes, underestimations and all the rest because it claims everything is evolving day by day.
Deputy Ulick Burke: They fully realise the Government has proven its incompetence and I do not see it being capable of resolving the issue. I will give one example from the budget introduced last October. Deputy Flynn will know of this as she was also present at an IFA meeting in the west when there was doublespeak and she escaped the wrath of the IFA while her colleagues took the rap for her.
Deputy Ulick Burke: Be that as it may, the IFA has clearly indicated in its submission for the upcoming budget that average income for a farming family is just over €19,000 per annum, a decrease of 12.5% on the figure for last year, and that there is likely to be a further decrease of 12.5% in 2009. All that the IFA and the farming community wants is to be assured that they will not have to endure any further burden or cuts to their income because, otherwise, they will be wiped out and will all be on family income supplement or other payments. When the national average farm income is approximately €19,000, what can we say about farm incomes in the west? The suckler cow grant was cut by 50%, while installation aid and the retirement pension were abolished. Unfairly and without equity a levy was imposed in order that gross income is taken into account without exempting capital allowances. No other community must suffer such a levy in such circumstances. I say to the Minister for Finance that farmers, those in the west, in particular, cannot afford to take further cuts.
Every community and group which has made a submission has said no. We heard the case made for carers. It is fine for Deputy White to make that statement when she knows well the Minister for Finance and the Taoiseach may decide to go down the road of not recognising the undertaking given by so many carers who save the State €2.5 billion.
Deputy Ulick Burke: It is happening day after day. Two months ago the Taoiseach said in the House that the most important points was jobs, jobs and jobs. What has happened? We have lost jobs every day. That has been the response of the Government.
Deputy Bernard J. Durkan: Four minutes is a very limited time in which to address the current economic crisis. It is the single biggest issue to face the country since the foundation of the State, yet we have three or four minutes to address it. It is a bit of a laugh.
Deputy Bernard J. Durkan: The reason the Government is discovering on a daily basis that new issues about which it has not heard are appearing over the horizon is simply that the full impact of the global crisis has not been felt in Ireland yet. What we are experiencing is the effect of what was done by the Government. Despite all of the lectures from the other side of the House, before the rainbow Government left office in 1997 it was creating 1,000 jobs a week, inflation was low and the prospects were good. What did we get instead? We were ridiculed from the other side of the House because we were not generous enough and it was stated we should have given more and more. That is what the next Government did. It revved up the economy and ran it into the ground. What is it stating now? It is blaming the eurozone — the euro is to blame. Perhaps the planet is to blame. Everything is to blame, except the Government.
Deputy Bernard J. Durkan: The Government should wake up. The Deputy’s party has been in government for the past two years, as both she and the Green Party should recognise. The Fianna Fáil Party has been in government for the past ten years non-stop.
Deputy Bernard J. Durkan: What is going on, Acting Chairman? You should initiate an investigation to discover what is happening on the other side of the House. The Government seems to be bereft of imagination or a willingness to accept responsibility for anything, except good news. Who is to blame? Everybody is to blame, except the Government — that is the attitude. Even the media are picking up on this. The Government has fed the media with the same old nonsense time and again. It has done it so often it now believes somebody did this to us. After all, is it not its God-given right to be in government forever? As Dean Martin used to say, “who’s to blame?” The Government is to blame.
The Government has retaliated. The first sector it has selected is the public sector which will be beaten first as it was the cause of this crisis. The Government is now involved in a series of punishment beatings. I have no doubt that the budget to be announced on 7 April will be one more punishment beating against the public sector because it was the cause of this crisis, or that is what is being said. The Government will also attack the private sector which has escaped to a certain extent, although it is suffering job losses and taking serious economic hits.
One of the points I cannot understand is that when this crisis was unfolding during the past six or seven years, why the Government did nothing about it. George Lee — fair play to him — was one economist who held up his hands and asked: “What is going on? Something is going on here.” Deputies Bruton and Kenny also said it, as did many speakers on this side of the House. However, the Government stated: “Not at all. You are stupid. You do not know what you are talking about. We know better.” Although I am only a simple backbencher, even I asked questions.
Seven years ago we asked why the economy was no longer competitive. We asked why our exports were dwindling and why nothing was done to ensure we remained competitive into the future and were told we are a high wage economy and that we are to base our future on the knowledge-based industry. If the knowledge-based industry is to rescue us, the serious dearth of knowledge on the opposite side of the House means it will be a long time before that happens.
Deputy Bernard J. Durkan: The Government stalwarts are now quoting on a regular basis the words of Adlai Stevenson, “No gain without pain” and stating that tough decisions have to be taken. We know that; we have heard it often enough.
Deputy Bernard J. Durkan: The Government has not made one correct decision since taking up office. Not one correct decision was taken. Everything the Government has done was a disaster. The Government has behaved like a lunatic in a china shop with a sledge hammer slashing all around it and cutting everything while stating we must endure pain. There will be pain for the Government if it continues like that. The most severe pain will be that experienced shortly by Government when the electorate has its say and opts to put Government out of its pain, a pain it needs to be put out of with extreme urgency.
Deputy Chris Andrews: ——in his ability to speak for four minutes without offering any alternatives or positive suggestions. I regret the Deputy is leaving the House. It is difficult to understand how Deputy Durkan reached the conclusion that the private sector has remained untouched other than by a few job losses. Also, it is difficult to understand his theory that the global downturn has not yet impacted on us here.
I welcome the opportunity to contribute to this debate. On 7 April, the Government will take the necessary steps in terms of its presentation of a supplementary budget to the Irish people. While many of the measures introduced will be difficult, I believe they will be fair. We are all aware of the need for fairness. It is always difficult to get the balance right. The Government is working hard to ensure those who can afford the most will pay the most and that the most vulnerable in society are protected as far as possible.
Clearly, Ireland is facing unprecedented economic challenges on a scale never before experienced. It is critical people work together and in that regard I welcome the new engagement with the social partners. It is a positive move which indicates a new realisation by a large sector of stakeholders in society that the situation is as bad as indicated. The country’s finances have been worsening rapidly since October of last year. I believe the budget will provide the Government with an opportunity to pre-empt a worsening of our finances.
The budget will, I hope, have a number of positive effects, the most vital of which is that additional and much needed revenue will be raised for the Exchequer, thus narrowing the gap in our public finances. Our economy has worsened far more rapidly than anyone could have anticipated. Total tax revenue at the end of 2008 was €40 billion, some €6 billion less than that taken in the previous year. The budget will allow the Government to address the gaps in revenue as aggressively as possible by changing the amounts people contribute.
Deputy Chris Andrews: In addition, the budget will provide an opportunity for the Government to demonstrate its leadership and to restore confidence. It is clear that people are concerned and worried. As stated, there is no silver bullet, magic wand or road map to follow because nobody has been through this before. The constant drip of negative news in the past couple of months, over which the Government had no control, has eroded public confidence and made people wary of what is to come. With the new budget in place, people will be able to accurately assess their financial situation and begin to plan and, it is hoped, spend once more.
On Ireland’s international reputation, a well thought-out and planned budget will help to repair some of the damage done in recent months in terms of the negative effect the banking difficulties have had on our reputation. It will help to restore international confidence in our economy and our ability to manage it.What we do here and how it is perceived internationally is important. Ireland cannot do economic stimulus in the way some of the big economies are doing it. America is injecting trillions into stimulating its economy. Ireland is a small country which currently is uncompetitive, which is impacting on us. We cannot do stimulus in the same way that America or some of the bigger countries can.
Deputy Chris Andrews: We must get the balance right. While it might be tempting to cut spending on vital infrastructure for short-term gain, I hope the budget will take the long-term view and provide for investment in major infrastructure. Obviously, not all infrastructural projects can be delivered upon within the original timescale. We must prioritise and I believe we will do so. Caution is necessary in terms of the capital expenditure programme.
A balance must be achieved between taking money out of the economy and protecting jobs and investing to increase our capacity to compete and deferring projects that are not necessary now thus releasing money for more immediate concerns. It is important the correct balance is achieved between cutting expenditure and raising taxes and borrowing. As I said earlier, there is no magic wand that can fix this. What we need is a plan. Recovery will take time.
As previous speakers stated, we must protect the vulnerable in society. They must not become easy targets. Carers have been engaging with public representatives on all sides. We cannot afford to send out the wrong message to carers who in effect work 24 hours a day, seven days a week and save the economy a great deal more than is paid to them. Also, they play a vital role in terms of society wherein social isolation is unfortunately becoming more prevalent. In the absence of the national carers strategy there are cost neutral measures that could be introduced that would benefit carers. We could promote the sharing of the carer’s allowance by two carers providing care on a part-time basis. There is a lack of awareness in regard to people’s entitlements and how the system operates. This proposal would be a cost neutral measure and would send out the right message to carers.
A family carer awareness training programme should be developed in collaboration with relevant stakeholders such as the Departments of Health and Children and Social and Family Affairs and the HSE. It should be delivered to frontline staff in all relevant statutory agencies on a phased basis.
Deputy Chris Andrews: It would not cost an arm and a leg to establish such a programme. It would send a positive message to carers while costing almost nothing to deliver. I suggest that we draw on existing resources in Departments to create an interactive national website that is dedicated to family carers. We should support carers in such a cost-effective manner. We need to remind family carers that any failure on their part to make contributions to their pensions while they are providing care might affect their eligibility for the old age contributory pension. If that message were transmitted, it would help carers, who have a difficult job and an important role. This budget gives the Government an opportunity to put the country on the road to economic recovery. I am sure the right steps will be taken to ensure we are in a good position when that recovery comes about.
Most Government speakers have asked the Opposition to make suggestions. I will give them some suggestions, while also commenting on the Government’s performance. The manner in which the Government communicates with the people and with this House in the build-up to the budget will determine whether it is successful. If Government Deputies are to ask the Opposition parties to co-operate with them, they should also co-operate with us, for example, by giving us information. We should sit around a table and thrash out some compromises. If the Government wants to make a serious effort to facilitate a unified all-party approach to the compilation of this emergency budget, which is not a normal budget, it should get on with it. The kind of farce we have at present does not represent such an effort. People are calling for a unity Government in the media, but the reality is that Fine Gael’s finance spokesman is not being given the figures he needs from the Department of Finance. It is a nonsensical set of circumstances.
The Taoiseach needs to lead by talking directly to the people. He should be honest about the state of the country and set out where it is heading if a dramatic change of direction is not made. If the Government introduces tough and unpopular measures, such as raising taxes and cutting costs, it will get support from people like me. It needs, however, to prepare the public for the reality of an emergency budget. This is not the normal budgetary process to which the Taoiseach referred earlier. That is not what this is about. This emergency budget is being introduced in response to the fact that Ireland will continue on the road to bankruptcy if it does not change direction. I am aware that Ministers think that is dangerous talk, but it is a fact. We cannot continue to increase our deficit by €1 billion a month, which is what is happening at present.
I accept that an emergency budget is needed. People need to be spoken to directly and bluntly, in language they can understand rather than economic-speak. The Taoiseach has said he will not update this House on his preparations for the emergency budget on a weekly basis because to do so would not adhere to the normal budgetary process. I suggest that he needs to address this House and the public on live, prime time television. He needs to explain what is happening and why it is an emergency. What can people expect? Why will there be hardship? He needs to make it clear that a plan that involves hardship needs to be put in place now so that the duration of this country’s recession can be reduced and we can start building again in the relatively near future. He should not allow uncertainty to continue as part of some kind of effort to try to be politically clever. That is what seems to be happening, however.
If the Government expects people to accept the pain associated with a difficult emergency budget, it needs to lead by example by cutting its administrative costs. Somehow, it needs to find between €4 billion and €6 billion over the last eight and a half months of this year. It needs to show that it can lead by example in taking the pain. We have put our proposals on the table, but where are the Government’s proposals? They do not exist. We do not need 20 Ministers of State in this institution. Senior Ministers do not need 14 personal secretaries, all of whom are sometimes placed in their home constituencies. The Oireachtas does not need 23 or 24 committees. If we decide to reduce the cost of the business of this House, we will show that we are willing to lead by example. If I am not mistaken, we got through the last recession, in the 1980s, with just seven Ministers of State. The truth is that the large number of Ministers of State is just a symptom of the problem.
If one needs to inflict pain on somebody, one should start by inflicting it on one’s self. Only then can one undertake the communications challenge of convincing people that the pain one needs to inflict on them will be good for them or, at least, is a necessity that cannot be avoided. I am really concerned when I hear the Taoiseach saying the Government will not meet the targets it has set for itself, but will instead try to get as close as it can to them. I have heard the leader of the Labour Party saying something similar. I am worried that people are starting to back away from the need to grasp the nettle, which is something we must not do. We need to face the challenges that have resulted from a combination of the huge policy mistakes that have been made and the impact on Ireland of the international recession. The pain that is necessary needs to be front-loaded in order that the period of recession can be reduced and the international collapse of confidence in Ireland can be arrested. There is no doubt the damage being done to Ireland’s reputation will affect our ability to borrow money in the short term. People are warning us about that every week.
I would like to make some positive proposals. Deputy Bruton has articulated the need to use a crisis of this nature to bring about fundamental reform in the public sector. I do not need to go into that because it has been well articulated. At noon tomorrow, Fine Gael will launch a document setting out the case for the radical reform of State companies in the public sector. As Deputy Bruton has said, such an approach would facilitate significant investment in the Irish economy during a time of recession. We need to shift the burden of lending money for capital investment in the Irish economy away from the Government, which cannot afford it right now, to new commercial State-owned companies which should be established for a new era and a new economy. The proposals we will launch tomorrow will involve an investment of approximately €18 billion in infrastructure over four years in areas like water, broadband, energy and transport. We will propose new and imaginative ways of financing such infrastructure that will not affect the Government’s balance sheet, which clearly could not sustain any further negative impact.
I ask the Government to examine what we will propose tomorrow. It can take it on board as its own idea if it wants. We need to invest in a manner that will stimulate the Irish economy and close the substantial gap in our national deficit, which is continuing to grow. If we invest in strategic infrastructure now, we can create between 90,000 and 100,000 jobs in the process, which will represent the equivalent of an €18 billion investment. Not only would we create jobs at a time of recession, we would also create an infrastructure in order that when recession comes to an end and there is growth again in Ireland, we would be well placed to take advantage of it aggressively to create new opportunities, which is what is needed.
Let us not limit our thinking to solving the financial deficit crisis in the budget. Let us broaden it to try to find new ways of attracting private sector money and using National Pensions Reserve Fund money to invest in labour intensive infrastructure in a way that people can be employed during the recession and that we can prepare the country for the future. If there is but one point I can make today it is that people want and need optimism from their political leaders. They want to know that we are in charge. They know that they are about to enter a very rough period in Ireland’s history but they also want to know that there is a plan to bring us through it. To call for optimism or for the country to pull together, as people regularly do, is rubbish, unless there is a plan and a direction in which people can pull together in order that they know where they are going.
Let us have the budget. Let us try to close the gap in terms of the deficit but let us also have the other ideas that are necessary in terms of job creation and job protection in order that people can have some confidence that we know where we are going and that there is a destination following a difficult journey. If there is no such leadership, people will lose hope and we will start to create a new generation of long-term unemployed persons in Ireland. The Minister of State, Deputy McGuinness, knows how difficult it would be to shake this off over a period of time. Once people get used to being long-term unemployed in very large numbers it is difficult for a state to start getting them back to work. There are so many highly employable, well educated motivated people who are losing their jobs that we must arrest the dramatic collapse in employment. That is as important as closing the deficit gap. We should not forget this in devising the budget.
Minister of State at the Department of Enterprise, Trade and Employment (Deputy John McGuinness): I am grateful for the opportunity to speak in this pre-budget debate. I consider Deputy Coveney to be a reasonable guy. I have heard him speak at committee meetings at various stages and I am interested in the contribution he has just made. It is different. It was made without political rhetoric. I also listened to his colleague Deputy Bruton and the suggestions he made. I have paid tribute to his approach to some matters in the House. In broad-brush strokes, therefore, I agree with some of the suggestions being made. However, I also listened to others who made a contribution and must say the following to Deputy Coveney who will have had experience of this. As a businessman making hard decisions, coming here to this bubble for three days would make one believe we were about to sink, or that we were sinking, and that there was no hope whatsoever. The only saving grace for me in my thinking on the economy and where we are going, without being political about it, is that in my position as a Minister of State I link up with the county enterprise boards and Enterprise Ireland. They are real people who put their money where their mouth is. They are creating jobs; they are travelling abroad and understand the economy from a real perspective because they are pinched by us every day of the week. They are much more positive, in spite of the challenges, than we are. When I hear the general volume and tone of the debate here, it is not about the economy, rather it is about, notwithstanding what Deputy Coveney stated, which I appreciate, political point scoring. It is about some notion that the country is completely rudderless, has gone off the rails and gone crazy, and that we have an international reputation that is so damaged we cannot raise money. Some of what Deputy Coveney stated is linked with this.
The other point made in the debate is that there is no leadership, that we do not know what is going on and that the Taoiseach or anyone else will not listen. I listen to what is being said here. I do not just listen to Deputy Cowen because he is Taoiseach or Deputy Brian Lenihan because he is Minister for Finance. I like to hear what they have to say because I want to get something out of it for the jobs I am trying to protect within my own business and for those with whom I work in Enterprise Ireland and the county enterprise boards. I hear what the Taoiseach is saying. I read Building Ireland’s Smart Economy and listen to the answers given to Deputy Coveney’s party leader two days a week. I put it all together and it gives me a sense that there is a destination that will be reached but that all of us will feel pain and that there is a price to be paid. It has been set out generally, but they do not get it. Deputy Coveney does. Some other colleagues do but, generally, it comes across that they do not. I am not here to tell Deputy Coveney that his party has nothing to say, that I have not heard good suggestions from it. The opposite is the case. However, that is not said of other political parties in the House. It is not understood because they do not want to understand. The aim seems to be to, politically, do the guy opposite down because that is what we are here for. Actually, it is not. The public is looking for leadership and they see within the House certain people, across the political divide, who will provide that leadership and who have some sense of direction. I did not call for a national government because it is nonsense in the sense that it is not achievable with the political dynamic in the House. However, what can be achieved in the House is not that the Opposition would give the Government a chance but that it would feed in in some way — I respect what Deputy Coveney stated that perhaps it does not receive all of the figures — to finding the direction we are all trying to take because we are all here for the general good of the people we represent. That is all I would say to Deputy Coveney.
On the real business of the economy, I say this. In the banking sector it is time for a hard dose of reality. It is time for a reduction in salaries. It is time to call a halt to the almost immoral way in which they behaved. Some of the newspaper reports today would lead one to believe there was far more going on in the banks in terms of their culture than any of us knew. We need to look at this. We need to ensure that in every board of a bank or financial institution there is truth and transparency, that they are seen to address the issues and that those members of the board caught up in the old baggage go soon and much sooner than they expected. It is only in this way that they will show respect for the general public who are fed up hearing about what they were carrying on with in the past ten years that we did not know about.
On some of the stuff that we did know about, we are only now getting the opportunity to tell them that they were wrong and if they do not see this, they should not be part of the plan for the future. That is what I believe about the banking system. I say to the banks that in spite of their big advertisements in the newspapers about lending money to the SME sector and the fact that the Government is bailing them out, assisting and guaranteeing them, they are not doing microbusinesses or the SME sector any good, that they are not giving them money, that they are pretending they are open for business when they are not. Let us be honest about it, that is the position. I have enough hard evidence and real stories to inform me that when one goes to the bank for a loan to expand or save one’s business, even when one has a viable business, that instead of getting the loan one requires so urgently, one walks back out with an entirely new package that costs more in terms of fees, charges and interest rates, and no loan. That cannot continue. We must say to the banks, loud and clear from this House, that it cannot continue because everyone has a role to play and that if taxpayers’ money is associated with recapitalisation and the guarantee scheme, we expect much more than what the SME and microbusiness sector is getting from them. That must be said by every Minister and I hope it is understood by the Opposition and others involved here. I also hope the banks get the message, as otherwise we will be in real trouble.
I am from a school of thought that would like to see a property or asset bank established. They are talking about it in America. Let us do it here. Let us be ahead of the curve. Let us see what is happening.
Deputy John McGuinness: Fine. There is nothing wrong with it. I propose not a bad bank but an asset or property bank, which could be saved as we go along in terms of the assets and property portfolios it holds. It would give the banks that have the real thrust of business interests in mind the opportunity to be banks.
I want to turn to costs. I ask the ESB to cut its costs by 25% now. That is what it can do to make a contribution. I ask local authorities, strapped as they are for cash, to examine their planning fees and charges and do something about them. It is within their remit to do this. We must examine VAT returns in terms of the businesses that come under that limit and allow them to pay VAT on receipts instead of on invoices. These are small issues to protect existing jobs.
Last week I was in Enterprise Ireland and 71 high-potential start-up companies were seeking money from venture capitalists and banks. Enterprise Ireland gave them €21 million and they leveraged €169 million in investment in their different projects, creating 1,000 jobs over the next three years. That is a substantial contribution by that sector, and nobody talked about it. Very positive things are happening in the economy. I recognise it is bad. We are suffering from a global downturn, but those companies are trading here and abroad and maintaining jobs. A significant package must be put together for the SME and micro sector doing business in this country to assist them to survive, and that has to involve the banks.
As a social democrat I say to the Taoiseach and to the Minister for Finance that whatever we do in this House next week we must protect the vulnerable, the less well-off, the elderly and so on. I know the wrongs that were in the last budget and the Opposition Deputies can accuse me of that and describe how we stood up and clapped, and go through all that. If, however, we do not park some of that old baggage and deal with some of the real issues in this new economy and be political leaders in this new situation, we will continue to be condemned by the public and will continue to offer poor answers in a desperate situation.
This is a very important time for our country, economy and citizens. People are worried and fearful, and they need confidence and trust. Politicians must lead. Before I go into the details of my proposals on a solution, I stress that it is important that all Deputies and Senators must lead. I strongly urge that all Deputies and Senator take a 10% voluntary pay cut as a start. I have already done this, and the Ministers, Ministers of State and 19 other Deputies and Senators have also done this.
I will put forward proposals on how to get us out of this mess and I would like the Minister for Finance to examine them. In the past few days I made a submission to the Taoiseach. I told him I have always supported the call for more patriotism, but my patriotism does not include hammering low-paid workers, the elderly, sick, disabled and young children. There are always other creative ways to fund these matters. In recent months I have taken difficult decisions in the interests of our country and have put forward ideas to resolve these issues. For example, let us be brave and examine the idea of increasing the standard rate of income tax to 22% and the top rate to 45%, which would raise €2 billion per annum. As the Minister of State, Deputy McGuinness said, let us examine the idea of removing impaired assets from the balance sheets of banks and moving them to Government-owned asset management companies. We should also examine tax on second houses, not family homes, at a cost of approximately €600 per house. We should seriously examine reducing waste and bureaucracy rather than cutting essential services. Tax shelters and exiles will have to be confronted. We also need to examine tax on profits and investments and we must be brave to broaden the tax base. Everybody should contribute in this economic downturn, no matter how small the contribution.
I told the Taoiseach we must get the social partners back on board and support the positive proposals in the social solidarity pact from ICTU. I welcome today’s development and have been calling for it for the past seven days. Another issue which many have ignored is listening to people on the ground who have new ideas to develop our economy and jobs. There is a pool of talent in this country who want to serve our nation in difficult times and I have met these people in recent months. This may be controversial, but there is scope to borrow more and the Government and Opposition should not bottle this issue.
I asked the Taoiseach to do a national address to our people live on television to get people to support economic patriotism. We know unemployment will average 12% in 2009 and our exports will decline by 6% this year. I told the Taoiseach he needs to be straight with our people, then they will rally. Society is people. Without people there is no society. I urged the Government to join us in a crusade to redevelop respect, trust and community spirit by insisting on people-centred policies and actions.
We must get the balance between cuts, taxation and capital projects right. We also need to focus on jobs as a way out of this crisis, for example in the recent situation in SR Technics. We need a Tony Gregory-type plan to deal with this issue. I call for support for the plan to save our aircraft maintenance company. I call on the Government and the IDA to support a proposal to invest €20 million to save 1,135 jobs and to protect a vital national industry. Fingal County Council will lose €1.5 million in rates if SR Technics closes. It is economic madness to put this quality team on the dole. They have already had 30 expressions of interest in the SR Technics plant. It is aviation vandalism to lose SR Technics.
Deputy Joe Behan: I thank the Ceann Comhairle for giving me the opportunity to speak for the third time in six months. On resigning from Fianna Fáil I undertook to support the Government when it acted in the public interest and I have done so in good faith even when some controversial measures were proposed. Sadly, the moral authority of the Government has been fatally damaged by recent events for which it is responsible. The compensation pay-off to the former CEO of the Financial Regulator, the failure by the Minster for Finance to read 120 pages of vital information regarding the bank at the epicentre of the country’s financial woes before deciding to nationalise it, the cynical and callous decision to end the provision of special class support to children in most need of that support, and the refusal to include the Judiciary in the pension levy are just some of the most blatant examples of unjust and unfair decisions by this Government which have shocked me and resulted in widespread anger and dismay throughout the nation.
The anger of the people is mixed with confusion, fear and uncertainty about what the future holds for us and is threatening to become explosive as divisions emerge between the people and the politicians, the unemployed and the employed, and the public and private sector workers. Unfortunately, the Taoiseach and Ministers continue to confuse unpopularity with leadership. Leadership, to be successful, must be based on trust, openness and acceptance of responsibility. The actions needed to save us from economic disaster will be possible only if there is vision, fairness and clarity in the recovery plan and the assurance of competence in its execution.
There has been a very good discussion here for the past 20 minutes and it is a great shame some of the best brains in Dáil Éireann are on opposite sides and spend so much of their time and ability working to outmanoeuvre each other rather than putting together their collective ability in the national interest. There is often such co-operation at Oireachtas committees which produces great results, but we rarely witness it in the Dáil. If ever there was a time in our history when such leadership was required, it is now, but it will not happen under current arrangements. Politics as usual is not an option. We need new politics where politicians on all sides come together to share ideas and power for the common good, as has happened in this debate. I propose that the Taoiseach convene a summit of the leaders of all the political parties and Independent Members in the House to try to achieve consensus on a three-year national recovery and social solidarity plan to be agreed by the social partners and put to the people in a referendum.
Deputy Joe Behan: The agreement should provide for power sharing between all parties and Independent Members in the House with the leadership of the national Government to be shared. While the idea will probably be dismissed as naive or unworkable, as the world economy heads for complete collapse, the national interest may dictate that there soon will be no alternative. The talent is available on all sides of the House to lift the country out of the deep hole in which it finds itself once we all concentrate on what is right for the people rather than what serves the interests of each political party. I urge all colleagues to consider the many positive results we could achieve if we were to work together rather than against each other. I encourage the people we serve to reflect on the proposal and if they see merit in it, to ask for it to happen.
The challenge facing the Government is to achieve the correct balance between cutting spending, raising taxes and borrowing in the context of the four cornerstones of the recovery strategy — getting the public finances in order; sorting out the banking sector by returning credibility to the system; protecting and creating jobs through enterprise support; and looking after those who have lost their jobs through retraining and other innovative schemes.
It must be recognised that Ireland and other states are facing the worst global crisis since the 1920s. As a consequence, we can only influence the elements under our control. Since the middle of last year, we have been looking at a target that is moving daily. I can understand why people urge the Government to do something every day because of the torrent of bad news coming down the tracks but any Government cannot react to each new piece of datum in isolation. We will examine all that has happened in recent months and bring forward a comprehensive budget to deal with all the calamities.
Caution is necessary in considering the capital expenditure programme. A balance must be achieved between taking money out of the economy, protecting jobs and investing to increase our capacity to compete while, on the other hand, deferring projects that are unnecessary now and releasing money to address more immediate concerns. While the temptation might be to cancel projects wholesale, that must be measured by the Government against the overall effect of the such cancellations on the economy. We must protect as many jobs as we can and restore competitiveness in the way we conduct business by supporting viable but vulnerable enterprises.
Firmness is needed to correct the finances as the full picture emerges. This will send a clear signal to the markets and our international partners that the Government is taking the necessary steps and will continue to do so until the position stabilises. We must robustly attack the structural gap in the public finances because there is no other way to ensure our economic recovery except through broadening the tax base by increasing tax rates and reducing public expenditure. Everyone will need to play his or her part in the country’s battle for economic stability in a fair way based on ability to pay. Those who can bear it best must bear it most. The tax system needs to be adjusted in changed times and must be adapted to fit our new circumstances. Through a combination of higher taxes and increased cuts in spending, balance will be restored to the public finances by 2013. We must and we will do our utmost to protect the more vulnerable in society. We will continue to invest in those who are out of work in order that they can return to employment as soon as possible.
I welcome the deferral of the national strike which was due to take place next Monday. This bodes extremely well for the future. It is welcome that people are coming to their senses with the proposed resumption of discussions between the social partners. At this time it is necessary for everybody to come together, put their shoulder to the wheel and move in the same direction. Everybody is coming to that view inside and outside the House.
Deputy Thomas Byrne: I picked up a copy of The Daily Telegraph earlier which is not something I do ordinarily, but it printed a picture of the new French Minister for Overseas Territories, Christine Kelly. Perhaps we should examine our diaspora in this context. However, I read a front page article and thought that a number of RTE’s economics gurus had emigrated. The article states:
This articles highlights the issue raised by the Minister for Finance, the Taoiseach and all serious commentators. We are an island nation floating in the world economy and totally dependent on what happens in the global economy with limited power over our own economic sovereignty. However, we must do whatever we can to make sure the public finances are in order. Deflation is a threat to the economy but a short burst is probably needed to restore competitiveness. That means reducing wages and prices. However, too much deflation could cause a reduction in consumption, thereby reducing Exchequer tax receipts. Meanwhile, people’s buying power would be vastly increased with interest rates remaining low. One must ask at what level of deflation and lower tax receipts will the Government state it will reduce expenditure on social welfare and other transfers to citizens and point out to them that they are gaining because of deflation. That is a difficult political message to sell but that case will have to be made at some point.
Inflation poses the greater risk. Many of my constituents shop in the North. While I have never criticised them, I do not agree with them in the current circumstances. The British economy is experiencing significant inflation. Prices generally have increased by 3% year on year with food prices increasing by 9%. People must realise they will not always obtain better value abroad.
The decision by the trade unions to call off the national day of action is a significant step and I urge IBEC to be more conciliatory in its public statements. Every time the organisation issues a statement it annoys the hell out of many people and that is not the point of social partnership. Its representatives need to be measured in what they say and more conciliatory towards the trade unions because some of their statements have not been conducive to the public good.
An Leas-Cheann Comhairle: In accordance with the order of the House, I must call the Minister for Finance but understand he will cede four minutes of his time to Deputy Enright, with the agreement of the House.
Deputy Olwyn Enright: Will the Minister examine the issue of tax compliance and the black economy? We recently passed legislation to recapitalise several financial institutions. However, they have been slow to offer credit but I hope they will do so again.
Someone who acquires a State contract is obliged to provide a tax clearance certificate and is subject to relevant contract law. The State is effectively able to ensure companies are tax compliant prior to receiving contracts. Some small-scale builders, employing a few workers, have recently contacted me. They find it increasingly difficult to compete with those who are not tax compliant, who work for cash and therefore charge significantly less than tax compliant builders. The Minister could deal with this by imposing a requirement on financial institutions to obtain proof of tax compliance when giving mortgages. This should also be introduced in respect of compliance with health and safety requirements.
Last year 12,000 one-off houses were built and it is expected that approximately 9,000 will be built this year. The Exchequer receives 37% of the price of each house but there is no way to ensure it will receive all the tax revenues it should from them. This is worth examining and could be achieved in a way that is not overly bureaucratic.
There is still scope for improvement in the rent supplement scheme. I have highlighted savings that could be made through reductions at the high end of the market because rents have been reduced. The low end of the market is different. It is hard to believe that, despite questions from Members and the Comptroller and Auditor General, we continue to pay almost €500 million in rent supplement every year without having a system to check that the landlords who receive this money are tax compliant. The deposit system also needs to be changed. If the Department of Social and Family Affairs recovered the deposits, that would return €7 million to the Exchequer every year.
Will the Minister also examine the back to education allowance? It has never been more important for people to see light at the end of the tunnel. The criteria in operation make it very difficult to avail of the scheme. Some have to wait up to 23 months, depending on when they lose their jobs. This can be addressed. The difference per annum between receiving unemployment assistance and the back to education allowance is €500. People would be far better off attending a third level institution, upskilling or obtaining a qualification than sitting at home trying to fill time.
Carers are close to everybody’s heart and need recognition. The promised national carers’ strategy has not been published. Carers are very concerned about the impact of the budget on them. They save the State €2.5 billion per annum. There are 161,000 of them, 3,000 of whom are children providing full-time care. This work needs to be acknowledged. I do not expect any improvements in their conditions but hope there will be no disimprovements.
Minister for Finance (Deputy Brian Lenihan): On 7 April I will present to the House a supplementary budget which will set out a comprehensive strategy to place the public finances on a sustainable footing for the rest of this year and the years ahead, and to prepare the economy for renewal and revitalisation when international conditions improve. The supplementary budget will build on a sequence of measures deliberately introduced to respond to the difficulties in the public finances. The domestic and global recession, and the banking crisis, have put enormous pressure on the public finances. Added to this, the loss of confidence and reputation due to the actions of some in the banking sector tarnished the reputation of the financial services industry at a time when we could least afford it. This challenge presents the Government with the opportunity to renew the economy, revitalise the public finances and reform the banking system. I will set out the means by which we will achieve these objectives in the Dáil two weeks from today.
Since the announcement of the Government’s intention to bring forward a supplementary budget, any fair-minded person would have to agree that I have given the Opposition parties unprecedented access to information and briefings. At the start of the month, at my request, my officials gave Opposition spokespersons a thorough briefing on the broad budgetary framework. I also made the Department available to the Opposition for confidential costings of any budgetary proposals they might have. I do not know the extent to which the parties have taken up that facility because it is confidential but this facility has never been offered to an Opposition party outside of election time.
The Opposition has sought information on the numbers on which the supplementary budget will be based. Deputy Bruton has written to me seeking some detailed figures. The Cabinet is deliberating upon those numbers and will make its judgment, based on advice about their economic impact, in the coming days. It is for the Government to come to an informed decision on these matters. It is my understanding officials continue to be available to the Opposition for further briefings, subject to the requirement to maintain Cabinet confidentiality. It is the responsibility of the Government to draw up the budget but we have done everything possible to ensure the Opposition has the information it requires to make constructive suggestions and criticisms. I am open to considering all constructive proposals to get us through this economic crisis and I am looking to the Opposition for support for the necessary measures we will take.
I note that Deputy Bruton yesterday outlined proposals for dealing with the structural deficit and the size he viewed as appropriate to it. This was an important intervention. There is some common ground between us and I would be happy to engage further with him next week. I respect the role of the Opposition parties in holding the Government to account but it would be helpful if we could reach some level of agreement.
We are experiencing a sharper adjustment and slowdown than many other countries. Although we face considerable challenges, many of the factors which facilitated Ireland’s economic success in recent years remain. Our society is cohesive and we enjoy political stability and a shared understanding of our economic challenges. In recent discussions the Commission and the president of the European Central Bank were struck by the seriousness of our political system. The inherent flexibility of the economy is evident in that asset prices, wage and price levels are all adjusting rapidly to the new circumstances, thus helping to restore competitiveness. That flexibility was noted and acknowledged at a recent meeting I had with the Commissioner for Economic and Monetary Affairs, Mr. Almunia, and it will be a considerable asset in getting us through this difficult economic period. The fiscal adjustments we are pursuing will also help to underpin the long-term sustainability of the public finances. Our medium-term prospects remain favourable.
We have a young, flexible and highly educated English-speaking workforce. We have a flexible and export-oriented open economy, with a low corporation tax rate and a pro-enterprise focus. The pace and scale of the current global economic deterioration are without precedent for over half a century and advanced economies such as ours are expected to be among the worst affected. Internationally, global economic activity will contract by between 0.5% and 1% this year according to the International Monetary Fund and more particularly for us by about 3% in the advanced economies with which we predominantly trade as a small open economy.
The Government is taking timely and appropriate action to stabilise the economy. We are repositioning it to be able to achieve sustainable, export-led growth when the global economic climate improves. Notwithstanding current difficulties, Ireland retains the ability and capacity to recover and benefit from the global upturn when it emerges. Our medium-term prospects remain positive and the economy has the capacity to grow at a healthy pace once the current difficulties are overcome. The achievement of this potential, however, is contingent upon implementing the right decisions now to lay the foundations for recovery. Control of the public finances remains the key pillar in our recovery. The economy has been weakened but the need now is for strong, yet appropriate, management by the Government. The policies we decide to follow will serve to renew the economy, address the budgetary crisis and position the economy to benefit as the international environment improves.
There is no easy or quick fix. Difficult decisions will have to be taken. There will be pain to be shared but we are determined that the burden will be shared fairly by ensuring those best able to contribute do so. We are determined at all times to protect the vulnerable and less well-off. Many families and individuals face an uncertain future. Unemployment has increased substantially, workers are taking pay cuts, some for a second time, to protect their employment. In these circumstances, the Government is acutely aware of the need to act decisively in the national interest and to show leadership and courage in the face of adversity. There is no doubt that living standards will fall for everybody as we all contribute to the greater good.
The measures we intend to take will facilitate our return to an era of prosperity and growth based on export-led and innovation driven output. We are determined to ensure the gains of recent years will not be lost and that we will make whatever adjustments are necessary to return the public finances to a sustainable path. In that context, it is important to note that the action to be taken on 7 April will be the latest in a series of necessary interventions. From July last year, when full year savings of €1 billion were announced, through to the October budget announcements with tax raising measures of close to €2 billion provided for and the spending adjustments in February which included the introduction of the pension levy for public servants as part of a savings package worth up to €2 billion, the Government has responded to bring the budgetary figures under control. I acknowledge the realism of the people in accepting the level of adjustments already made. Sacrifices have been made in the public interest right across the country. However, the situation continues to deteriorate and in order to adhere to the commitments we gave to return the current budget to surplus by 2013, it has been necessary to introduce new taxation and expenditure proposals to keep the budgetary projections on track.
Yesterday the Commission published the proposed Council recommendation on the excessive deficit procedure for Ireland. This is a normal part of the operation of the Stability and Growth Pact and follows on from the Commission’s report on Ireland last month which was triggered because the deficit for 2008 had exceeded the 3% GDP limit. I welcome the endorsement in the Commission documents released yesterday of the Government’s aim to reduce the deficit below 3% by 2013 as set out in the addendum to the stability programme and its overall budgetary strategy. Council recommendations are designed to support the member state concerned in the implementation of appropriate, if difficult, budgetary measures. The proposed recommendation has not yet been considered by the ECOFIN Council. It will be discussed at the Economic and Financial Committee which will be attended by officials from my Department later this week. The ECOFIN Council is due to consider the recommendations for Ireland and the other euro area countries, Greece, France and Spain, at its informal meeting on 3 and 4 April. As is normal in these circumstances, I have been in regular contact with the Commission and my European colleagues with regard to the position of the public finances. I have been glad to receive the support of the Commissioner for Economic and Monetary affairs, Mr. Almunia; the ECB president, Mr. Trichet, and my Council colleagues for the overall budgetary strategy we have undertaken in order to restore stability to the public finances, while taking steps also to support economic activity and employment and improve competitiveness.
In the course of the debate many Deputies made references to the banking system. I shall say a few words on the Government’s approach to the global financial crisis and the difficulties facing our domestic banks. The financial crisis, as it unfolded, has demanded Government interventions in most developed countries. Governments have guaranteed liabilities of banks, injected capital into them, provided short-term liquidity facilities to ensure they can access funds as required and, in a number of cases, taken banks into the protection of public ownership. This is a global problem and governments across the world have intervened repeatedly to ensure financial stability.
The Government’s approach to this unprecedented crisis in global financial markets has been structured and considered. It is important to note that this approach has at all times been informed by advice from, and in consultation with, the Central Bank and Financial Services Authority of Ireland, the National Treasury Management Agency and legal and financial advisers. In addition, the Government has had and will continue to have regard to discussions with and agreed principles at EU level. Through the bank guarantee, recapitalisation and the protection of public ownership, we have provided very real support for the banking sector. As a result, the citizens of Ireland now have a very large stake in its recovery. However, the support is not unconditional and the State will receive substantial fees for the assistance provided. Further conditions such as board representation, a commitment to a bank customer package and restrictions on remuneration have been imposed.
There is no doubt that regulatory and corporate governance failures have contributed to the current state of affairs. The Government is committed to reforming the regulatory system as a matter of priority, a matter to which I will come shortly. I wish to deal with the case of Irish Nationwide Building Society and payments to its CEO. I have stated the board and management team must be reviewed. Recent disclosures with regard to——
Deputy Brian Lenihan: As I indicated, I have had a discussion. This is not Question Time. I noted the Deputy’s comments yesterday evening. It is important that she notes I had a full discussion yesterday with the two directors appointed to the board of the society at my request and that I raised certain matters with them. These matters will be under consideration by the board of the society later this week and the directors will report to me——
Deputy Brian Lenihan: My concerns have been fully expressed to the relevant directors at Irish Nationwide Building Society. They met me with the consent of the board and will raise these issues with it and report back to me. That is how Ministers should conduct themselves.
With regard to the banking system, Deputies should conduct themselves with a degree of restraint in this matter because what is said in the House is reported around the world. Legitimate criticism of the banking system is most welcome but sensationalist commentary does the country no good abroad.
Deputy Brian Lenihan: ——and to protect relevant institutions. In the context of the six-month review of the guarantee scheme to be completed by mid-April, the Government will examine how the scheme might be revised subject to European Commission approval and consistent with EU state aid requirements to achieve a reduction in risk overall, including by supporting longer term bond issuance by the covered institutions. The Government is also reviewing proposals for dealing with the risks associated with certain assets. In this context, I asked Dr. Peter Bacon and the National Treasury Management Agency to report to the Government on the matter.
Deputy Brian Lenihan: ——unlike the Fine Gael Party which took a very responsible attitude on that occasion. She decided to play politics with the Irish banking system. Her voice resonates around the world——
Deputy Brian Lenihan: The report prepared by Dr. Bacon has been passed to me and will inform the Government’s ongoing considerations involving the Financial Regulator, the Central Bank, the NTMA and its legal and financial advisers. Structurally, reform is needed in the regulatory and supervisory system. I will announce in more detail the sweeping reforms that will be introduced in due course but they will underpin the approach to the global financial crisis and the difficulties facing our domestic banks. The financial crisis, as it unfolded, has demanded these interventions in many ways. Governments have guaranteed the liabilities of banks, injected capital into them, provided short-term liquidity facilities to ensure they can access funds as required and, in a number of cases, have taken banks into public ownership.
I am determined that the actions of those bankers who have clearly damaged our international reputation will be addressed. We will reform, rebuild and restore our international reputation as a global centre for banking and finance. New standards of corporate governance will provide confidence for those that are here and those that wish to locate here that Ireland is committed to having the highest international regulatory and supervisory standards. I am moving, as a priority, to reform the regulatory structure through the proposed full integration of the Central Bank’s responsibilities with the regulatory and supervisory functions of the Financial Regulator. This reformed structure is expected to deliver these new high standards of banking and financial regulation and corporate governance that the people expect them to observe. The creation of a single oversight institution charged with the important functions of ensuring financial stability, reinforcing prudential supervision and pursuing regulatory integrity throughout the entire financial sector in Ireland will involve a fundamental reform and I will look to ensure best EU and international practice is applied to Ireland’s regulatory system. We want to send a strong signal that the practices followed in some of our institutions are unacceptable, that the regulatory lapses will not be repeated and that Ireland remains committed to the continued development of a soundly based, well regulated and competently supervised financial services sector.
It is vital that we continue to take all steps necessary to get the banking system fully operating again. A fully functioning, well regulated financial system that attracts confidence and credibility inside and outside the country will be fundamental to our economic recovery. The recapitalisation of Allied Irish Banks and Bank of Ireland is targeted at underscoring the stability of the sector and restoring credit flows. I remind the House that conditional on the capitalisation programme is improved access to credit for small and medium-sized enterprises and first-time buyers, as well as new safeguards for those homeowners facing difficulties at this time. Only this morning I launched, with a vice president of the European Investment Bank, a fund of €300 million available to Allied Irish Banks, Bank of Ireland and Ulster Bank to support small and medium-sized enterprises.
The forthcoming supplementary budget will expand on the plan the Government has been following in dealing with our economic difficulties. The restoration of order to the public finances, detailed adjustments to taxation and expenditure programmes and the continued development of Ireland’s smart economy, the framework for which was published last December, will be central themes in the ongoing measures to revitalise the economy. This has been a useful debate which I have been following closely and which will inform the Government’s deliberations in what is, by any standard, one of the most important budgetary announcements in many years. These are the building blocks which will move the country forward by enhancing our competitiveness and stabilising the budgetary framework. I look forward to giving full details to the House on 7 April.
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