Thursday, 25 November 2010
Dáil Éireann Debate
The Taoiseach: Today I begin a very important discussion and debate in this House regarding a four year plan which was published yesterday by the Government. I said then and now reiterate that it is part of a three-pronged strategy for the immediate period ahead, which is important for this country’s vital national interests. It relates to the passing of a budget on 7 December and to the first instalment of the implementation of a programme that will not only bring order to our public finances, which is a prerequisite for growth, investment and confidence externally and domestically, but is also about a growth strategy as part of that process.
It is true to say the challenge we face is something we have not had to look at for many years, possibly for as much as a quarter of a century. The sort of correction we have to face is greatly exacerbated by an external international environment, not only in terms of economic prospects but fundamentally. The financial architecture that underpins our economic system worldwide has gained greatly in importance since our world has become far more interconnected and interdependent than was the case even 25 years ago, with capital and trade flows of a far greater volume and a far greater degree of sophistication than was then the case.
It is clear to all of us that this country has, by the provision of this plan, a signpost and a pathway to recovery which is within the recent experience of our people. The fear and uncertainty, the real concern and worry were exacerbated in many respects by some elements of what I would regard as irresponsible commentary. It was feeding a frenzy of doubt and creating a spiral of increased worry and concern rather than resolving or analysing in a dispassionate way the very serious problems we face as a country. The announcement yesterday of this plan gives people an opportunity to see what the level of adjustment will be in their own lives, to plan ahead for the future and to do so with a greater degree of confidence than in the absence of such a plan.
There are a number of things to be said about this plan and about where our people now stand in regard to the nation’s business. Everybody knows from their own household budget experience that a country cannot continue in the same way in the aftermath of a serious crisis, the likes of which we have not seen, one of such magnitude and global impact that it has been compared to the Wall Street crash of 1929. That was the occurrence back in autumn 2008 which is still reverberating around the world. It is important to point out that from their own household experience people know that one cannot go on with a situation if one’s revenues are back to what one earned in 2003 but one’s spend is up to date in 2010 terms. People know that is not a sustainable position and, therefore, they want to know how the country can change that situation in terms of national finances and bring about a state of balance. They need to have, in some detail, an idea of how that might be done. Whatever people want in terms of the plan’s detail, however, they understand the framework. They understand that the idea behind this plan is that our taxation system needs reform and we need to see increased levels of taxation coming into the national Exchequer to bring income for national purposes up to levels of the order of what we had in 2006. We also know that the level of spend in our economy has to reduce to levels people saw around 2007. That adjustment, or that closing of the accordion effect, in terms of people’s understanding of what is happening, will enable people to see from their own recent experience that this does not mean they have to go back to a lifestyle or a living similar to, say, 25 years ago when, clearly, the quality of life and the standard of living we had at that time was very different from this generation’s experience.
What it means, what we can glean from that understanding, is that many of the important economic and social gains we have seen under successive Governments in the previous ten or 15 years before this crisis can be maintained. There are inherent gains. Investments were made which are still with us. Sometimes the portrayal of the very serious crisis we have to confront is understood to mean that everything went out with the sea, or that all that we did was a wasteful experience from which we obtained no community, social or economic gain. That is a very misrepresentative view, a very fallacious and exaggerated view of the problems we have to face. I do not diminish those problems for a moment.
People need to know about the investments we have made in our education system, in improving our transport infrastructure and in our research and development community, the research we have done in industrial promotion and the far more diversified economy we now have. The fact is that 1.86 million go to work in this country in the aftermath of a crisis, two and a half years on from something which hit us so hard over the following two years, almost, people felt, with an economic tsunami effect. There was a reduction in output of 15% and we saw people’s standard of living reduce. It hit us in terms of a crisis in confidence, given the incremental improvements we had seen year on year in the previous period. Many of those gains in infrastructural terms can be maintained. Similarly, without going into an economic history lesson because we want to focus on the present and the future, the election campaign will give us an opportunity to go over some of those issues again in more detail. However, it is also important to point out that during those good times, as a country, reflecting societal views and values, we ensured that those on the lower end of the scale benefitted. We improved our pension provisions and made sure we brought in assistants to help our teachers and mainstream those with disabilities into our education system. We are spending more than €1 billion of our €8 billion education budget to ensure that those people are integrated into our system and have potential and prospects to live inclusive lives. That may not have been the case in a prior era of institutionalisation and lack of resources, with a far less enlightened culture. There are so many things that have improved, qualitatively and quantitatively.
It is important for our people to know that not all of those gains are going to seep away. There is going to be a further adjustment, in addition to the adjustment in our standard of living we have seen in the past number of years, as we try to cope with the impact of this problem. Throughout the good years when there were increases in our resources we maintained a level of spend as a percentage of our overall GNP — the overall worth and value of our economy — which was pretty static, at around 28%. In other words, whatever investments we made and increased improvements we were able to give in whatever way we could were given to help working families. This was done by increasing the rate of income which would attract income tax, from €7,500, as it was at the beginning when things began to pick up, to more than €18,000. We did whatever we could do to improve age exemption limits for people who were elderly and had pensions. Whatever we could do in all of these areas, there was a greater degree of progressivity and help for those people.
When we introduced the minimum wage, which has been increased on many occasions, there was a view that we would keep it out of the tax net. That narrowed our tax base because we had more people in that area who had to be accommodated. There are a number of people who have wages above that level but which are related to that figure.
We now have an infrastructure to train people and favourable tax policies. Credit must now be made available by fixing the banking problem. This will include providing firepower beyond the capacity of our State behind which we can bring whatever extra capitalisation is needed to the banking system, and intensify as necessary the initiatives that we have brought forward thus far. The purpose is to make our banking system work so that it is part of the integral process of growing and building confidence for the future.
The growth rate we have set out for this plan is about 2.75%, which is based on ensuring that we have a net increase in jobs of over 90,000 between 2012 and 2014, bringing unemployment down below 10% and making the adjustment of €15 billion, to be comprised of two thirds on the spending side and one third on taxation. We are proposing that balance because we believe it provides the best prospect of maintaining and growing employment. Other parties take a different view. We have set out what our proposals will mean for overall tax policy. We will have to see a sharing of the burden and those who earn most will have to pay most.
However, we cannot have a situation where more than 40% of working people are outside the tax net. There will have to be a contribution which is proportionate to their income as part of this attempt to redesign a tax system which would be sustainable for future circumstances. That can be done by respecting the principles of equity and progressivity while at the same time ensuring that everyone has to make contribution to the system.
If, for the sake of this debate, we take the Labour Party view, where half the reduction is through taxation and the other half through expenditure savings, what would that mean in terms of extra taxation? We would have to raise €7.5 billion rather than €5 billion in taxes. What would that come from? We propose a 16.5% reduction in tax bands and credits which would bring in about €1.8 billion. If the Labour Party perspective was to prevail, then to get an extra €1 billion as a contribution to the extra €2.5 billion one would have to have another 10% reduction in tax bands and credits. One would also have to double what we are doing on the site value tax, which would bring in another €500 million. One would probably have to double the carbon tax. If one wanted to see if some capital tax could be introduced, one could look at asset values, etc., and try to get another €300 million or €400 million there. One would also have to increase the VAT rate by another 2% to bring it up to 25%.
If the idea is that we can do this by taking measures, half of which fall on the taxation side and half on expenditure then the design of the programme changes significantly and the imposition of further taxes and the impact it would have on a recovering economy in terms of a growth strategy would be detrimental. We have opted for the strategy set out in the plan because we want to maintain jobs and have a growth strategy which has a prospect of working.
It is very important that we try to look at the growth strategy we have. In the real economy, even during this major correction in our economic fortunes, we are seeing an increase in exports and gains in competitiveness as a result of the policies we have already implemented. In this plan we are setting out the further sectoral policies which are needed to help in that area. The action to drive economic growth incudes the reaffirmation of the Government’s unambiguous position of maintaining the 12.5% corporation tax rate, which is the cornerstone of our enterprise policy. Action has been taken to reduce costs for businesses and professional services. These will be ongoing and, together with the introduction of new and better focused business investment which will target employment schemes, they will help small businesses by transforming the old BES scheme.
We intend to maintain a high level of investment in research and development and innovation, double the number of industry-led research competence centres and target an increase in tourists to 8 million by 2015. Some of the initiatives in that respect were outlined yesterday by the Minister for Tourism, Culture and Sport, Deputy Mary Hanafin. We will also liberalise visa restrictions for visitors from long-haul markets, make proposals to develop Ireland as a location for green data services, establish an international content services centre, which is at a progressed stage, and look towards our natural resources in agriculture, agritourism and agribusiness, which have shown great resilience.
I remember at the height of the crisis in 2009 people suggested 40% of our agrifood business base would go because of a lack of competitiveness. Yet, the decisions we took meant that practically all of those bases not only survived but have the prospect of thriving on the basis of the food harvest 2020 strategy, which is now being put in place. They have added value to the agrifood sector and exports by over 40% during that period. Developing Ireland as an international centre for food and making sure that we can drive forward the many advantages with the elimination of quotas and a grass-based production system is something that has been set out in great detail. Tourism and agrifood businesses will be areas of growth based on indigenous enterprise that can be scaled up and internationalised, as we have seen.
If we want to create more jobs we have to continue with the competitiveness agenda, the central object of which is to ensure that economic growth is translated into the maximum possible number of jobs, then the barriers to employment decisions have to be removed. Many of the young and semi-skilled are not in the labour market and the challenge is to ensure they are able to participate in it. In this regard the Budget Statement by the Minister for Finance will include further details in addition to those announced in the four year plan. We recognise it is not just a question of activation, it is also a question of people getting access to jobs in an environment that can create jobs. We also recognise that we have to open up the labour market measures in order to maximise employment. That is of fundamental importance and must be proceeded with. We will also extend the PRSI employers’ exemption schemes which incentivise employers to create jobs for people on the live register into next year.
A number of new and expanded work placement and upskilling programs will be introduced to help those on the live register back into employment, the details of which will be announced in the budget. Major reform to activation measures will be implemented which will ensure that there is regular engagement with people on the live register and that they are offered pathways to work, training or education. There is a need for control measures to make sure that people who are entitled to support are not denied that support as a consequence of activities in the black economy or because of those who use the State to earn an income in a way which is not in compliance with the rules or regulations that apply. It will require a very focused approach on all our parts.
In regard to the reduction in expenditure, basically, we have three components in our expenditure programmes. Public sector pay and pensions is approximately one third, social welfare is approximately one third and programme costs are approximately one third. We have outlined how we will reduce it by €7 billion on the current side over the next four years. Some €1.2 billion will come from payroll and pension costs, €3 billion from programmes and €2.7 billion from social welfare.
We have already gone half way to reduce by 8% the number in the public service against the high of the end of 2008. That will involve of the order of 25,000 whole time equivalents leaving the public service. We will see the number in our Civil Service going back to 2001 levels. The number in the HSE will have to go back to 2005 levels. There will be 13,000 gardaí, which will be back to 2006-07 levels. These are the sorts of changes that must take place in various parts of the public service.
If we are to meet our commitments under the Croke Park agreement, which we have set out to do, it must be on the basis of full implementation of that agreement. It will be critical in terms of redeployment and of looking at all the industrial relations issues which have arisen piecemeal for many years and which will now have to be dealt with in a comprehensive way. We must get more from less. We are not in a position to provide affordable public services on the basis of current structures.
Budgets are being cut in agencies by more than 10% as they are being amalgamated, changed or reoriented completely. We must see redeployment across the public service, not only within sectors but across sectors, whether the non-commercial semi-State bodies, the health service or education. This will be a huge challenge for everyone in the public service.
People recognise that if we proceed in the spirit and to the letter of the agreements we have reached, then there are prospects for us to make the changes. These changes must be made, otherwise we will put at risk the very services on which the vulnerable and those who require them depend. It is unacceptable in the situation in which we find ourselves not to be able to demonstrate the sort of flexibility and best practice approach across all levels of the service to ensure that with the money available from taxpayers, we minimise disruption of the services for those who require them and that we can improve services by taking on many of the technologies and practices which are evident in parts of the service but, unfortunately, not uniformly so across all aspects of the public service.
It involves a huge challenge. When one looks at this plan, the overall objective is to ensure that by 2014, we have a country in which unemployment is below 10%, in which public finances are back in order, which has been able to maintain investment, create jobs and provide prospects on a sustainable basis for all our people and which has a reformed public service provision that ensures efficiency and effectiveness in the delivery of services and the organisational changes that are required, possible and now agreed between the stakeholders, whether management, unions or Government, for the delivery of those reformed services.
The growth strategy is fundamental. Any suggestion that there is an absence of stimulus in regard to this growth strategy does not make any sense for the following reason. We have not only a deficit crisis but a debt crisis. We are not in the markets borrowing money. Currently, we are in the process of providing for a facility to provide stability for this country over the next three years and beyond and we must ensure we put in place and underpin the prospects of fixing and repairing the banking system not for the banking system itself, but because we cannot have a modern economic system without it. We must ensure those who create wealth and jobs, those with an entrepreneurial spirit and those creating enterprises which are providing jobs for our people, are supported in every way.
Despite the cutbacks in expenditure, we are maintaining and, indeed, increasing the level of investment in research, development and innovation. Those societies that will succeed in the modern world in which we live, in the post crisis world we now inhabit, must be those which are prepared to innovate most and which are able to provide cost-efficient solutions to the problems people face and goods and services at affordable prices on international markets.
We have seen an improvement in our export performance as a result of what we have done thus far and we must intensify that effort. We have seen an increase in businesses and in investment coming into this country because we are still able to be marketed as a country which is well-educated, flexible and has the ability to the use the technologies the modern multinational corporation networks now provide and which provide considerable and hugely important employment and, most importantly, bring in significant resources in tax revenues to our shores for the purposes of providing the services our people need.
As we face into a new year and we hopefully complete the important national work of having published this plan and given people an indication of the size of the adjustment they will have to make going forward and having given them a realistic and ambitious understanding of what we can achieve, we must pull together as a country in the critical times. We must recognise that we can look to the new year with a greater sense of clarity. People want a greater degree of certainty.
When people talk about renegotiation, changing plans and suggesting that all of this can be all worked out again, I make one point. What has been set out here is a realistic appraisal of what is possible, necessary and doable. If people say they want to make changes, ensure they add up and that they do not create more uncertainty at a time when this country critically needs some certainty. I say that in a constructive way to the House because everyone has a perspective on these issues and a hope that we can pull through in these difficult circumstances.
What is critical for this country is that this House rises to the challenge on 7 December and implements the budget so that our people can know that we will go forward in 2011 with the sort of support we need, the sort of facilities in place that are required and that we have a plan with which we can go forward. After all of that in 2011, we can go to the people and ask them to decide who they believe should govern them on the basis of who has the most coherent policies and the best prospect of success.
Other generations have come through other recessions. I am not for one moment diminishing the significance of what we confront but it is surmountable and possible for us to come through. In the new year, we can still live as one community, live with good neighbours, good family networks and people who are prepared to go out work for their country and their families and who are prepared to do more because they know there is less available.
People want to see fairness and equity and to see everyone contribute. That is fundamental to what Ireland is about. We will see in our budget and from this Government’s perspective every effort being made to demonstrate that also is part of the equation because it must be in the interest of social solidarity and community coherence.
If we objectively analyse this plan, we will realise it is the considered view of this Government that it provides the best balance between how we close the gap between what we spend and what we earn, between what needs to be changed in terms of public service provision and how we ensure our programmes are still in place and between how we maintain jobs and an investment strategy and ensure we have a taxation policy and system which will raise sufficient revenues to meet the corrections and the adjustments that must be put in place.
All that said, we believe this plan offers the best prospects upon which to build the four annual budgets needed to get us through this crisis with growth, jobs and support for those in the productive private sector. Ultimately, we must look to such people for net job creation as we reform our public services, not because we devalue or diminish their importance and that of those working in such services, but because we need an affordable model in future with the necessary reforms outlined. That will secure the future for ourselves and our children.
Deputy Enda Kenny: I do not know if the Taoiseach saw the television cameras panning across the Cabinet during the closing remarks of his speech but I have never seen such a po-faced, sombre, demotivated and beaten crowd as I saw on that screen.
Deputy Enda Kenny: The Taoiseach is speaking about an election at some time in 2011. God forbid that would happen. I wish we were now in the throes of an election that would bring the certainty and clarity spoken of by the Taoiseach. I met an engineer the other day who is 23 years old and fully qualified. He told me he had a permanent visa for Australia and was going to travel to and stay there as he would get a reasonably well paid job and be able to settle down. When I asked him if he would ever return to Ireland, he said he would not because every cent of income tax he would pay in this country for the rest of his life would go towards repairing the consequences of bankers’ recklessness and greed, which were allowed to happen under the Taoiseach’s watch.
Deputy Enda Kenny: I saw the Minister for Finance present this document yesterday. I heard him say previously that he invited robust political debate, which I respect. I like Deputy Brian Lenihan on a personal basis. What I saw and heard yesterday was an act of supreme arrogance, as the Minister said any other plan or alternative is nonsense.
Deputy Enda Kenny: This Minister presided over the greatest economic catastrophe in this nation’s history and along with the Taoiseach, he has invited people from abroad and the IMF to this country because the Government has led us to a position where we have never been before. The founders of the Taoiseach’s party never envisaged that our economic sovereignty would be cast away.
The Minister for Finance came into the Chamber to tell us this would be the cheapest bank bailout in history. He said the Irish taxpayer would make a profit from the recapitalisation of the banks. Did I hear him correctly? He stated that Anglo Irish Bank could not be wound down because it was of systemic importance to the Irish economy. He told us the negotiations with the subordinated bondholders in Anglo Irish Bank would destroy Ireland’s reputation. This is the same Minister for Finance who a week ago said we did not need any outside help. Afterwards, the Taoiseach announced that those people were invited to this country.
I will not take any lectures from a Government that, to put it mildly, was not fully in compliance with the truth when speaking to this Parliament and the Irish people. The Taoiseach and his Government have failed to live up to the charge, trust and responsibility given to them by the Irish people. They are now involved in negotiations in what amounts to a contract or agreement and the Irish people, from what I hear, will never be able to rise to meet the level of repayment involved if forced down this route. That agreement has the Government as the principal partners on what is essentially a board of directors. Under Article 29.5.2° of the Constitution, that agreement should be approved by this House. If we are talking about interest rates above 5%, the process will place this country, our taxpayers and the younger generation in a catastrophe.
I recognise there are many great elements to our country and it has enormous potential. The Government has led our country and people to the edge of this economic abyss. Nobody else had a part and it was on the Government’s watch that all this happened. I listened to the Minister for Finance yesterday talking about the party having posters in the last election about more gardaí, nurses and teachers, making the extraordinary claim that my party put forward a proposition to get rid of 30,000 gardaí, teachers and nurses. How arrogant can one be? I remember posters from his party indicating that health cuts hurt the old, sick and lonely.
We have been led to a point where negotiations are to be concluded at the end of this month and early in December that may, from what I hear, place an excessive and extraordinary burden on the Irish taxpayer and generations to come. This document will not constrain or confine the next Government; it is a Fianna Fáil document. Departments and local authorities are littered with documents like this one which have never been acted upon.
This is the hallmark of what Fianna Fáil has always said in respect of reforming institutions and service delivery. This is a plan which the Taoiseach has argued will bring clarity and certainty to what is happening. He has said in respect of reforming institutions and service delivery that greater productivity must be achieved, along with greater accountability. He has argued that the performance of organisations and individuals must be better. The Minister for Social Protection has said nurses will not be sweeping the streets.
Deputy Enda Kenny: He asked for prayers in Donegal, and they may well be necessary. This document does not provide certainty and clarity required to get this nation back where it should be. It does not address the real potential or open itself up to receiving the contributions that Irish people are prepared to make, provided they are recognised and respected as being fair. The Government made a big point about reducing the minimum wage but it has not acted on the other end of the scale, where exceptional salaries still apply. Nothing has been done about starting the process in this place about the cost of governance and the way we do business, and the Government is refusing to do so even today. It has indicated that we will come back some time at the end of January to debate the Finance Bill, whenever and if it is produced.
People have had enough. As I have stated previously, the Government should have gone by now. If the traditional definition of madness is to do the same things over and over, then this Government’s economic and banking policy fits into that category.
Thousands of people woke up this morning and looked at the state of their lives and their circumstances, as the Taoiseach noted. They wonder if they will be able to manage or pay for the charges that are coming, the food on the table and the medicines they need to stay well. Older people will look out at frost-bitten ground this morning and wonder whether next year will be like the past year except worse and where they will find the resources needed to heat their homes. Meanwhile, in the air-conditioned skyscrapers of Frankfurt and elsewhere they will be licking their lips at the millions to be made by betting against this country. Our country was not brought to this point only by the incompetence of the Government.
Even as the Government was outlining its plan yesterday, interest rates on Irish bonds were rising again. It is not sufficient to say it takes a while for confidence to be restored — it does — because there is no belief in the Government and it has no credibility left. That is the principal reason people do not want to invest here.
What was needed was a plan that was open and honest. The plan before us does not fit those criteria. What we got was a document which pretends to deal with the real crisis facing the country. The Government was supposed to set out the details of a four year strategy. While there is a front-loading in respect of year 1 of the strategy, where are the details the Government was supposed to provide for the subsequent years? Where is the evidence of the real and radical political reform people are crying out for and which would demonstrate some sense of leadership and understanding of what are Ministers’ responsibilities? The Green Party has left Government but is still on the benches opposite. Whether it was a rush of blood to the head that caused it to make its decision, I do not know but its Ministers are still members of a Cabinet in which they have no confidence and where treachery and betrayal are on the table. This is not the way to run a country, particularly in these circumstances.
If the savings provided for in the plan are to be used for the continuation of what has been a catastrophic failure of banking policy and if this forms the entire basis of Ireland’s economic deal with the European Union and International Monetary Fund, this country is clearly on a road to a decade of economic stagnation and potential insolvency. I do not yet know what is the nature of the negotiations in which the Government and IMF are involved but I would like to find out what is the IMF’s analysis of the growth projections for Ireland if it believes taxpayers can pay back at what appear to be excessive and exorbitant interest rates. I intend to ask the IMF about this.
This document does not deal with the root cause of the problem, namely, the failure of the Taoiseach and his Government to get an effective public sector which delivers value for money and services for people. Page 65 of the plan states this will have to be the case. This is not the type of plan which will enliven things in such a way as to allow us to say we are on the road to recovery.
The failure to reflect the additional costs of the Government’s failed banking policy makes a joke of the public finance projections underpinning the plan. Their absence makes the debt forecast nonsensical.
Deputy Enda Kenny: The projections will be out of date next week, even before the budget is delivered. The reckless bailouts have been at the core of the Government’s failure to restore domestic and international confidence. The mantra by the Minister for Finance that bailing out reckless banks and their investors was necessary to protect Ireland’s credit rating has proven to be a catastrophic misjudgment.
In previous times, the Taoiseach’s predecessor wrote blank cheques to his predecessor. The Government has gone one better in that blank cheques have been written from the taxpayer to Anglo Irish Bank and other reckless lenders to bail out their investors. This blank cheque policy has destroyed Ireland’s creditworthiness. If it were not for the historical and potential future losses for Irish taxpayers arising from the Government’s banking policy, our public finance problems would be judged by the financial markets to be difficult but manageable.
I believe in this country but I will not be bound by the Government’s four year plan. As I stated yesterday, while I accept the targets as being clear, the proposals and a number of issues in the plan will be renegotiated.
During the past two years, the Government had a clear choice between protecting the State and its people or bailing out reckless investors and even more reckless bankers. It chose the latter option every time and forced the taxpayer to take responsibility for the massive debts built up by Anglo Irish Bank and others.
I met a senior team from one of the world’s largest investment companies last week. It described the National Asset Management Agency as a bureaucratic monster that was destroying value and confidence in Ireland’s economy. NAMA has paralysed the property market. If one speaks to any auctioneer or anyone involved in property, one will find that nothing is moving because everything is blocked up in NAMA.
The scams that are taking place have become evident. Some developers seek to make a killing on funding from within NAMA to complete particular projects. They deliberately ask potential subcontractors to overprice works in order that a pay-off can be made. This issue needs to be addressed because NAMA has paralysed and caused gridlock in the property market.
The Fine Gael Party was the first party to argue that it was completely unfair for Irish people to shoulder all the losses arising from the banking crisis, whether through nationalisation or the establishment of the National Asset Management Agency. It was only fair that people who had lent recklessly to the banks should share the pain. It is a basic rule of capitalism that if one lends recklessly to failed institutions, one must take some of the consequences.
The European Commission has confirmed that the next Government need not be bound by the four year plan of what is now a tired, unimaginative and demotivated Government. As I stated, I accept the deficit target of 3% of GDP by 2014. What is needed to achieve this target is a Government with a strong, clear mandate from the people. Once people have given their verdict, a new Government can implement its plans by placing a strong emphasis on a number of areas. It would first cap taxpayers’ exposure to further banking losses. Second, it would introduce real economic reforms to spur growth and jobs and, third, it would create a smaller, better, and more effective State, as set out in Deputy Bruton’s document, Reinventing Government.
The bedrock of any credible economic plan agreed with Europe must be a new banking policy which limits the State’s exposure to further losses from the banks. We all agree that we need to repair, restructure and adequately capitalise Irish banks to underpin our guarantee on savings and get credit to business flowing again. The Taoiseach should talk to the owners of small businesses. Despite what has been said, many of the conditions laid down by banks preclude businesses from securing credit. The other day, I was contacted by a man whose company has an annual turnover of €1.5 million. He had his €40,000 overdraft facility reduced to €5,000 and told me one could not run a sweet shop on such an overdraft.
While I agree with the Taoiseach’s sentiment that it is necessary to free this up, he is not in a position to make it happen. Although economic reforms are really needed to spur growth and jobs, the plan does not spell this out in any detail. This is nothing like what can be achieved or like the potential that exists. In that respect, this document is both a disappointment and a failure. The Government has done nothing to overhaul the regulatory and economic bureaucratic red tape. When one sees the evidence of what is strangling those who wish to contribute to the well-being and future of the country, it is evident where the Government has been strangled by its inability to deal with this issue.
If we are to have a nation that will measure up by 2016 and beyond, we really must change the way in which we do business. This document makes no reference to leadership by example from the seat in which the Taoiseach is sitting. Throughout the Government and local authorities and right down the line, there is no evidence but only aspirations as to what can be achieved. In this sense, this document has been a gross disappointment because people expect leadership from the front. They want to see it at the centre and to be shown the way from the top down. One should appeal to Irish people, particularly that young generation whose representatives are leaving the Gallery at present, as they are the future of our country. However, the national recovery plan will not realise the potential that exists. Whenever the population decides to elect whatever Government it wishes, if I have anything to do with it issues in this plan will be renegotiated and the next Government will not be bound by them.
Deputy Eamon Gilmore: This plan is the added price the people of Ireland must pay for 13 years of Fianna Fáil misrule. It is a price that must be added to the price already paid by those who have lost their jobs, whose businesses have gone or whose pay and services have been cut. This price must be paid by pensioners and people on the lowest pay, as well as by families and households nationwide. In his speech in this House today, the Taoiseach invites us to forget about the past——
Deputy Eamon Gilmore: —— and to all round the new year together. Consider this plan as some kind of down payment or deposit on another four or five years of Fianna Fáil rule. That is what this plan is about. This plan is the direct result of the politics of the Galway tent and of “show-time”. It is the result of the unbelievable political arrogance and folly of the worst Governments in the history of this State. There was another example of this arrogance yesterday from the Minister for Finance, Deputy Brian Lenihan, who stated that anything that is put on the table that is not contained in this plan is nonsense. This is the same Minister who told us that the bank guarantee was the cheapest in the world. This is the same Government that told us that it would not cost the taxpayer anything. It is the same Government that told us, when the Labour Party suggested the taking into temporary public ownership of the main banks rather than the NAMA strategy, that this was nonsense too. Now the banks must be taken into public ownership anyway at enormous additional cost and still are mired in NAMA. While this is the work of the Taoiseach and the Minister, Deputy Brian Lenihan, it also is the legacy of the former Taoiseach, Deputy Bertie Ahern, the former Minister, Mr. McCreevy and the Minister for Health and Children, Deputy Harney.
It is the direct result of the bank guarantee that joined the future of the State to failed banks. This plan proposes €15 billion in budget adjustments, starting with €6 billion in 2011. It is a recipe for hardship and stagnation, for delayed ambitions, unfulfilled potential and broken dreams. Yet, for all that, the sad reality is that a programme of adjustment now is unavoidable. However, one should note from the outset that the status of this plan remains unknown. Is it a document that has been agreed with the European Union and the IMF and which will form part of the loan agreement between Ireland and the international community? Is it to be part of the memorandum of understanding for that loan? Alternatively, is it a negotiating document that is subject to change and revision before the final deal is concluded? Is it simply the Fianna Fáil manifesto for a general election that now is both inevitable and imminent but which that party will wish to delay for as long as possible into the new year? Ministers have been claiming for weeks that the plan has the blessing of the IMF and the European Union. However, a spokesperson for the Department of Finance yesterday stated otherwise, indicating that the plan can be changed in negotiations. The question is how much has been approved and agreed and how much might be changed. Members do not know the answers to these questions, just as they do not know so much else about the negotiations that are going on behind closed doors.
For example, they do not know who is negotiating on behalf of Ireland. The public now is more familiar with the principals from the IMF and European Union teams than they are with the Irish negotiators. It is known that Mr. Chopra is negotiating for the IMF and that Commissioner Rehn is in overall charge of the negotiations for the European Union but who exactly is negotiating for Ireland and exactly what are they negotiating? The size of the loan is unknown nor is it known how much of it will go straight into the banks. Moreover, the rate of interest that will be charged is unknown, which is a critical issue. Professor Karl Whelan of UCD has raised this issue and has shown calculations that suggest an interest rate of 6% or perhaps 7%. This would have enormous consequences for Ireland and the Government must reveal both what it is negotiating as a credit facility and that this is what is being negotiated, rather than some kind of sub-prime loan. There is no justification and no rationale for charging Ireland more than Greece and the Government should insist on a better deal. This is Ireland’s problem but it also is a euro problem and responsibility works both ways. When the deal is concluded, will the four year plan bind the next Government, a Government of which this Fianna Fáil Cabinet is unlikely to form any part?
As I have said on many occasions, the Labour Party supports the target of cutting the deficit to 3% by 2014. It does so not because we believe it will be easy to achieve but because it is necessary for Ireland to stabilise its public finances. However, we do not support the notion that the adjustment should be front-loaded with a figure of €6 billion in 2011. This level of front-loading poses a grave risk to jobs and growth and is a risk that should not be taken. Moreover, the Labour Party is supported in this position by the leading article in today’s edition of the Financial Times, which I will quote to the Taoiseach. It states:
The Taoiseach challenges the Labour Party about its statement to the effect that a €6 billion adjustment should not be undertaken in the first year but that such an adjustment should be more modest and should be balanced on a broadly 50:50 basis. The Taoiseach plucked figures from the air and suggested such an approach would mean this much more on this tax and that much more on the other tax. This misses the entire point, which is that we must allow the economy to grow and get people back to work. If this is done, tax revenues will increase because more people will be at work and the economy will be more successful. However, the more that is cut from it, the more likely one is to drive the economy further into recession.
It is important to remember where that figure of €6 billion came from, because it has become a kind of Holy Grail. It emerged in the last weeks before Ireland sought external assistance at a time when the idea was that one had to impress the markets. The argument was being made by the Government that the markets would be impressed were Ireland to get its deficit down below 10%. The claim was made that bond dealers, who work for international banks, would be fooled into believing that €9.99 is not a tenner.
Now that strategy has failed. In fact, the €6 billion figure impressed nobody, because it was clear that an adjustment on that scale would pose a grave risk to growth. Now, however, the Government does not believe it can row back on that figure, even though we are no longer in the market. How clever does the €6 billion look now?
Deputy Eamon Gilmore: This plan is called a plan for national recovery. In fact, it is a plan for austerity, not for recovery. There is no coherent jobs strategy in the plan. There is plenty of waffle about the so-called smart economy.
The section on jobs is short on detail, particularly compared to the detail on cuts and tax increases. Where, for example, are the concrete numbers on training and employment programmes? The only numbers referred to are the small numbers already provided for. Where is there an investment strategy that uses what limited resources we do have? There are references to investment from the National Pensions Reserve Fund. Given the track record of the Government, it is clear that this is not serious and is not intended to happen. Instead, it is argued that the pensions reserve fund will buy Government bonds. That is code for saying we are about to liquidate what we can.
The proposals in the document are not fair and they are not balanced. Even after all the damage the Government has done, this plan provides a hard landing for PAYE workers and a soft landing for the friends of Fianna Fáil. There is no indication that those who have the most will contribute the most. There is no higher tax rate for the highest earners, no cap on high-level pensions and no cap on the highest level of public sector pay. Higher capital taxes are postponed until 2012, while PAYE taxpayers are hit immediately.
There is a cut in the minimum wage, for which no compelling logic is presented and for which there is little real demand. I can see an argument for a review of the way the joint labour committee system works and for looking, for example, at the issue of premium payments for Sunday working. However, what is the point in cutting a minimum wage that affects fewer than 50,000 people? This is being done for purely ideological reasons. If the same logic is applied to sectoral wage agreements, then what we will get is a low-wage economy; but then, we have always known that the PDs in Fianna Fáil are in favour of a low-wage economy.
In his article in the Financial Times, the Minister for Finance quotes Abraham Lincoln, but there is nothing of the “better angels of our nature” about this plan. While those on the minimum wage are being hit now, the high-flying tax exiles are exempt once more. In a reply to Deputy Shortall, the Minister for Finance admitted that the contributions sought from tax exiles in last year’s budget will not yield a single cent before October 2011. After this budget, ordinary taxpayers and social welfare will have been hit twice but the tax exiles will continue to fly in and out of the country without the inconvenience of having to pay tax.
A number of proposals in the document, however, are in line with ideas the Labour Party has advanced. For years, Fianna Fáil have been denying that there is anything to be gained from cuts in tax expenditures. At last, the plan accepts that some €1.5 billion can be achieved from curtailing tax breaks and limiting relief for pension contributions, although again, we see no real commitment. If the Government was serious, there would be a proper minimum effect tax rate to ensure that everyone pays their fair share. There would also be a clear commitment to fairness in dealing with the pension relief issue, which has more to do with how much in total can be claimed in tax relief than the rate at which the relief is given.
It is also, unfortunately, necessary to curtail the capital programme, although it is disappointing that there is no alternative strategy set out to replace this spending from other sources, such as through a strategic investment bank, as has been proposed by the Labour Party. There are a number of innovative ideas for how this can be done, but the plan does not embrace any of them.
There are also aspects of the plan that, once again, disappoint. For all the hype about the preparation of this document, and all the stories we have been told about the lengthy Cabinet meetings that went into preparing it, it contains the same old approach to public expenditure. What we are getting is butchery, not surgery. Once again, the Book of Estimates has been subjected to a crude hacking exercise rather than a truly comprehensive expenditure review.
What we need to see, and what should have happened two years ago, is a proper root and branch review of expenditure, along the lines of the Canadian model. Instead of sending in an external consultant to prepare a report, a proper expenditure review would be led by Ministers and Secretaries General. Instead of asking the question, “What can we cut?”, you start with the question, “What are we trying to achieve?”. You sit down and ask searching questions about what it is that Government is doing in providing the service, and how it is being provided. That is not an exercise that can be conducted from Opposition. It is an exercise that must be conducted by Government, where we look at a problem from first principles and redesign public expenditure accordingly. There is a reference in the document to such an exercise. It is called Government expenditure assessment, but it is no more than an aspiration.
Some spending cuts are particularly disappointing. The plan seeks €300 million in cuts from education but is unclear about how that will be achieved. It has been reported that this will mean a loss of 1,200 teaching posts, including language teachers for newcomer pupils and teachers for Traveller children. This is a fundamental U-turn on the so-called Green Party victory of 150 extra teachers promised in the revised programme for Government. They are now “deferred”.
It is hard to see any logic in the proposed €200 charge for students in further education. Many of these students are from families with modest incomes, for whom this charge could be a real disincentive. What is the point in imposing a €200 annual registration charge when the alternative might be paying €200 per week to the same person on the dole? It is just one of the many mean-spirited elements of this plan. The concept of universal access to third level education is further eroded, with another hike in the, so-called, registration charge and a non-specific cut in student support.
The plan also sets targets for reductions in the social protection bill, but offers little in the way of specifics. The clear implication is that there will be significant cuts in rates and that these, too, will be front-loaded.
The most striking feature of all of this is that the Government has no mandate for this plan. It is negotiating a deal behind closed doors that will bind the next Government in a fiscal and economic straitjacket for the duration of the IMF-EU programme. A number of commentators have suggested that there may be room for manoeuvre in how the programme is implemented and that the IMF and EU will focus only on headline targets and allow the next Government to negotiate on how those targets are achieved, but there is no certainty about that. We do not know anything concrete about the deal that is being done on the banks. We do not know what the cost of that deal will be or whether there will be burden sharing with the bondholders. We do not even know what kind of banking sector Ireland will have next year.
This is a critical point. The plan is based on the idea that there is strong underlying growth potential in the Irish economy, largely as a result of Ireland’s capacity to export. I agree with that viewpoint. Ireland does have many strengths, and we do have a capacity to recover from this crisis. However, there is a lot about the way the Irish economy will perform that we do not know. We do not know how consumers will behave in the months and years ahead, if the rapid increase in the savings ratio will unwind and how quickly consumers will regain confidence. Nor do we know what impact the impaired banking system will have on the performance of the domestic economy. That uncertainty further underlines the need for caution in the way the budget adjustment is implemented. There is a capacity for more consumer spending and more investment activity once growth resumes and confidence is restored. However, these are highly uncertain, while the impact of withdrawing €6 billion from the economy is pretty clear-cut.
Unfortunately, we do not seem to have a Government that is capable of making that case on behalf of the Irish people. Of all the many gaps in this plan, perhaps the most striking is the lack of vision. In many ways, this plan is the instrument of surrender, offered up by a Government that is a beaten docket. It offers no bridge to the future and no sense of what we can achieve, as a people, if we come together to work our way out of this mess. It offers no bridge to the future. It offers no sense of what we can achieve, as a people, if we come together to work our way out of this mess.
We are not the first country to find ourselves in this kind of economic crisis. Even if the scale of the Irish disaster is particularly bad, we can still learn from others who have been through similar experiences. The lesson we can learn is that we must keep and protect our bridge to the future. We must know what it is that will underpin our prosperity and our sense of national unity in the days ahead. We must protect and defend it, and invest in it.
Much has been said in recent days about the 12.5% rate of corporation tax and the importance of keeping it. I agree with these comments. The Labour Party was instrumental in introducing that rate. However, there is more to Irish sovereignty and more to our future than the corporation tax rate.
We must understand that social solidarity is not an economic cost, but a vital economic foundation. What we needed to see in this plan was not just a sense of an economy, but of a society that offers our children a decent future. We need a realistic strategy on jobs, not just repetition of the same old stuff. We need a strategy with a strong commitment to building on Ireland’s competitive strengths and investing in our future, supplying credit to firms, and getting people off the live register and into meaningful training and work experience. We did not get that because Fianna Fáil is incapable of it. We are living in the ruins of its discredited philosophy and policies.
The four year plan is the price of political failure. It is a heavy price indeed. The Taoiseach invites us to consider what kind of country we will have in 2014. I agree with all the objectives he set out for us today as to the kind of country we desire in 2014, a country with people back at work, with businesses working again, with confidence restored in our domestic economy and in our country among those abroad, with good quality public services, and with a reformed public service and a reformed body politic. We will only achieve this when the political change the country is crying out for comes about. I hope that will happen sooner rather than later.
Minister for Communications, Energy and Natural Resources (Deputy Eamon Ryan): I respect each of the political parties in this Dáil. We all have our own histories, strengths and weaknesses, my party included. I have been a Member for approximately ten years and have developed in that time a strong sense that Members from all parties have integrity and capability. My partners in Government have shown such integrity and capability. Should Deputy Kenny’s party enter government, in whatever formation, in the coming months, I have no doubt he will demonstrate the management capability the public deserves. The same applies to the Labour Party. I do not believe we should be engaging in point scoring in this regard. We all have our country’s interests at heart.
Deputy Eamon Ryan: I apologise to Deputy Morgan. I include Sinn Féin in my remarks. Although I disagree with its assessment of what we can and need to do within the four year period, and with some of the protest approaches, I acknowledge there is room for different opinions in this regard, and for the views of Independents.
In this most fearful and difficult time for our country, it is important that we begin by establishing ground rules of respect for one another. People are looking for these and want us to offer them reassurance and security, which they and we all do not have at present. We all know in our hearts that this is a very challenging and difficult time. We need to address that. We have a duty of care to the people to try to minimise the sense of fear and manage a very difficult set of circumstances.
We need to protect the people in a number of ways. We need responsible debate in the House. The members of the media present should note that we need responsible debate in the media at this time on these complex and difficult issues. It is not easy to explain some of the issues. I can understand very well the sense of anger over what has occurred, and it is absolutely right to express it. While I understand the various views and ideas presented, we need to offer the people a sense of security and reassurance to allow for a public debate just at this time that respects different opinions and allows people to give details on what are very complex issues.
Deputy Eamon Ryan: By “responsible”, I refer to the way in which we treat one another, and even to our tone of voice and acknowledgement that there may be different views and approaches. I refer to responsibility that would prevent the debate from degenerating into a very angry one. I can understand why people are angry but do not believe it will help our people to solve the problem.
We must be very careful with figures. It is very easy to state on the radio or in the House that a certain figure is the correct one — for example, the figure pertaining to the debt interest cost when negotiating with the national bodies. In respect of such a simple figure, one must recognise there are all sorts of variables to be considered. One must consider whether there is a variable rate or fixed rate, or a three-year, five-year or ten-year term. The figure depends very much on which of these factors is taken into account. We need to be careful of figures and realise that, in complex issues, people need balanced and intelligent debate.
I have three questions on the four year plan, as published yesterday. The first concerns debt dynamics, a term I had not heard of until recent years but which is at the very heart of our management of this issue. I refer to the payment of debt on a sustainable basis over the next four to five years.
Deputy Gilmore asked the identity of the teams or people representing the Irish people. I want to answer because it is an important question. The Department of Finance is leading the negotiations but we are well served by the staff of key agencies, who have public-interest expertise in this area. I note from my experience of dealing with Mr. John Corrigan, head of the NTMA, that he is highly capable and very straight. I have never heard figures from him that I believed were incorrect. The same applies to the new Regulator, Mr. Matthew Elderfield, whom I believe has done a very rigorous job in stress-testing our banks to try to understand the scale of the problem. He has been joined in this regard by Professor Patrick Honohan. Central Bank Governors tend not to speak very much in public, and rightly so, but the public has a certain sense that Professor Honohan has expertise. I have noted others in our system, including the Secretary General of the Department of Finance and the key people in NAMA, who are very capable and very good public servants. All parties, not just Government parties, can work with them to ensure we understand the issues and achieve a good resolution for the Irish people.
At this time, in which we are in a particularly precarious position, it may be appropriate to park the valid debate as to whether an alternative approach, such as full nationalisation or an approach based on collapse or default, may have worked two years ago. At present, we must concentrate on a public debate on what we are doing now. Debates on alternative approaches are valid and can be engaged in but we need to concentrate on the very difficult and important task now facing us. We should do so in the debate on the debt dynamics issue.
Legitimate rage is expressed by those who ask why the taxpayer, rather than the private sector, must pay everything. That is a valid argument, on which I will outline my thoughts. The private sector has taken a hit. Deputy Kenny was not correct in saying that, at every step of the way, the Government looked for the taxpayer to take the hit. That is not an accurate assessment. I present as evidence the fact that approximately €40 billion of private-sector capital was wiped out as the banks’ value was lost. This has affected many Irish pensioners and savers, who believed they had most secure and solid investments. For many, this was a really hard loss; it was a private-sector loss.
To date, bonds worth approximately €7 billion have been lost or written down, and rightly so. I would like this to be maximised, particularly in the context of protecting taxpayers, where appropriate. It is not the case, therefore, that taxpayers alone have been footing the bill. All parties represented in the House would favour a situation where it would not just be taxpayers who shoulder the burden. In addition, no one wants an approach to be adopted which might appear right and proper in the short term but which might cost us more in the long term. In that context, we must listen and talk to the members of our negotiating teams who have a good sense of what is required.
I put it to those opposite that when this most sensitive issue is considered by everyone at the weekend, it is the level of real engagement to which I refer which must be employed in order that we might examine the real options. We must evaluate, therefore, whether actions which might appear to make real political sense now might actually be disadvantageous in the medium or long term. That is something which is difficult to do in public. It is difficult to explain the nature of both bonds and bondholders. People are being obliged to deal with language which they do not understand.
It is difficult to understand what constitutes a bondholder. Descriptions of bondholders vary from speculators to hedge funds to short-term speculators against the State. However, I am informed — this can be checked and verified — that almost all of the senior bondholders in the Irish banks are pension funds and insurance companies. These entities are not speculators in the sense that they are seeking a quick buck in the short term. They are actually trying to realise profits on long-term investments. I would be extremely critical of what occurred in the context of the unchecked flow of capital from——
Deputy Eamon Ryan: Yes. The description I have just provided characterises those with whom we are dealing and to some degree it colours our approach to and the action we propose to take in respect of this matter.
It is critical to ensure that we get our relationship with our European Union partners right. We must work with our colleagues in the European Union, who have been extremely supportive. The liquidity the European Central Bank has provided to the State and the guarantee it has advanced in respect of deposits in Irish banks — which affords to people a real sense of security that those deposits are safe — shows that the European Union has assisted Ireland. We must, therefore, work with our European Union partners now in order to ensure that we achieve the right outcome from the difficult negotiations that are taking place. It is not in the interests of our European Union partners to arrive at a debt repayment amount for the Irish State that is not sustainable. Our team is negotiating, in co-operation with our European Union colleagues, to ensure that the latter does not happen because it would be in no one’s interests.
We must consider the elements that would be contained in a deal to allow the State to obtain a backstop guarantee in the event that it proves difficult to obtain money from the markets and which will permit the banks obtain capital should it be necessary to do so. I have been informed that the assessment of the stress tests carried out by Mr. Matthew Elderfield and Professor Patrick Honohan to date shows that there is not a huge iceberg of further losses within the banks. In light of the scale of the losses to date, some people feared that such an iceberg was looming beneath the surface. I understand that the stress tests which have been carried out — the IMF and our European Union partners can check the position in this regard — have been shown to have produced a picture which is reasonably accurate.
The need for capital may not be as great as some may fear. In that context, what we need is a contingency fund. I have no doubt that some additional moneys will be required in the context of dealing with some of the restructuring that will have to be done in respect of the banks in order to reduce them to a scale which is manageable and which suits the purposes of the Irish economy. We need to do this quickly and in conjunction with our European partners. That is why I stated earlier that we do not have a long time. In effect, we have days. The contagion effect that has occurred has raised fears in other markets. As Members are aware, fear feeds on itself. It is better, therefore, that we should try to take action quickly and in a collaborative way.
Deputy Eamon Ryan: That was the correct approach for the Taoiseach to take. Members of the public require some sense of security and they need to know that this will not be just a deal that will be concluded on the sidelines. Public servants are involved in doing the deal. However, it is important that the political parties in this House, with their sound, solid and honourable traditions, should have an input into the negotiations and should have their say.
Deputy Eamon Ryan: I would like to outline the thinking behind what was done on that day. We all understand the public mood that obtains at present: the deep anger and the great sense of fear. A number of months ago, my party referred to the need for consensus. What we did on Monday was an attempt to remove politics from the equation in respect of some of the votes relating to the budget. I accept that there will be different views on the budget and on the spending allocations that will apply. That should be the case. However, what we tried to do was make it clear that voting for the budget would not be a vote for a Government that is going to last forever and a day. There are time limitations involved here. The Green Party is of the view that in the aftermath of the key tasks which we must complete, we should face the people and present our alternative strategies.
As the Taoiseach stated, the plan before the House will form the framework for certain analyses. I accept, however, that there may be different views. Some may question our motivation and our methods. However, I assure the Deputy that the Green Party’s motivation was to try to create an atmosphere in which consensus politics might work.
Deputy Eamon Ryan: People have inquired, in the context of the national recovery plan and the partnership model, whether we should have reappraised the Croke Park agreement, etc. I am of the view that the onus is going to be on management in the public service to ensure that real efficiencies are achieved in order that we will be in a position to do more with less. It may be easier for us to do this in the spirit of co-operation that was evident from people’s willingness to sign up to the Croke Park agreement rather than in trying to break down the latter and formulate a more efficient system in some other way. That is my personal view. It will be a crucial task for whomever is in government in the coming years to manage the public service reform process. I am of the opinion that the latter should be done by using the process of partnership which has worked to the country’s benefit in the past which everyone would recognise had its failings.
In the context of social partnership, it is incredibly difficult to make decisions to cut social welfare payments and so forth. If there are other ways in which we might manage the reduction in the budget spend and increase revenues in order to bridge the €15 billion gap that exists — which is something the two main parties in opposition want to see happen — I would love someone to identify them.
Deputy Eamon Ryan: I absolutely agree that it is our job to do so. However, it is not an easy job. If there are alternative or different ways of proceeding, I would be open to their being outlined in order that we might evaluate how they might work.
Deputy Eamon Ryan: In the context of growth, a strategic decision was taken to protect enterprise, investment and education in the budget. These three areas are key to encouraging growth. We need to make our debt dynamics work. A development which has been of assistance in recent weeks is the fact that the matter of our 12.5% corporation tax rate has been placed on the back burner. I commend our French and German colleagues on recognising that this is not the time to introduce fundamental changes to our approach to enterprise, which continues to work to our benefit. We will need to adhere to that approach in order that we might, in the interests of this State and those of the wider eurozone, extricate ourselves from our economic difficulties.
Investing in enterprise, an area in which we have real strengths and capabilities and people with real skills, will allow us to create the type of growth that will assist in allowing us to emerge from our current difficulties. A great deal of this investment will go to the green economy. Deputy Bruton inquired earlier about investment plans relating to the smart grid, green energy and broadband. He is correct in identifying these areas because they are critical in the context of the action we need to take. State companies and those which operate the grid are making significant investments that will assist the economy in turning the corner. As a result of this, electricity and gas prices are decreasing and this will provide us with a competitive advantage. The development of renewables is bringing down the price of electricity here, which, according to the report, is the sixth cheapest among our comparator countries in the EU. Progress is being made. There is a growth opportunity, particularly in the green economy and in areas such as retrofit where we may use new funding mechanisms to help pay our way.
I understand Deputy Gilmore when he asks if there is risk in terms of a figure being so large that it has a deflationary effect, but I listened to the Minister, Deputy Brian Lenihan, yesterday and he made sense to me. Unfortunately, we must get back to single figures. We would be the only eurozone country not doing so and that is the dynamic which requires a €6 billion adjustment. I believe it can be done in a way that does not deflate the economy and that there is a pent-up skill and enterprise opportunity in this country that is very real. It needs a functioning banking system, it needs a wee bit of confidence back, but the capability, ingenuity and sense of inventiveness and enterprise of the Irish people is real. Even where we are contracting the public service, I believe there is an alternative expansion that can occur in the domestic economy that will make up for that and we can work our way through this.
Deputy Eamon Ryan: It is not easy. It is scary. However, as my colleague, the Minister, Deputy Gormley, stated on Monday last, we have a duty of care. Our party is willing to contribute to ensure we get through this difficult period — get through the budget, get through the negotiations that we must conclude with our European colleagues and give the country a sense of confidence.
I believe we will do that better through as much consensus as possible among all the parties in this House. It does not mean agreeing on everything or compromising on anything. That sort of open debate and honesty is what the people seek as we head towards a very difficult few days and weeks. My sense on meeting Deputies of different parties here over the past week or so is that they share that view and I hope our debate here takes place in that spirit because it is what the people are looking for.
Deputy Caoimhghín Ó Caoláin: Sinn Féin wants national recovery for Ireland. We will do everything in our power to strive day and night for that objective, to serve the real national interest, and to work side by side with the Irish people in communities up and down the length and breadth of this country. That is what we stand for. That is what we have always stood for.
For that reason, because we have the national interest at heart, we want recovery and we believe there is a better way forward, we must oppose the so-called national recovery plan published yesterday by the Fianna Fáil-Green Party Government. This is not a plan for national recovery. It is a plan for national impoverishment. It is a savage plan which will force the people to pay dearly for what I described yesterday, and I make no apology for repeating it here today, as the economic treason committed by the Fianna Fáil-Green Party Government.
This Government has no right to impose such a plan on the people. The Dáil should be dissolved now on the plan’s publication, the budget should be suspended and there should be a general election. It is a travesty of democracy that a four year plan should be framed by the most reviled Government in the history of this State, a Government whose life is now measured in weeks.
It is a plan delivered by a Cabinet, which, by the admission of its two Green Party members, including the Minister, Deputy Ryan, who has just spoken, has misled and betrayed the Irish people. Yet the leader of the Green Party stood beside the Taoiseach and the Minister for Finance yesterday and lauded this four year plan to high heaven, having already handed in his party’s notice to quit. It would be a pantomime if it were not so tragic. If the Ministers, Deputy Gormley and Deputy Ryan, and their colleagues believe so much in this plan, why are they not staying in Government to implement it?
The truth is that we have a threefold democratic crisis as well as a political crisis. First, the State is being sold out to the International Monetary Fund, the European Central Bank and international money-lenders, and what remains of our economic sovereignty is being destroyed. Clearly, it is an attack on Irish democracy. Second, a Government with no mandate purports to impose on the people a four year plan, an IMF-ECB deal and a budget for 2011. Third, the two so-called main Opposition parties, Fine Gael and Labour, have bought into the doomed strategy on which this plan is based. Despite all their rhetoric of the past three years and their repeated votes of no confidence in the Government and the Taoiseach, they cannot tell us whether they will vote to stop the budget on 7 December and to stop this plan. That is critical information not only for this House, but for their respective electorates and the people across the State.
Sinn Féin stands clearly in opposition to the Government, this plan and the Government’s budgetary intent. We have shown that there is an alternative to the consensus for cuts. We have put forward rational, costed proposals to reduce the deficit through raising and saving revenue, to retain and create jobs through a major stimulus package and to protect public services and social supports. Similar proposals have been put forward by the Irish Congress of Trade Unions, by the community and voluntary sector and by many economists, all of whom have shown that there is a better, fairer way. I totally reject the arrogant assertion by the Minister for Finance yesterday that anything put forward in the next general election and not based in this plan is nonsense. That is an outrageous statement on the part of a Minister for Finance at the conclusion of the announcement of the detail of this plan.
In his budget speech in December last, the Minister, Deputy Brian Lenihan, like a British general in First World War circumstances, told us that the worst was over and that the budget represented one “last big push”. Now, like those same generals, the Minister and his Cabinet colleagues have refused to learn the lesson of their failed strategy and are sending the Irish people over the top once again into no-man’s land — perhaps it should be NAMA land — to be cannon fodder for the banks, the ECB and the IMF. Shame on the Minister and the Government.
Despite the Minister for Finance’s appeals, and the appeals of the Taoiseach and the Minister, Deputy Ryan, here this morning on the part of the Green Party, my party will not be signing up to their plan. What we need now is a dissolution of this Dáil, a general election to be held immediately and then, in the new Dáil, a progressive budget that will be part of a real plan for national recovery and that will have the confidence and support of the Irish people as a whole.
We also need a total change in banking policy. This is at the heart of all our ills. There can be no national recovery while the Government’s criminal and treacherous banking policy continues. The structural deficit of this State can be dealt with, not in the way this so-called national recovery plan suggests, but through the measures that we in Sinn Féin and others have set out in our pre-budget submission and in other contributions from a variety of sources.
The Government is about to embark on what can only be described as an insane course of borrowing to fund a failed banking policy. We cannot afford this banking policy or this loan. We need real negotiators to deal with the banks and to burn the bondholders. Otherwise, this and future generations will be saddled with a debt that should never have been incurred and for which, clearly, they are not responsible. Not a euro more should go into the Irish banks until their debts are restructured, whether through burning the bondholders or giving them — we can consider it — debt-for-equity swaps. If the Government proceeds with its banking plan its so-called recovery plan is redundant day one.
This plan aims to make an adjustment of €15 billion over four years. This is a figure that sits in splendid isolation from the €85 billion currently being negotiated for the bank bailout in Government Buildings. The addition of that €85 billion to the State’s sovereign debt will incur debt servicing of huge proportions over the coming years, amounts that we simply cannot afford.
The premise of the plan itself is fundamentally wrong, even apart from the banking elephant in the room. In the past two years, the Fianna Fáil and Green Party Government has taken €14.5 billion out of the economy through spending cuts and tax increases. Where has it got us? The recession is worse now. Yet, under this plan, it wants to take another €15 billion out of the economy up to 2014.
In pursuit of this doomed strategy, low to middle income families are to be hit with pay cuts, social welfare cuts, water charges, local service charges and a flat-rate home tax. This is absolutely incredible. Health, education and other public services are to be savagely hit. This is an attack on the low paid and it cannot be described in any other way. The plan simultaneously lowers the minimum wage and brings people on the minimum wage into the tax net. The minimum wage is to be reduced by €1 per hour, which means a person on the minimum wage would earn €15,500 a year, while the tax band has been reduced to €15,300.
In total contrast to the attack on the low paid there is no increase in the tax rate for the highest earners. Listen to this fact; it is clear that people have noted it well. This is in accordance with the belief of the Minister for Finance that a higher top rate of tax would lead to higher earners fleeing the jurisdiction. He is not worried about our young people fleeing the jurisdiction in what can only be described as a new wave of emigration.
The standard VAT rate is to rise from 21% to 23% in 2014. This is a further grievous blow to trade and commerce, most especially in the southern Border counties. The counties of Cavan and Monaghan which I am proud to represent have been very badly hit in recent years by the flow of shoppers across the Border to the Six Counties. Today, voters in Donegal South-West go to the polls. Their local economy is to be punished further if this plan is implemented, and the same goes for counties Louth, Sligo and Leitrim in the front first line. This is what we have come to expect from a Government that has repeatedly overlooked the economic needs of the Border counties and that has no plan, and no interest in a plan, to remove the distortions created by the Border and to create an all-Ireland economy. There is where solutions to many of our problems can be found.
The cuts to health and children in the plan are truly frightening. They confirm the threat of the Minister for Health and Children to impose cuts of more than €600 million in the coming year. Our public health services simply cannot sustain this savagery. Staff and services will be slashed and patients will suffer. This is set to cause long-term and more sustained damage than the cuts of the 1980s. We await with trepidation the further details that will present in the budget and in its outworking over the period afterwards.
Unbelievably, the leader of the Green Party boasted at yesterday’s press conference that the Green Party had defended education in the plan. That is some claim and some defence. Children are to be hit with a reduction of 5% in capitation grants for their schools. This will again penalise the least advantaged schools which are more dependent on Department of Education and Skills support. Higher student fees will make third level education far more inaccessible, penalising intelligent and hard-working young people and denying them the opportunity to contribute to our society because they and their families simply cannot afford to send them to college. So much for the knowledge economy that we hear about so much from Government voices.
This has been a sad and tragic week for Ireland. A week ago the Governor of the Central Bank confirmed that the IMF was coming. People are outraged that our ability to determine our own affairs has been so undermined by the Government. Ba mhaith liom críoch a chur leis an méid atá le rá agam. Cuireann sé seo i gcuimhne dom na focail sa dán “Mise Éire”, a scríobh Pádraig Mac Piarais. Níl aon dabht ach go bhfuil aithne ag an Aire ar na línte seo:
We will see the first indication of a new politically aware unsubdued Irish electorate when the result of today’s Donegal South-West by-election is formally declared tomorrow in Stranorlar. Let it be an indication of what is to come.
Minister for Finance (Deputy Brian Lenihan): Pearse and those who signed the 1916 proclamation certainly had no reservations about seeking external assistance from imperial Germany at the time. The introduction of our national heroes to this debate——
The national recovery plan has been published as negotiations for Ireland’s entry into an EU and IMF programme for financial support are taking place. The plan has been in preparation since October. It is our plan for this country and it will work. Unusually for a country that is seeking external support, Ireland is funded to the middle of next year, our economy has stabilised and we are moving into a balance of payments surplus.
As the plan points out, recovery in our economy is beginning to take shape. Our underlying budget deficit has stabilised at 11.7% of GDP and will decline to just above 9% next year. Our tax revenues are slightly ahead of target so far this year and our spending is being contained. It is now expected that GDP will record a small increase this year on the back of strong export growth. Our exports have held remarkably well through out the downturn. They are expected to grow by 6% in real terms this year.
This growth is coming not just from the multinationals. Our indigenous exporters are also growing their market share, so it is a broadly based recovery in exports that is being driven by a pick-up in demand in our trading partners and also by the significant improvements in our competitiveness over the past two years. The measures on cost competitiveness contained in the plan will build on the improvements that have already taken place and strengthen the position of our companies in the market place.
Conditions in the labour market are beginning to stabilise. Unemployment is unacceptably high at 13.6% but the number on the live register has fallen for two consecutive months for the first time since 2007. At the end of the lifetime of the plan, we expect unemployment to have fallen below 10%. Our balance of payments will record a small surplus next year, meaning the economy as a whole is paying down external debt. We are beginning to pay our way in the world.
All of these data paint a picture of an economy that is returning to growth after a deep and prolonged recession. The purpose of this national recovery plan is to plot a course to sound, sustainable growth for our economy. The plan will dispel uncertainty and reinforce the confidence of consumers, businesses, and the international community. Taxpayers have the benefit of knowing that the changes in income tax over the life of the plan will bring us to levels we last saw as recently as 2006.
The site value tax to be paid by all householders will be introduced next year and will amount to an average of €200 per household by the end of the plan, and a maximum of €100 for a large number of households. The certainty the plan gives to taxpayers about the tax they will pay over the next four years will enable them to plan their investments and give them the confidence to spend in this economy. The revenue measures in the plan will reform and overhaul our system, broaden its base and provide revenue stability so that we can raise the resources we need to pay for our public services. It is estimated that this year, 45% of income earners will pay no tax. This is unsustainable. A fundamental principle of the reform contained in the plan is that all taxpayers must contribute according to their means. Those who can pay most will pay most. No group can be sheltered. The wholesale abolition and curtailment of tax expenditures, with a saving of €735 million, will ensure that high income earners will pay their full rate of tax. The reduction of tax relief on pensions over the period of the plan is also more equitable, because the relief is now available to all at the standard rate.
We know from our experience as well as from international evidence that a broadly based tax system is more conducive to economic growth. The plan is concerned not just with the quantity of the revenue raised, but also with the quality of the measures adopted so that at the end of the plan’s lifetime, we will have a tax system that serves an advanced, growing economy. Our tax system will continue to incentivise work, entrepreneurship and innovation and our 12.5% corporation tax will remain unchanged.
Deputy Ó Caoláin intervened with regard to the position of the Border counties and their exposure for cross-Border trade. I agree that is an important issue and that is the reason firm and decisive action was taken on it in last year’s budget. It is clear from VAT receipts this year that decision has had a productive effect in terms of the generation of trade on this side of the Border. However, I take note of what the Deputy has said in this regard and that is why the planned increases in VAT are left to a later period in the plan. Similar sales taxes in the United Kingdom are seeing substantial increases currently and we have given enough leeway in the plan to ensure an alignment can always take place between the relative rates of taxation on both sides of the Border.
Our day-to-day spending will be reduced by €7 billion over the next four years, bringing us back to 2007 levels. The number of public servants will be reduced by nearly 25,000 by 2014, bringing us back to levels last seen in 2005. We will not allow this reduction in numbers to be detrimental to the quality of our public services. Reforms to boost the efficiency and productivity of the public service will be delivered in accordance with the commitments contained in the Croke Park agreement.
The reductions in expenditure are focused on the areas of greatest cost, public sector pay and pensions, social welfare and programmes such as the public capital programme. I have listened since this crisis began to Deputies talking about making savings from efficiencies. Of course we can do that, and we will. However, it is simply dishonest to suggest that we can right our economic ills without taking difficult decisions affecting the main drivers of public expenditure. Over the past two years we have made substantial adjustments through tax increases and expenditure changes, amounting to €14.6 billion. These succeeded in stabilising the underlying budget deficit this year. There is still a substantial amount of ground to be made up and the plan provides the measures to achieve this. Social welfare spending, which increased two and a half fold during the boom years, will be reduced by €2.8 billion. The available resources will be concentrated on those most in need. The system will be reformed to ensure it does not create poverty traps and disincentives to work and control measures will be intensified to assist in achieving the necessary savings. Capital spending must also provide savings. We have made significant investment in our infrastructure over the past decade and it has been transformed. In the current environment, it should be possible to deliver better value from a lower level of capital investment.
The main elements of expenditure reductions will be as follows. There will be a reduction in the cost of the public sector pay and pensions bill, social welfare and public service programmes. Savings will be achieved in social welfare expenditure through structural reform measures, labour activation and, as a last resort, reduced payment rates. Public service numbers will be cut by 24,500, 8%, compared to end-2008 levels. The public sector pay bill will be reduced by approximately €1.2 billion by 2014. For new entrants to the public service, there will be a reformed pension scheme and a 10% reduction in their pay. There will be more effective use of staff resources, through redeployment within and across sectors of the public service to meet priority needs. Work practices will be reformed to provide more efficient public services with scarcer resources. The student contribution to third level education will be increased. Water metering will be introduced by 2014 and the budget system will be reformed and updated, starting with budget 2011.
Careful choices have been made in determining expenditure for the next four years and these have been guided by the need to provide public services while at the same time ensuring that we return to growth. Investment in education, innovation and enterprise will be maintained at high levels to foster the growth potential in our economy. The labour market will be reformed to remove barriers to job creation. The minimum wage will be reduced and a short and focused review of the employment agreements that apply in the agricultural, catering and construction sectors is under way to ensure that these agreements do not endanger jobs or prevent the creation of new jobs, particularly for our younger people.
Measures to reduce the cost of doing business are also contained in the plan. It also contains a number of specific actions tailored to assist the sectors of our economy which will deliver growth in the medium term. The plan is not just about cutting the budget deficit. We must demonstrate how we will achieve growth and my colleague, Deputy Batt O’Keeffe, the Minster for Enterprise, Trade and Innovation will outline and elaborate on this aspect of the plan in the coming days. Long-term sustainable growth will be export led, but domestic demand is also critical to sustainable growth.
I want to make specific reference to the impact of any assistance package we may agree. First, the size of any programme is not finally decided, but an amount of approximately €85 billion has been mentioned. Whatever amount is agreed, it will not all be drawn down at once. The final amount is not an addition to the national debt figures in the plan. The level of funds available will allow us to replace borrowing which would have had to be undertaken in any event, if that was necessary. As far as banking is concerned, no particular level of drawdown has been agreed, but the fund is intended to be large enough to deal with all possible outcomes. The interest rate is not yet set. It will be an average rate given the different rates which will apply to the funds from different sources. The calculation of the interest rate is technical and complex and this work has not yet been completed. Therefore any interest rate mentioned at this time is speculative.
On the issue of bank reorganisation, the percentage ownership of any bank after this recapitalisation will depend on a number of factors not yet decided, including the amount of capital and whether any of it can be obtained from other sources. While various options for reorganisation of the banks have been discussed, no decisions have yet been made.
The suggestion that the plan is invalid because we have not factored information that we do not yet have is nonsense. The reform proposals and the fiscal measures must be fulfilled, whatever the outcome of our current discussions with the IMF and the EU.
I would like to refer to the commentary on our macro-economic projections. Some have said we are being too optimistic, while others say we are overly conservative. I prefer to see the forecasts as prudent, balancing, optimistic and conservative assumptions. By providing certainty to consumers, the plan will build the confidence the economy so badly needs. That confidence will impact on domestic demand and expand employment in those sectors that serve retail demand, such as retailing, catering and construction. It is important for all of us to recall that this economy has had strong balanced growth in the past. This plan provides a path for us to achieve it again. The plan is fair and proportionate. It asks us to take more responsibility for ourselves, for the financing of our public services and for the payment of our children’s college education. It concentrates welfare spending on those most in need and provides resources for public services to be delivered in an efficient and cost effective manner. It is a rational and sensible plan to bring us out of the steep downturn from which we are now beginning to emerge. We must all work together to implement it.
Deputy Michael Noonan: I thank the Minister for his observations. I found the plan very disappointing. I was expecting a magnum opus, but we did not get it. Like many people who have watched the development of this particular crisis through its final stages to the appeal to Europe for bailout funds last Sunday night, I thought there would be a heavy section on bank restructuring in the plan. That was what I looked for first when I received a copy of the plan. However, the plan is silent on banking. There is a reference on page 24 to the strengths of the Irish economy, one of which strengths is claimed to be the ready availability of a good flow of credit. Somebody must have discovered that while on holiday because it is not apparent in this country.
The Minister may say he will deal with the banking crisis or that he will make an announcement on bank restructuring shortly but my primary criticism is that the cost of servicing the bank bailout is not included in the plan. When challenged on this in a television interview, he stated that he was including everything up to 30 September 2010 but I do not know what interest rate will be applied to the bailout funds.
The rumours would suggest that the interest will be unaffordable. Even if we applied a simpler rate based on standard IMF charges of 5%, the cost over two years of the estimated €10 billion needed for recapitalising AIB and Bank of Ireland would be €2 billion. The correction of €15 billion should, therefore, be €17 billion. The failure to include this interest is a serious flaw in a plan that is supposed to inspire confidence across Europe’s bond markets. A first year economics student would immediately notice this flaw after a quick read. I cannot understand how the plan could be published on that basis when such a flaw is apparent so quickly.
The plan is disappointing in regard to a growth strategy. The House and the public are familiar by now with Fine Gael’s position. It is not enough to commit to fiscal correction. We are committed to the targets published in the plan but we would also pursue a parallel strategy of jobs and growth. The plan, however, contains the Government’s usual scissors and paste copies of extracts and concepts it announced many times in the past in Dublin Castle, the media centre or down the road at the convention centre. It proposes the same old platitudes and shibboleths. The smart economy is to be organised by the greatest bunch of dummies who ever sat in Cabinet. They are going to major on bright ideas.
Deputy Michael Noonan: The fundamental concepts of running an element of a stimulus package in parallel and, more importantly, taking a series of supply side initiatives on a sectoral basis to maximise growth and job creation are not in the plan. How many times have we argued that we could get more out of the manufacturing industry if the competitiveness agenda promoted by Dr. Don Thornhill was introduced? The Government commits to the competitiveness agenda in this plan, just as it did last year and in previous years, but the reports are put on the shelf and nothing ever happens. Even when it has the right ideas, it has not a clue about implementing them. There is nothing on information technology, research and development, pharmaceuticals or the food industry. Even in the tourism sector, the Government has such a grievance with Michael O’Leary that it cannot see the sense in abolishing the travel tax in order to bring tourists into the country. We have five star hotels, magnificent golf courses, beautiful scenery and the best of self-catering accommodation. Our main roads will bring tourists from one side of the country to the other in jig time.
Deputy Michael Noonan: We have a big terminal at Dublin Airport. The Government is doing a great job and all it is missing are the tourists. When the Minister of State observes the empty ferries going in and out of Dún Laoghaire, he might not realise that a boat is not much use to the tourism industry unless there are people on it. The same applies to hotels, bars and restaurants. I do not know what country he is living in if he thinks the Government is doing a good job on tourism. If we attracted 100,000 extra tourists we could earn more income than what we get from the travel tax.
Deputy Michael Noonan: The public service reform section of the plan is weak when compared with Deputy Bruton’s document on reinventing politics. Again, the Government does a magician’s trick by claiming the numbers employed in the public service will be reduced by 24,750 based on 2008 levels. If one works from 2010, however, the reduction will only be 12,000 out of 300,000, or 3,000 per year over the lifetime of the plan. How is that a plan for reducing public service numbers?
The Government’s entire strategy for the public service is very weak. A functioning and motivated public service will be crucial to revitalising this country but the plan is very tentative in this regard. We will face additional taxes and cuts to front-line services because it is so lame on public service reform. Everything is joined together in public administration and we will pay elsewhere for an overly heavy public service.
The labour market initiatives are very weak. The plan waves the flag of abolishing the minimum wage to impress the bond markets of Europe. Thank God, nearly 1.9 million people continue to work in Ireland and fewer than 4% of these are on the minimum wage. Minimum wage earners are for the most part young people, students or immigrant labourers. They are all vulnerable and this measure will do nothing for them. There are other ways to address the issue. In speaking about labour market initiatives several weeks ago, the UK Prime Minister, David Cameron, put it succinctly when he stated that his primary objective is to ensure work is always more valuable than welfare. The first thing one should consider is tax on work. If, for example, we reduced employers’ PRSI contribution, we would get a better bang for our buck than reducing the minimum wage. The real issue is the poverty trap. We must make it easy for people to move into and out of the workforce. Leaving aside temporary blips, it must always be worthwhile over the long term for an individual to go to work rather than stay on welfare. Once that principle is applied, we can get labour market initiatives up and running and we will not have to touch the most vulnerable in society.
When this debate started six months ago, Fine Gael laid out two principles for fiscal correction, which we acknowledged was necessary. The first principle is that it should be fair across society, with no easy ride for friends of the Government in the Galway tent. The second principle is that it should protect the most vulnerable. Those on the minimum wage are vulnerable people and they should be protected.
The provisions on pensions are narrow in focus and they run counter to the submissions made by the industry. The effect of reducing tax relief to the standard rate of 20% will be to discourage people from making provision for their pensions.
It will be ordinary middle-income people who will be discouraged from making provision for their pensions. It is being presented as the people at the top of salary scales, with enormous amounts of money, who will put big chunks of that money into pension funds. However, in that small minority of jobs where people are paid extravagant amounts, those people are key to their workplaces and they will negotiate a package where the company will make the pension contribution rather than the individual. At a 12.5% rate, which is being preserved, the company will get tax relief on the pension contribution and the individual will pay the standard rate, but big chunks of money will still go into pension funds.
The alternative approach is to cap the funds at approximately €1.5 million and cap the contribution at somewhere between €40,000 and €50,000 — I will not nominate an exact figure — then continue with the tax relief and put a temporary levy on the fund. If a temporary levy is put on the fund for the duration of the plan, there is a very significant yield but actuaries will not take it into account when calculating the actual value of the fund because it is temporary. If one considers the literature produced by those companies like Zurich or Irish Life & Permanent, which are very strong in the market, this is the formula they are opting for. It is very easy to collect the levy because the pension industry is collecting management fees already, and all it has to do is to collect the 0.5% levy on top of the management fee and send it to Revenue.
It would be a better model. This model will not work because it discourages people from taking out pensions. I am not sure what it will yield because many people will discontinue their contributions if it is done this way. Again, we have a disagreement on the specific in this regard.
There is always an argument for increasing VAT but it is one of the flaws in the plan that the Government is taking individual decisions without restructuring. Again, it is as with the case of public service reform. The Government should be restructuring because it is by restructuring that it will get the economy moving again. When it decided to increase VAT by two points, it should have reduced the lower VAT rate of 13.5%. If the standard of VAT is increased by 1% and the 13.5% rate is reduced to 10%, there would still be some €200 million to €250 million going into the Exchequer. The Government should have used the opportunity to reform VAT rather than just state we are taking the increases for revenue collection.
Nobody likes VAT increases and the retail sector is under pressure at present. However, much of that to which the 21% VAT rate applies is imported whereas the 13.5% rate applies to the newspaper industry, the building industry and the food section of the hospitality industry, which includes restaurants, bars and so on. All of those sectors are major employers in the economy. If the Government is looking at supply side initiatives across sectors to get the economy moving and create more jobs, a restructuring of VAT rather than an increase is the better way to do it.
The Government signalled forward the VAT announcement, as it has with everything in the plan. It states it is not bringing in any VAT increase in 2011. The economic reason for signalling tax increases forward has always been to change behaviour, for example, people will go out and buy the washing machine, fridge or car before the increase comes in. What we need more than anything else at present is consumer confidence to get things moving again. If a market economist was looking at this and saw we were increasing VAT, the advice would be to change the two points at the same time in 2012, which would increase it to 23%, and to announce this now to try to get consumption going in 2011, when it will be badly needed and when the Government is predicting a growth rate of 1.75%, whereas in 2012 it is predicting a growth rate of 3.5%. To do that would get consumer spending moving.
I do not know what Fine Gael’s decision will be in this regard. I am outlining the theory of changing tax rates such as VAT, and what works and does not work, as well as the difference between taking a series of individual decisions and taking reasoned decisions where one is trying to restructure tax rates to get a change in behaviour and a boost in the economy.
A big chunk of money will be taken out of social welfare. In general terms with regard to tax and social welfare, the tax corrections are front-loaded, with 65% of the income tax adjustments being taken next Tuesday week in the budget. However, the social welfare adjustments, which are more politically sensitive, are back-loaded. This is interesting in terms of getting the budget through the Dáil. We all know that on budget night there will be a series of financial resolutions but they concern tax increases. I have yet to hear a Deputy who supports the Government say he or she will vote against the Government on the basis of a tax increase. Fianna Fáil was always happy to raise taxes and it does not regard it as a no-go area. I presume that by doing it this way, budget night is looking increasingly safe.
If one considers the tables at the back of the plan, however, and the rolling budget for social welfare, one will see there is a small increase in the social welfare budget shown for 2011. I am not suggesting the Government will not do anything in this regard. Clearly, extra people will come in to the welfare net through unemployment. Following this, there is to be a big drop in 2012 and another in 2013. It seems the Government is organising its welfare adjustments as a legacy from a kind uncle to the incoming Government, and it is hoping there will be no key votes on budget night.
Deputy Michael Noonan: When the Minister replies, he might tell us what specific welfare adjustments he intends for the Social Welfare Bill before Christmas and how much he is leaving behind out of the kindness of his heart as adjustments for an incoming Government.
The cuts in expenditure are revealing. The political discussion in Cabinet was clearly centered on what to do on taxation and on welfare. I am sure that is well specified, although the full hand has not been shown in the plan. The expenditure profiles for 2011 have been carefully worked out because it would not be possible to bring in a credible budget without them. This is like the residue of a will. There is a big chunk of expenditure cuts, approximately €7.5 billion, which are effectively unspecified and have no policy decisions underpinning them. There is just a series of departmental tables taking out chunks of money. This is a clever way of doing it but if anybody thinks in analysing this document that it explains how €15 billion in savings will be arrived at, it does not; it explains about half of it. The other half refers only to, say, the Department of Health and Children or the Department of Defence where it will be a case of removing a big sum of money. It is revealing of the process which went on in Government.
I have two other points to make on the global figures. First, it seems the correction is not €6 billion but €5.3 billion because €700 million is included for the sale of State assets. This is clever, and I presume it has the permission of the Commission. This sum is being transferred across as a dividend to the Exchequer so it can be included in the figure. Therefore, €6 billion is now €5.3 billion, which will be good news for the Labour Party as it is coming down towards its €4.5 billion. They are closing the gap.
Deputy Michael Noonan: The other point is that I do not know what is the opening position. If the race starts from the line, it is 100 yards, but if the race starts ten yards up the field, it is only 90 yards.
Deputy Michael Noonan: That is correct, and we do not know the starting position either. The Government has been under-spending the capital budget and it has been getting in a little extra in taxation for the first ten months of the year. If the race starts at €500 million, then up the line the €5.3 billion figure will fall a little and the adjustment will be smaller. It is like the secrets of Fatima until we see the tables on budget day. However, I would not take anything at face value from this Government because I have been misled too often. We will have to go through everything very carefully.
Deputy Michael Noonan: I understand the memorandum of understanding which will accompany the bailout agreement from Europe will be quite specific. Recently I was briefed that it would deal in generalities but now it appears it will be specific about 2011 and, although it will be less specific about the following years, it will still be specific. Items will be included that effectively will be mandatory.
I want to tell the Commission we are not a colony but a sovereign Government. I want to tell those clever anonymous spokespersons from the European institutions that the way we behave here is governed by the European treaties and they should not advocate solutions for Ireland that are beyond the scope of the treaties. There will be a new Government, whatever its composition may be. I do not believe a new Government should be tied to the specifics of a plan negotiated by an outgoing Government that has lost all credibility at home and abroad. I want to tell the Commission straight out that will not work. We are committed to the targets but not to the specifics. If the budget goes through obviously that will change the status of the specifics for 2011 but for the subsequent years we will sit down with the Commission and renegotiate specifics. We will not accept any other arrangement from the Commission.
My final remark concerns the euro. The euro brought wealth to Ireland. It was a great idea and it helped trade and the economy. It also brought a wash of cheap credit to Ireland which did not suit our position in the economic cycle, caused us a great deal of grief and was a big contributory factor to the bubble. I do not believe the eurozone has been developed as a proper fiscal zone. One may look at the system in the United States which has automatic stabilisers for when things go wrong in a particular state and where there can be fiscal flows from one part of the country to another to maintain an economy.
The eurozone is a very undeveloped common currency area that must be developed further. I do not believe that addressing fiscal imbalances in the peripheral states and deflating them is going to stabilize it. The big countries such as Germany and France have a responsibility to get demand going in the economy. Why do they not cut their taxes, get consumer spending going and give us a chance to export to them? Was not the entire basis of the new Europe that there would be an interchange, with countries buying and selling to each other to get the economy going? The view advocated by the policy makers in Europe is incredibly narrow and I do not believe it will work. There is no point in blaming Ireland because the euro is under pressure. The euro is under pressure because it has fundamental flaws in its composition.
Deputy Michael Noonan: I have a last sentence. It is probably not known in this country that Germany has gained a lot from the crisis. German bonds are a safe haven for the savings of Europeans, particularly in peripheral countries. A reasonable calculation would suggest that German debt servicing has gone down by between €15 billion and €20 billion since the start of this crisis because of the inflow of funds from elsewhere. This pitch is very uneven at present and I am growing increasingly concerned about the weight of what is being imposed on Ireland and the lack of understanding, in particular, on the part of the European institutions although the IMF, which has experience in this area, seems to be taking a more tolerant view.
Deputy Joan Burton: The principal lord of misrule in regard to the disaster that has overtaken the Irish economy might be identified as Deputy Bertie Ahern. Although he is still a Member of this House and is frequently reported as having speaking engagements in the Panama Canal area and around the world, he has remained silent in terms of explaining himself to the House, to his own political party or to the people. However, he gave an interview recently for a new book by David. J. Lynch, which I believe is aimed at Irish-Americans and people in the United States to help them understand what has gone wrong in Ireland. I wish to read part of the interview into the record of the House because I believe it to be a genuine expression of the voice of Deputy Ahern, as he once misruled this country. In explanation for the disaster he states:
I know Deputy Bertie Ahern. That is so much his true and authentic voice. However, it also shows his cleverness. It is a crushing indictment of the Department of Finance, the Central Bank and of his anointed heir and successor, the present Taoiseach, Deputy Brian Cowen. That is the voice he wishes to leave on the history book records, never being a man not to get his retaliation in and to explain the situation in his own way.
It was crony capitalism that brought us to this — that golden circle of Fianna Fáil, the lord of misrule in the Galway tent and the bankers like Seanie FitzPatrick. Mr. FitzPatrick gave a lecture — an actual lecture — a year or so before we began to become familiar, in a way none of us would ever have wished for, with the inner workings of Anglo Irish Bank. In his lecture, Mr. FitzPatrick, as became a mega-billionnaire, lectured us that financial regulation in Ireland was the new McCarthyism. Shortly afterwards, he lectured the Irish Government, saying that old age pensioners and others should take cut after cut. We were all young and naive then, in the early days of the financial crisis and the collapse of the banks. Although I predicted the collapse of the bubble and was the first person to raise the Quinn affair, contracts for difference and the property based tax breaks, which are all on my record in the Dáil, I never thought the wrongdoings and the bust model of Anglo Irish Bank would bring down not only AIB but possibly Bank of Ireland. This week, despite all its efforts and despite the rights issue, it is almost back to where it was before. It gives me no pleasure to say that.
There, however, is the voice of Deputy Bertie Ahern. He comes in and votes in the House but never speaks although in his paid lectures he tells the world that the then Minister for Finance, Deputy Brian Cowen told him nothing. The Department of Finance officials also told him nothing. The Central Bank told him nothing.
What would a manager in any company do? He or she would say, “Sack the lot of them.” The Government has brought such incredible destruction to this country. This is what faces the Taoiseach more than anybody else. Where is the honour in continuing when it created this disaster? As early as 2006 I had a big argument with the now Taoiseach over contracts for difference and turning the Dublin Stock Exchange into a casino. Little did I know that today Paddy Power bookmakers is a bigger element on the Irish Stock Exchange than our banks. That tells all about the Celtic tiger which has turned into the Celtic tortoise. That is why people are so angry.
David McWilliams, in his book The Pope’s Children and a recent book about the crash refers to insiders and outsiders in this country. In a way, the four year plan is about insiders and outsiders. The outsiders are the little people, who have endless capacity and energy to take it on the chin and who can have a cut in the minimum wage. There is no requirement as a quid pro quo that their bosses, whether in the public or private sector — the minimum wage is mostly a matter for the private sector — should also limit their compensation packages on a parallel with what people on the lowest wage are being asked to take.
During the Dublin Theatre Festival I went to see “Enron”, by a London company, in the Gaiety. It told the story of a massive energy company which became one of the biggest financial empires in the United States and which, in its destruction, has brought, among others, the state of California close to financial ruin. However, as it is in the continental US federal system it will not bring down the dollar even though it is one of the bigger states. The play told the story of Kenneth Lay and Jeffrey Skilling, the chief executive and chief accountant. The audience comprised mostly young people from banks, insurance companies and business houses who went to the theatre after work. There was a fantastic atmosphere of excitement in the theatre.
At the end of the play the chief character, Jeffrey Skilling, the accountant who organised the tricky things to inflate the books of Enron to make it a bubble company just like our bubble economy, is in an orange jumpsuit and is obviously in jail where he will spend a lot of time. One could feel in the audience a massive wave of emotion because the outcome in Ireland, which is a result of the way we have run this crony capitalism, is unimaginable. That is the problem. There is no Madoff or Enron and Jeffrey Skilling moment in Ireland. The lords of misrule have their houses in Marbella and their little tax boltholes in Switzerland. They are around the world. They are in the pricier parts of Connecticut and New England, starting afresh or else they come back for the odd match and so on like our tax exiles.
Our tax exiles do not merit a little note in the four year plan. It is the little people who have to give and who will take it on the chin while the people who lectured us and continue to do so have the luxury of not having to do their share of the heavy lifting. What is the attitude of the Irish negotiators to the European Central Bank, the European Commission and the IMF?
I, like many Irish people, had a very strange experience recently, which Deputies can try themselves. I have been texting people because I have been doing a lot of work in examining the IMF and how its structures work. When I type “IMF” into predictive text what word comes first? The word “God.” Of course we have to have a rescue plan. We need rescuers and helpers but we also need to be emotionally, mentally and intellectually tough in the negotiations. I look at the sorry set of Ministers, who are mostly feeling sorry for themselves and not the rest of us. I see real emotion and pain etched on many faces but in many cases it is for themselves. I wonder about their capacity to negotiate a tough deal on behalf of this country.
Some people in the Department of Finance, and probably the Minister for Finance, have been hanging out a little bit too long and familiarly with Jean-Claude Trichet. I have listened to him and others speaking in Dublin. As a country, of course we have made terrible mistakes but if they think they can make Ireland a poster child for punishment by international finance agencies by destroying this country with terms of negotiation which are impossible to deal with, like the Germans after the Treaty of Versailles they will rue the day and set a bad example for the eurozone.
They need to pause because Ireland will not be able to pay these debts. I wish to tell the men from the IMF, the ECB and the European Commission that Ireland needs money at cheap rates of interest if it is going to have a chance to pay back, which Irish people wish and are committed to doing, the sort of financial advances which are being made to us.
We can apologise for having a Government which has dealt so ineptly with the blanket guarantee. I am sure the IMF is appalled to find that the room for manoeuvre in regard to the bondholders is probably very limited because of the blanket bank guarantee. On the statement yesterday on the four year recovery plan, what is the ghost at the feast? What is the ghost, like Hamlet’s father, stalking the perimeters of the plan? The ghost is the banks and the bank debts which are on our shoulders. I ask people in the eurozone not to make this a four or five act tragedy.
Act one was Greece, act two is Ireland, act three may be Portugal and, worst of all for the strategists in the eurozone, act four could be Spain. We need a serious discussion about this. People in Europe may say: “Who is a Member of the Irish Parliament, given the state in which the country is, to even dare to question us?” Solidarity is a founding principle of the European Union and the Union I support and it is a two-way street. Mrs. Merkel made a very good point in regard to bondholders bearing part of the debts. She clarified those statements to refer to the time after 2013. However, what Mrs. Merkel had to say on that is essentially sensible and reasonable in that if a bank collapses not only the shareholders, who in Ireland lost their shirts, but the bondholders, who are risk takers, should share in the losses.
I heard people here complain that Mrs. Merkel’s statement fluttered the bond markets. The difficulty with the bond markets is that if one says there will be pain for them, they will react by repricing up the interest rates on one’s debt. They are the epitome of market forces — market forces red in tooth and claw. Many of those market forces are prepared to take a punt on the destruction of the euro and are probably making an awful lot of money. They made an awful lot of money on Greece and I am quite sure there are people counting the hundreds of millions of euro they made on Ireland. They are stalking the eurozone to see where they can strike next.
It is time for the people in charge of the eurozone to think about strategies that not only maintain countries like Ireland, but maintain the eurozone because unless they can do both, the eurozone will have a very problematic future. Up to the current debacle, the eurozone, on balance, has actually been good for Ireland.
I refer to the interest rates. The United Kingdom and the Swedish finance minister mentioned rates of 3%. The IMF normally lends at rates of approximately 3.2%. These are the kinds of rates of interest Ireland requires in terms of its debt. Ireland also needs to spread some of this over a longer period.
The Labour Party has staked a position which is not popular with Fianna Fáil, the Green Party or the former Progressive Democrat. I know it is under consideration by Fine Gael. If one frontloads too much austerity, one gets this momentary approval from the markets around the frontloading of the austerity. The difficulty is that the frontloading of the austerity, if it is accompanied by penal rates of interest, will sink the country. If the same is done in other countries in this three or four act tragedy of the peripheral countries, there will be a fifth act which will be the destruction of the euro. Let us pause to think about what is not only in Ireland’s interest, but in the mutual interest of the eurozone and the euro as a currency.
I move to the contents of the report. People have spoken to me about one of the suggestions in the report in regard to labour market reforms. There will be a 10% reduction in pay for new entrants to the public service. The Government and all the parties in this House should clarify at, or after, the next election that it includes Deputies and the incoming Government. That is my view which many of my party colleagues share. It is something about which people must think but one cannot load pain on young people coming into the public service and then say that the people at the top of it are, somehow or other, exempt from it.
I agree there needs to be measures in the social welfare system which encourage people to get back to work. One cannot have a system where young people are encouraged to see life on the dole as some kind of permanent position. When the Labour Party was last in government, I was a Minister of State in the Department of Social Welfare. We created the back to work scheme and a series of returns to health, education, training and work in the community. Much of that was done away with during the years of the Celtic tiger. The feeling among agencies like FÁS was that the people on the unemployment register were somehow unfit for work. We must change all of that.
We have extraordinarily well qualified people on the register, many of whom have fine professional qualifications. The challenge for us and the smart economy, which is mentioned in the plan, is to think smart about how those people can contribute. We have suggested graduate internship schemes and various return to work experience schemes. All those options must be activated.
We have suggested rents should be reviewable downwards as well as upwards. There is a hint of that in the plan but it is not spelled out. The Government has refrained from spelling out the details of the tax and pension changes.
I was in a debate not so long ago with the Minister for Justice and Law Reform, Deputy Dermot Ahern, and I talked about property-based tax breaks being capable of producing €800 million in savings over a couple of years. As he does, the Minister got a bit annoyed and said he had advice from the Attorney General that this was impossible. I am glad the winding down of tax breaks has finally been acknowledged and included in this document. That is a bipartisan move on the part of the Government which I welcome.
There must be a new kind of bipartisan politics in which there is robust debate. Some of the Ministers who have been in government for 13 years must acknowledge that the monopoly on wisdom is not held by Fianna Fáil and that Fianna Fáil must yield to others and acknowledge that our ideas have merit. After all, we advised Fianna Fáil correctly on the bank guarantee. For its own reasons, it did not accept that advice.
People in Ireland can be very robust in their opposition to any or all of the measures. That is a democratic right. However, I plead with people not to be photo fodder for some of the international media stalking Dublin and various buildings. Ireland is not just ghost estates and piebald ponies left to run in fields, even though those images are appealing. In Greece, the impact of the violence that occurred has been to really damage its tourism trade. Tourism is a really important earner in this country and it will help it to recover. I appeal to people in some of the smaller political organisations — I know some people are mad as hell and do not want to take anymore — not to be used as photo fodder presenting the worst imagine of Ireland.
There are good things about Ireland. We are in a difficult place but we have great people and we will recover. Our Administration is acting like the Hoover administration in the Great Depression. We need a Rooseveltian administration which will produce a New Deal for this country and will help it to recover.
Deputy Arthur Morgan: I welcome the opportunity to address this four year plan from a Government which has, at best, two months to run. It is wrongly entitled the national recovery plan. The national destruction plan would be a considerably more appropriate name, given that it is coming from a Government which is badly broken and split, and which has no credibility either internationally or here on this island. The sooner an election comes to deal with the matter, the better.
There are two aspects to this plan with which I have considerable problems. It is littered with regressive measures that will deflate the economy and there is no stimulus in it. It is all about deflation rather than the required stimulus. I will return to that point. A second concern is that it does not deal with the banking bailout cost. The Minister for Finance, Deputy Brian Lenihan, told us at the beginning of this crisis two years ago that the banking bailout would not cost the taxpayer a red cent, and if it required some front-loading of charges, the banks would be levied and the overall cost would be zero. How naive is that, and how can the Government not even address the issue of the bailout, with the significant cost to the taxpayers of this State? It does not concern just one generation but several, yet the matter is not addressed.
We can consider the Government’s banking strategy. Representatives from the IMF, the ECB and the European Commission are in town and I am due to meet them immediately after this contribution. They are negotiating with the Government, which still does not know the cost of the bailout two years on. It is important to point out that in those years the Government has focused almost entirely on the banking sector and has not produced any significant stimulus package to create or retain jobs. This is all about the banks, yet two years on there is still no idea of the cost of the banking bailout.
It was telling that yesterday during Leaders’ Questions when Deputy Enda Kenny queried the cost, the Taoiseach was hesitant. Deputy Kenny mentioned the figure of €85 billion that has been mooted for some time and asked if the final figure would be greater. The Taoiseach replied that the figure could be close to that figure and he did not think it would go into triple figures; he mentioned that we are looking at double figures. The €85 billion consists of 11 figures, not double figures. Is it any wonder that we are where we are under this Government when it is so casual about these matters?
It is ironic that a Minister, Deputy Eamon Ryan, was cautioning us in his contribution to these statements. He indicated that we must be very careful with figures and should not throw them around. The Government should provide the figures if that is the case, as I believe the cost of the bailout will be well in excess of €85 billion. It will be closer to €120 billion or €140 billion. I hope it can be contained.
The Government is not good with figures as it thought the deficit was in the order of €7 billion but we now know it is €15 billion. In September the Government thought the required adjustment for this year would be €3 billion but it is now €6 billion. Imagine a member of that Government cautioning the Opposition and Members of the House to be careful with figures when that is being thrown around.
The IMF is probably serious about trying to get to grips with how much this bailout will cost. Its representatives have gone to the banks and may have had to push out some of those hanging on from the bad days who created this mess in the first place. Almost half the boards of the banks and executives who led the banks through this crisis, who brought us deep into the mire with the Government looking the other way or encouraging them in some cases, are still in place. That is completely unacceptable. There is now the prospect of the IMF trying to establish the exact figures and proposing the course of action to be followed.
I mentioned the board members and directors of the banks. More than two years later not one of these is in prison or has even been brought before the courts. I wonder why this is so. Who is blocking the justice system and what roadblocks are in place preventing some kind of inquiry? The Garda investigation has been ongoing for some time so what is preventing it from coming to a conclusion with people being charged and hauled before the courts, as happens in any other walk of life? The golden circle seems to be exempt even from the justice process of the State, which is shocking.
We are discussing how much the bailout will cost but whatever it is it will be too much. We cannot afford the bailout as we do not have the industrial and economic base in this small State or across this island for it. A conclusion must be reached sooner rather than later, although how can it be sooner, given that two years have elapsed? There will either be a negotiation or a burning of bondholders. There may be a debt for equity swap. Something must be done because this State, even with the significant bailout from the IMF and ECB, cannot afford the process. A large part of our financial difficulties come from it.
In his opening contribution to this debate the Taoiseach cautioned us that the problem will require focused attention on the economic crisis. It needs somebody to figure out the problem and deal with it, which the Government has not done. We have had no leadership from the Government at all in the banking crisis, so what good is that focused attention? Ireland’s banks are bust and we should decouple them from sovereign debt. We must deal with them in the way I outlined by dealing with the bondholders and finishing with the issue once and for all.
The bailout will not reduce the amount we owe by even one euro and we will still have to pay a crippling debt in return for the bailout from the ECB and IMF. That will see Ireland accept more debt, primarily because the interest rate, as speculated on currently, is in the order of 5%. We have no idea if the figure is right as it comes from speculation. The 5% figure can be compared to the figure just above 1% that we got from the ECB recently, which shows our position in real terms. The Government has indicated that as recent developments in the international bond markets have shown, persisting with the current scale of borrowing will result in interest rates remaining at unaffordable levels. We know that and sovereign bond markets are punishing Ireland while the current policy of protecting all bank bondholders remains in place. That will continue until the Government gets real on the issue.
The Minister for Social Protection, Deputy Ó Cuív, is present in the Chamber. I regard him as a person conscientious about his work and position in the Government. I hope somebody in the Cabinet will bring this message to the debate and look for the Government to wise up. I know the Government is being driven by the European Commission on saving these bondholders but it should look to what is right for the Irish people. The Government should remember them in some of these negotiations.
With regard to the regressive measures mooted in this plan, the Government has always said it will do what is fair and equitable, protect the vulnerable and go after those who can afford it. Let us have a look at that statement. I do not believe the reduction in the minimum wage is fair and equitable. As Deputy Noonan indicated, most of those earning the minimum wage are students or women in menial, tough jobs. Rather than giving poor devils who work hard a payment of €8.65 per hour, the pay of those on the minimum wage will be reduced. They also face a double whammy because they will be drawn into the tax net under the Government’s taxation proposals. Instead of dealing with wealthy bondholders — the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, identified them earlier, although we knew already that they are large pension funds and insurance companies — the Government is going after those on the minimum wage by reducing their pay and hammering them for a second time through the tax code.
The document does not give any indication that the Government proposes to go after those earning big bucks such as the chief executives of semi-State companies who have salaries of more than €500,000 per annum. Perhaps the Minister will indicate the reason for this oversight. Will individual Cabinet Ministers indicate whether they contributed to the debate at Cabinet level on whether to protect those on the minimum wage or allow the extremely wealthy to continue to enjoy huge salaries? We will be told the Government went after the latter group when it reduced salaries by 7% and by a further amount thereafter. That is nonsense because those at the top of the pile are getting off virtually scot-free. It is grossly unfair that those at the bottom of the rung are hammered on every occasion. The Government is looking in the wrong place by focusing on marginalised people who can least afford cuts rather than those who can afford them.
The Government’s plan proposes to reduce the threshold at which income tax is paid to bring people on the minimum wage into the tax net. The document does not propose to go after people who are earning in excess of €100,000 per annum, as proposed by Sinn Féin in the pre-budget submission it made to the Government some weeks ago. We proposed the introduction of a new tax rate of 48% for those earning in excess of €100,000. Did the Minister or any of his colleagues read the Sinn Féin document which I sent to the Minister for Finance?
Deputy Arthur Morgan: I hope the Minister will respond to the contents of our submission because I would like to debate it with a Minister, either in the House or elsewhere. The sooner we do so, the better.
The Government’s agenda of going after low income families is grossly unfair. The proposal to increase the VAT rate from 21% to 23% is another regressive measure. I warmly welcomed the Minister’s decision to reduce VAT by 0.5% in last year’s budget. The measure had an immediate effect in reducing the number of shoppers crossing the Border into towns such as Newry, Enniskillen and Derry. The effect was almost instantaneous and helped businesses in Border towns which had been badly affected by the previous increase in the VAT rate. An increase in VAT will have a significant effect. It will result in larger car parks being built in Newry, Enniskillen and Derry, while shopping centres in those towns will be extended to cope with the influx of shoppers from this State. Businesses in the South within a large radius of Border will close their doors.
VAT is a regressive tax because lower income families pay a substantially larger part of their income in VAT on ordinary household goods than well-off families. The proposal to increase VAT is grossly unfair and completely wrong.
The Government proposes to reduce public service numbers by 24,750. While I fully support reform of the public sector, it should not be dragged out over six or seven years. We do not need more reports which will lie on a shelf for years. Public service reform should be led by a Minister who is up for the job and will act quickly to ensure efficiency in the public sector. If this involves job losses, so be it, because we need an efficient and effective public sector that will deliver the services people in this State deserve. To take an axe to the public service, as proposed in the plan, will probably result in the most competent public servants leaving the sector or retiring. A more efficient process should be introduced to ensure the public service does what it should do.
It is proposed to increase the student service charge from €1,500 to €2,000 per annum. This is despite everything we hear about the smart economy. The Green Party informed Deputies earlier that it had been successful in protecting education. However, as my colleague, Deputy Caoimhghín Ó Caoláin, addressed this issue at length, I do not propose to be repetitious.
An average growth rate of 2.75% has been projected for the four year period. Some of this growth is based on current export levels. I believe the export figures are being distorted by several percentage points as a result of the vast amount of plant and equipment leaving the State, mainly destined for Poland. I do not know if this trend, which has been particularly acute in the past 12 months, has been factored into the export figures as a dividend for the State. It is nothing of the kind. It is a short-lived phenomenon and we will shortly experience its repercussions.
Sinn Féin offered a different approach from that of the Government. We proposed to levy additional tax on those with individual incomes of more than €100,000 per annum, cap public service pay at €100,000 and introduce substantial pay cuts for Ministers, Deputies and Senators. Were our proposals considered? None of them has been included in the four year plan, which suggests the Government does not like my party’s approach.
Sinn Féin also proposed substantial debt reduction measures amounting to €4.67 billion and a stimulus package in excess of €2.5 billion to promote job creation. Any amount of evidence is available that the system has capacity for jobs growth. For instance, the agrifood sector, to which several speakers referred, has major potential for jobs growth and export development. Despite this, the Government has not given any signs that it will take significant measures in the sector.
Sinn Féin’s tax raising proposals focus on those who can afford to pay as opposed to those on the minimum wage. The Minister for Finance informed the House that the reductions in expenditure are “focused on the areas of greatest cost”, which he proceeded to list as public sector pay and pensions, social welfare and programmes such as the public capital programme. Rather than approach expenditure reductions on the basis of identifying who can afford to pay, by his own admission the man in charge, the Minister for Finance, attacked the high-cost areas. We know the reason the Minister faced in the completely wrong direction when he sought cuts.
I took the opportunity to find out how Greece was managing its memorandum of understanding, in other words, the terms and conditions of the bailout it was provided. Among the impositions made by the EU-IMF were an increase in VAT rates, an increase in excise on fuel, tobacco and alcohol — I suppose we could live with that one——
Deputy Arthur Morgan: ——a reduction of €500 million in public investment, a broadening of the VAT base by including services currently exempted from VAT and moving a significant proportion — at least 30% — of the goods and services currently subject to the reduced rate onto the normal rate.
Again, this is a highly regressive approach. I am due to meet these IMF people within the next two minutes but so much for the memorandum of understanding that was used in Greece. This provides some idea of what we are dealing with in respect of the IMF and the ECB. However, I do not expect the Government to approach this in a constructive way on behalf of the Irish taxpayer or Irish society because its record is all wrong. The record of the Government is atrocious and the sooner there is a general election the better, to enable the people of this State to get some kind of relief from the vagaries, to put it at its mildest, of the Government.
Minister for Social Protection (Deputy Éamon Ó Cuív): Very good. Many times, speaking time in this Chamber can be quite curtailed. Tááthas orm deis a bheith agam cúpla focal a rá faoin bplean a d’fhoilsíomar inné agus ar ndóigh, tá sé fíor-thábhactach go mbreathnóimid go géar ar na roghanna atá romhainn agus go mbreathnaímid ar na fíricí mar atá siad, ní mar ba mhaith linn iad a bheith. I am delighted to have an opportunity to speak on the plan and hope Deputy Morgan will wait——
Deputy Éamon Ó Cuív: Since the difficulties with the banks started, some of the political parties in this country have resorted to constant sloganising, rather than analysing the issues. In fairness to my colleagues on the benches directly opposite, they accepted that the collapse of the banking system, the closing down of the ATMs and the inability of people to gain access to their deposits would have been an unthinkable catastrophe. Unfortunately, the Labour Party did not agree with that approach and believed there was a magic solution that would keep the ATMs going and people’s deposits safe while at the same time allowing banks to close. Such a proposition is both implausible and impossible. At the time of the guarantee, there were €51 billion in deposits in Anglo Irish Bank, of which €21 billion were of Irish origin. Does the Labour Party really suggest it believes it would have been of no consequence to this economy or that it would not have caused great disruption to people and their savings, had that €21 billion been lost? I hope the Labour Party would not be so cavalier with people’s money.
Moreover, that money was made up in many ways. Charitable organisations had deposits in Anglo Irish Bank, as had many commercial organisations that are providing employment. I believe many credit unions had deposits in that bank, as there also were interbank deposits. In other words, what the Labour Party has never been willing to admit is that if one allowed the collapse of a bank, the contagion throughout the system could bring down the entire banking system. Therefore, at the time the Government guaranteed the banks, the option was either to put in a wholesale guarantee to protect the system or to face the terrible consequence that everything one takes for granted every day would longer exist. The ability to withdraw one’s own deposits, to get money from the ATM machines or to make payments by writing cheques no longer would exist.
However, the amazing thing about the Labour Party is that it then put forward a proposition that the Government should actually pay the shareholders to nationalise the banks. The Labour Party wanted the Government to give money to the shareholders of AIB and the Bank of Ireland. That would have cost €4 billion of taxpayers’ money to bail out shareholders, had the Government followed the Labour Party’s mantra. The banks will be in State ownership, more or less, but the Government will not have paid a single euro to bank shareholders for those banks, contrary to what the Labour Party wanted to do.
Deputy Éamon Ó Cuív: I have read the Labour Party documentation. There was a stock market valuation on the banks at the time and if one nationalises something, one must pay the market value at the time.
Deputy Éamon Ó Cuív: I must be amused by the hypocrisy of this House. I understand there was a religious service for deceased Members of the House yesterday. For those who ridicule religion, it amazes me that many of them will attend such a service. Yes, I admit to having a belief in God. I do not know whether many other Members share that belief any longer and the ridicule of religion shows a certain lack of tolerance.
Deputy Simon Coveney: I seek clarity from the speaker as to what he is talking about when he raises religious beliefs as part of this debate. That is a private matter and has nothing to do with politics.
Deputy Éamon Ó Cuív: Sorry, I said something on a radio programme. I was asked about a policy and whether it was the final solution. I replied that I hoped and prayed that it was, which was a colloquial term. The presenter picked me up on that issue. As I noted, one often uses phrases such as “please God” or in Irish one often would say “is cuma sa diabhal”, all of which use religious iconography. However, it was the Deputy who started to denigrate me because I happened to use the word “pray” in a sentence but I will leave that to the Deputy. She obviously is highly sensitive about Labour Party——
Deputy Joan Burton: ——is asking the Minister whether he got an answer to his prayers a denigration of anyone’s religion? It was a question. I did not make any comment on the religious views of the Minister or his party.
Deputy Éamon Ó Cuív: When that happens, the Labour Party will be obliged to state what it intends to do. If, as the Deputy expects, it wins the election, whenever it is held, it will be obliged to make the hard decisions it has avoided articulating over the last few years. The Labour Party no longer will be able to use a set of accountancy figures that simply do not stack up in any real sense of mathematics that I ever was taught. These are the hard facts that will face the Labour Party. At least Fine Gael has shown some realism, although I do not agree with all its policies, but the Labour Party is living in absolute fantasy land. It tries to persuade people that there are a lot of easy answers that simply do not exist in any real world.
A second point that it is important for the two Opposition parties to clarify is whether they propose that existing senior tier 1 bondholders in banks are not to be paid back the money. I believe that had the Government followed that path, bad and all as our problems now are, they would have been much more serious than they are today. It is about time the Opposition made it clear exactly what is its policy.
Deputy Éamon Ó Cuív: Deputy Arthur Morgan obviously has not read the plan. He obviously did not read the sections that deal with tax relief and pension contributions. In fact, there is a radical change in the way tax relief will be available on pension schemes. It will ensure that rich people will not be able to shelter large sums of money in pension relief. I quote a sentence from the plan: “Pension tax expenditures will be kept under constant review to ensure that abuse of tax sheltering does not take place.” That is right. I have always believed that pension funds should not be a place where the very rich can hide their money and avoid taxation.
We are also reducing the annual earnings cap for personal contributions by almost 25%, to €115,000 per year, and introducing a lifetime cap on pension contributions. This is very significant and important because it will make those who can pay do so, including those with very large incomes that they could put into a tax shelter.
Some parties make great play of increasing the top rate of tax. One might get another 4% or 5% there but one might not. If the top rate is too low one raises no money and if it is too high it might be a disincentive, which would not be in the long-term interest of the development of the economy. It is much more advantageous to get rid of tax breaks. Tax breaks to be finished in the budget include those for patent royalties; investment in machinery and plant for exploration; approved share options and; benefits in kind. We are totally closing down many tax shelters. Increased revenue in those cases will be 41%. We have also made it clear that we will be charging PRSI and the health levy on pension contributions. The plan is radical in tackling the issue of those at the top paying a fair and equitable amount of tax, particularly those whose incomes are so large that they could avail of various tax shelters and tax avoidance measures that have been there in the past. That is an important part of the plan.
When one goes through departmental Estimates, as every Deputy does in some committee of the House, one often finds it is not so easy to make saving. I am always fascinated when I debate the Estimates for my Department in a select committee. Deputy O’Dowd and I have done so often. I cannot remember Deputy O’Dowd ever pointing out where I could save €10 million or €15 million in the Department of Community, Rural and Gaeltacht Affairs. Most of the time he was telling me that expenditure was not half enough and that I should be spending more on the various schemes.
Some 38% of current expenditure relates to the Department of Social Protection, which is my Department. My Department must have a huge focus on the old, the unemployed and the invalid. Therefore, we must look at how we can reduce expenditure while minimising the impact on ordinary people.
People often ask where all the revenue from the Celtic tiger building boom went? Much of it went on improving the social welfare system. For example, expenditure in 2000 was €6.7 billion and expenditure in 2010 will be €20.9 billion. Some people, who do not do the sums, will argue that this is caused by the increase in unemployment. However, the total payment for jobseeker’s allowance and jobseeker’s benefit is approximately €4.5 billion, and there are always people in receipt of unemployment payments, full-time or part-time. Unemployment payments clearly account for a very small fraction of total expenditure. The rest of the increase went on improvements in schemes and a huge increase in the rates of social welfare payments. For example, we increased the average rate of payment for schemes by approximately 130% at a time of 40% inflation. There were real gains for people receiving payments from my Department. In ten years, we multiplied expenditure on carers by six, at a time of 30% inflation. How did we do that? We introduced a half-way carer’s allowance, which is much prized by, for example, pensioners who are caring for other people. We also introduced the respite allowance. We increased income disregards for the means test and we increased rates. We used a lot of money during the Celtic tiger years to improve the lot of carers. The challenge in my Department is to hold onto as much of that architecture as we can in the middle of a world downturn. That is what we will seek to do.
As I indicated yesterday and as is indicated in the plan, there will, of course, be cuts in rates this year. We will also be seeking to match those with other savings that will not impact on the provision of services.
It is also our intention to cap the payment to RTE and CIE in relation to the free television licence and free travel, but that will not impinge on the existing or future rights of people to free travel or the free television licence. It is our belief that the sum we pay on behalf of people entitled to free television is more than adequate for the service being provided by the public service broadcaster.
How will we deal with the reduction of €3 billion in the spend of my Department, which will still be by far the biggest spending Department in Government, over the next four years? I take exception to the statement issued by Social Justice Ireland yesterday. It tried, totally contrary to what is said in the plan, to indicate that savings would be made solely by rate cuts. Rate cuts are the least attractive option. They will be the option of last resort and every effort will be made in 2012, 2013 and 2014, to ensure that rate cuts will not be a major contributor to savings.
Deputy Éamon Ó Cuív: We will make savings by a number of methods. First, we will introduce greatly enhanced control measures. I know “Prime Time” came up with the ridiculous figure of €2 billion that could be made in that way. I wish it were true but I do not believe it is. However, there is money to be saved by extra control measures. For example, we will be introducing the public services card next year. Other developments have taken place in the last year, some of which are subject to the enactment of the Social Welfare (Miscellaneous Provisions) Bill, which is before the Dáil at present and some of which are subject to the Bill that came before the Dáil earlier this year. They will give us savings in control measures. A more modest saving than suggested by “Prime Time” would be possible. The Opposition tell me €200 million is a small figure. If that amount could be saved by my Department it would be a significant contribution to the €600 million that must be saved in 2012.
The second method of saving will be to reduce unemployment. That is very important and it is why so much of the plan has to do with competitiveness. The figures are simple. Everyone who no longer claims jobseeker’s allowance or jobseeker’s benefit saves the Department an average of €12,000 per year in direct expenditure. If 10,000 people were removed from the live register, there would be a saving of €120 million. A reduction of 20,000 on the live register would yield a saving of €240 million. If one added to this the PRSI and tax that would be paid, the figure would increase to €400 million, as I am told constantly by the Opposition. Therefore, when one considers the figure of €600 million, one will see there is another way.
The third point concerns a much more aggressive national employment action programme. A national employment action programme will be beefed up next year. Many more people will be called for interviews and we will increase the number of places on a number of schemes. I will implement the provisions of the Social Welfare (Miscellaneous Provisions) Bill 2010.  Therefore, those who do not interact with the national employment action plan, either in terms of obtaining a job or training, will be subject to the penalties listed in the Bill, which will allow us to reduce the rate received by those who do not turn up for interview.
Statistics recently provided to me by my Department show that 8% of people called under the national employment action programme did not attend for interview and continued to claim payments. That is intolerable. If one who is unemployed and actively seeking work is invited to an interview to try to help one get a job, the least one should do is turn up. We must stop codding ourselves in this regard and must not tolerate circumstances in which no sanction is taken against those who fail to turn up. In fairness to Fine Gael, it supports my approach. It is only if all these actions do not result in the required saving that rate reductions should become a reality.
I mentioned a figure of €600 million for the budget of 2012. It is clear that significant savings can be made by being proactive. I intend being proactive on these issues for as long as I am in the Department. If one saved €500 million of the €600 million, the rate reduction one would need to make up the balance would be in the order €1.10. Therefore, there is a massive onus on us to ensure that we stop paying social welfare payments to those who are not entitled to them. We must send a message out collectively that cheating social welfare now is putting one’s hand in the pocket of the old, disabled and unemployed. This can no longer be tolerated in our society. The old approach of nodding and winking in respect of people signing on and of people with very respectable backgrounds paying such people in the knowledge that they are signing on, must now come to an end.
Deputy Simon Coveney: This is an important debate. Unfortunately, it comprises statements rather than a motion. I would like to use this democratically elected House to send a message to the European Commission. I spent three years as a Member of the European Parliament, three of my most rewarding years in public life. If there was one word I understood at the end of those three years, it was the “solidarity”. It is not a word that I understood when I first became a Member of the European Parliament or that I really embraced when growing up. However, it resonated for me every week in debates in the European Parliament, many of which debates were emotive. I was a Member at a time when new member states joined the Union and when French and German MEPs were marking the end of the Second World War and the setting up of the European Union.
I remind Commissioner Rehn and others, for whom I have a lot of time, that Ireland now needs solidarity. We have not asked for it before. Ireland will never need solidarity in terms of military protection but it has a self-created catastrophe based on the debt it will have to incur in the coming years. We require understanding and solidarity from our European partners. The idea that Ireland would have to pay interest of between 6% and 7% on funds drawn from an emergency stability fund, contributed to primarily by EU member states, is totally inconsistent with the principles of the European Union, to which I am absolutely committed, and with everything I learned as a young MEP in the European Parliament. I remind the EU delegation in Ireland that this is not about teaching Ireland a lesson or sending out a signal to other countries in the Union that if they must access emergency funds, it will cost them. It should be a question of member states who can afford to do so helping out a small country that has made a mess of its finances and governance because of irresponsible banking and irresponsible political behaviour in government.
Ireland needs a solidarity fund. Unfortunately, we have had to compromise our sovereignty and independent decision-making in order to access that fund. We need a fund that we can draw on while incurring little or no interest, perhaps with increasing interest rates over time, after which we will have been given time to breathe and rebuild our economy, as we have the capacity to do. In the short term, however, we will not have the capacity to grow as a country and economy and build the kind of lifestyle we need to build here and elsewhere in Europe if we strangle the people with interest rates such that we will be spending 20% to 30% of taxation revenue repaying interest on loans we are now negotiating with EU member states. Whatever about the IMF, I want to send that message to the European Commission. The message is from a member state that has been loyal and committed to the European project from the very outset and which has worked hard to achieve certain outcomes in referenda when it was difficult to do so.
We are debating a national recovery plan. Young people were present in the Visitors Gallery for the Minister’s speech. Does he believe they are leaving the House inspired in the belief that they will be more likely to get a job in two years than now? Does he believe their parents will be inspired to believe that this country, although everybody, apart from totally unrealistic people in the House, accepts we need to take pain——
Deputy Simon Coveney: Does the Minister believe their parents believe the pain being prescribed in the four year plan is leading Ireland to a better place? Does he believe that is a convincing argument? I do not.
Ireland’s recovery will not be through necessary taxation increases and expenditure cuts. The belief the Irish need right now from the Government will come from a commitment to reform, proceeding differently, leading by example, and changing the political system before asking people to change their households. There is nothing about this in the four year plan.
Fine Gael has made a commitment to reduce the number of national public representatives by 35%. We are going to change the way this House operates and the way in which decisions are made. We are going to put in place an independent fiscal council which will give to Opposition parties resources similar to those available to Government parties. We will not keep people in the shade in the way those currently in government have done during the two years of this crisis.
Deputy Simon Coveney: The only stimulus of any note in this plan relates to capital expenditure programmes. Unfortunately, the deal the Government is currently negotiating with the IMF and with the EU institutions completely undermines the credibility of the national recovery plan. The plan states that in the next four years the ESB, a semi-State company, is going to spend €6 billion on infrastructure projects throughout the country. However, the ESB and every other State company and asset is going to be used as collateral or security for the loan in respect of which the Government is negotiating. We do not, therefore, have the capacity——
Deputy Simon Coveney: Bord Gáis Éireann has cash reserves for the next 18 months but after that it will have a funding crisis because it no longer has a credit rating that will allow it to avail of euro bonds. The Minister does not know what he is talking about.
Deputy Fergus O’Dowd: Let us get matters straight. The Joint Committee on Education and Skills wrote to the Tánaiste and Minister for Education and Skills inviting her to come before it in order to discuss the headings under which the current Administration is preparing the budget for the coming year. The Tánaiste refused that invitation. The Government refuses to be accountable to the Dáil for what is happening at present and for what took place in the past.
The key point I wish to make is that our sovereignty is gone because any view we might have must be referred to Brussels. Perhaps we have reached the stage where the Government will rename Áras an Uachtaráin “Áras Rehn” because it is clear that the power relating to the governance of this State lies elsewhere. Consent and agreement must now be obtained from the European Commission in respect of any proposals of a financial nature which we wish to put forward. That is the sorry pass to which the country has come.
We have been reduced to a terrible state. Under the current Government, there is no hope. It has put before us a plan for the next four years which it will never be allowed to implement because the wrath of the people will be visited upon it in the forthcoming general election. The Government is setting in stone certain things which we do not accept. As Deputy Kenny stated last night, one of the key attacks it is making is on the poorest and most vulnerable in our society, namely, the lowest paid. Those who earn least will suffer disproportionately under the proposals contained in this plan. That will have to be changed. A new Government will be obliged to put in place a plan for the nation. It will not be the current Administration which will be doing this. That is why a general election must be held as soon as possible.
The plan does not contain any of the reforms that are required in respect of the public sector. Such reforms could be easily insisted upon by any or all Ministers. In the area of education, there has been a disgraceful situation whereby those at the top levels in universities have been paying themselves moneys to which they were never legally entitled. For example, three presidents of the University of Limerick, concurrently and over a period of three years, drew down the full salary relating to the position of president. A former president of University College Galway was obliged to repay more than €250,000. In addition, staff at UCD were paid in excess of €1 million to which they were not entitled. In circumstances where people at the top are being paid money to which they are not entitled — even under law — and where the poorest and most disadvantaged are being screwed to the wall, it is obvious that there are grave inequalities in our society.
When I was a member of the Joint Committee on Transport, we tried to examine the position regarding bonuses in the public sector, particularly those paid out by the harbour authorities. We challenged the latter to outline the bonuses that were being paid and representatives from one of the authorities stated that we had no right to request such information. Bonuses are being paid to people in the public sector about which we do not know and about which the relevant individuals will not provide information. Harbour authorities are unaccountable and will not provide details in respect of their budgetary affairs to properly constituted Oireachtas committees. Some in the universities are running riot while seeking to look after themselves and now the Government is proposing to tax the very people who require to be retrained. More than 40,000 students are currently attending plc colleges and the Government is proposing to impose a tax on entry of €200 per head on those who, having lost their jobs, are seeking to enter these institutions in order to try to improve their job prospects. Neither adequate nor proper consideration has been given to what is being proposed.
The Government proposes to tax people on the lowest rung in society who are paid the least. In that context, I wish to read into the record a letter I received from a constituent. All Deputies receive letters of this nature, but the one which was sent to me is exceptional. It was written by a man who is in his nineties and whose wife is also in her nineties. The letter states:
As already stated, the letter from which I am quoting was written by a man in his nineties who is in a state of despair regarding the way he is being treated and the way in which his wife is being treated in the nursing home in which she resides. There is no doubt that these people are being treated in a shameful and disgraceful manner. I accept that the Government put the fair deal scheme in place. However, the man and woman to whom I refer are being obliged to pay additional charges in respect of occasional concerts, baking demonstrations, flower arranging and mass. These people are being charged for things to which they should be automatically entitled or of which they will never be in a position to avail.
That which I have outlined is happening because the Government has allowed those who operate nursing homes, employees of State bodies and the chief executive officers of organisations such as Coillte to pay themselves enormous sums — in some cases up to €500,000 per year. The head of the Dublin Airport Authority is paid €750,000 per year. Despite this, the Government expects ordinary people to take it in the neck. That will not happen. The Government will be rejected by the electorate and will never be in a position to implement the national recovery plan, which is fundamentally wrong in respect of certain core issues.
As already stated, this message was sent from Baghdad, which is located in one of the most unsettled regions in the world. Those in that city are looking forward to a new government while we have chaos here. The person who sent the e-mail proceeds to state, “If I had to describe it, I would describe it as reckless banking, no regulation and failure of Government, who were totally complacent and indifferent.”
When I think of Baghdad, I am reminded of Chemical Ali who, when American forces were approaching that city, appeared on live television and stated that there was no problem and that the Americans had been surrounded and destroyed. The position with the Taoiseach and the Minister for Finance is somewhat similar. For a long period they made public statements to the effect that there was no problem here, that matters were under control and that there were no difficulties with the banks or the economy. The American invasion of Baghdad provides a good analogy for what happened in respect of our crumbling economy.
On this recovery plan which, ironically, this Government will not be implementing, there are a few matters I want to mention briefly. As regards tourism — my area of responsibility — I thought there would be some mention of the travel tax, which has been a disaster for tourism. Tourist numbers will be down by 1 million this year and we will lose €1 billion in revenue. The travel tax was supposed to yield €120 million but it will yield only €80 million. Whereas Mr. Michael O’Leary might say much that suits himself, I agree with him in this regard. People are influenced by that cost when booking tickets. The travel tax has been a major stumbling block for Irish tourism. In Holland, they were getting more than €300 million from a travel tax, they abolished it and they reckon they have gained €1 billion, in other words, a net gain of €700 million. This tax is daft and should be removed immediately. We could make it a condition that both Aer Lingus and Ryanair will bring in the passengers, something to which Mr. O’Leary has given a commitment. He has stated he will bring in 5 million to 6 million extra passengers over a short period of time and create up to 6,000 jobs.
The plan does not mention that hotels and restaurants all over the country are under considerable pressure from costs and charges. In the good times of the Celtic tiger I argued here with a previous Minister for tourism, my county colleague, Deputy O’Donoghue, that excise duty and every other cost was higher in Ireland than all over Europe. We lost our competitiveness, and that is another reason people are not coming here.
One issue about which we could do something is that of rates. The Valuation Act 2001 envisaged that every rateable property would have its valuation revised every five to ten years. The Commissioner of Valuation has carried out revisions in only three of the 88 rating areas in the country and where he has carried them out, the rates have been reduced on average by 30%.
Deputy Jimmy Deenihan: On another matter, page 96 of the plan refers to the income tax exemption on patent royalties. This will have a detrimental effect on enterprise. If the tax relief measures relate to the removal of the income tax exemption on patent royalties, it certainly will cost this country. This provision has been a significant driver of innovation and growth within many Irish companies and for inventors resident in Ireland. If a company develops the product and gains patent royalties as a result of the sale of a product, it means the inventors can receive a share of that royalty tax free. The company must develop the product which results in the employment of high-skilled individuals and each of these individuals must pay income tax on his or her salary. The innovation must be of such significance that it is patentable and significant costs are incurred in the patenting process. The benefit of patenting the invention is to protect it from being copied and to ensure the economic benefit goes to the inventing company and, therefore, to the Irish economy.
Deputy Jimmy Deenihan: If I may finish, other countries have similar provisions in their tax legislation, for example, in April 2010, Malta introduced a similar provision. This income tax exemption on patent royalties should be maintained if the objective of the plan is to drive growth within the economy.
Deputy Jimmy Deenihan: ——not to introduce this. I will give him further details. I will give examples of companies, in particular, one company in Kerry that has been able to expand based on this alone.
Minister of State at the Department of Finance (Deputy Martin Mansergh): I am glad to be able to contribute to this debate, not to be giving the official reply or wind-up but to be able to give some of my own thoughts on the subject.
I was present for the first two hours of a debate in the Seanad which adopted a reasoned and constructive tone on all sides of the House whereas some of what I have heard here has been very much the cockpit of politics. That is one of the reasons the Seanad should be maintained, contrary to the position of the main Opposition party.
As the question of responsibility for the situation constantly arises, I want to give two short quotations from the international newspapers of the past couple of days. For those who think the Government is to blame, Mr. Martin Wolf, in the Financial Times, pointed out yesterday, “It was not the public but the private sector that went haywire in Ireland and in Spain.” Of course, it is when that private borrowing, and the basis of it, collapsed that the gulf in revenues arose.
The Government accepts its responsibility in the sense that we believed — it was the belief of nearly everybody and it was the advice — that there would be a soft landing. We were wrong, but so was nearly everyone else.
We had a vision in this country, which was shared far beyond the ranks of my party, of a dynamic economy with low tax rates but flowing revenues because of its dynamism, and with good social services and infrastructure. Unfortunately, it was not sustainable. The favourite mantras of the Labour Party a few years ago were that the country is awash with money and Ireland was the second richest country in the EU, although that was only statistically the case, and the implication was that we should be spending much more money.
I pay tribute to the courage of the Taoiseach and the Minister for Finance in the way they have battled against enormous difficulties in the past two and a half years. One can say the situation was partly of our making but it was also triggered by an international crisis.
Certainly, as a survey recently showed, we have the freest media in the world which is something of which we should be proud, although I doubt if there is a State broadcasting station anywhere in the world that would allow itself some of the liberties that certain broadcasters permit themselves.
There are certainly some columnists and broadcasters whose coverage can be summed up as “aux barricades, citoyens”. I was in Brussels at the end of the first day of a Council of Ministers meeting when I saw the leading voice of The Irish Times scarcely able to contain a grin at the thought, as it looked then, that a dissolution might be about to take place. At the same time, it is not fair to criticise the media if one is not also prepared to engage in self-criticism and I regret that I have a colleague in Tipperary South to whom is attributed in a headline the phrase “worse than Cromwell”, which he applied to the Taoiseach and his predecessor. I hope on reflection that imputation will be withdrawn.
Deputy Martin Mansergh: I wish to repeat a very good point made yesterday by a Fine Gael Senator in the Seanad. One of the principal merits of the plan is that providing a future outline of how we can reach a target of less than 3% of GDP will create confidence. Of course detailed provisions can be changed or substituted by the next government. If the Government was remaining in office it would probably have to change and substitute some details itself. However, the broad thrust is there and I believe the next government will broadly adopt it as an outline. Given the circumstances of the assistance that is required from the EU and the IMF, it will need to do so but, as I say, this is subject to the caveat that alternatives can be substituted.
It needs to be understood by the public that with a gap of €18.5 billion, it is not open to us to continue borrowing except on the basis of a plan such as this. We need to be able to borrow if we are to pay out all of the cheques which a government pays out, including to social welfare recipients, public servants and contractors.
Much play has been made of the question of sovereignty. I would like to make the point, and it has been made by several commentators already, that this is our own plan which was prepared largely before we entered into discussions with the IMF and the EU. This is not an IMF or EU diktat, although I think there are one or two sectors of opinion who wish it were. Certain columnists associated with a particular Sunday newspaper seem to be raging that the IMF and EU have not insisted on tearing up the Croke Park deal and social partnership with it.
I see the reduction of the minimum wage not in a negative, but in a positive light. The extent that it makes more jobs available is of benefit to people and not a detriment to them. I know it is particularly important to the hotel and hospitality industries. It is by no means the case that it is always the poorest people on the minimum wage. Many students taking part-time employment are on the minimum wage to supplement their income. If all other wages and incomes in the economy have been reduced, it is logical that the minimum wage, which was the second highest in Europe, be adjusted also.
I could not help but contrast the attitude of the Labour Party spokesperson on the economy in the Seanad yesterday, who criticised it mildly and stated he would like to see more evidence to support its merits as it has no direct impact on the public finances, with that of the Fine Gael spokesperson, Deputy Bruton, who spoke on radio this morning and who was much more hard line in opposition. I would like to make a prediction. In my belief, the incoming government, regardless of what may be said during an election campaign, will not alter this decision.
From the late 1990s through to 2008 there were increases in social welfare way above the rate of inflation. We have had some deflation in our economy over the past couple of years. I am not in the least suggesting that there is not some real reduction taking place but it has to be set in the context of the large increases previously.
A point is made quite frequently about political salaries, which have been reduced by approximately 20% at ministerial level. People are asking what further sacrifices will be made. The answer is in higher levels of taxation. The salary of a Deputy is tied to that of principal officer and that of Senator is tied to assistant principal officer. Under the Croke Park agreement no further reductions in salaries are contemplated.
A question was asked about the basis of the projections of growth. The answer is partly the background of a recovering world economy, but in particular the improvements in export competitiveness, where our exports have increased in real terms by 6% in the past year.
There is to be a moratorium on new road starts in 2012 and 2013. Even though this will affect my constituency, I think it is understandable. A huge amount has been done. The most recent analysis showed there is spare capacity on our roads and this is an area that in the current circumstances has to wait. I am glad metro north will go ahead. It is important, not least for our tourism industry, that our airport like other European airports should be rail connected to the city centre.
I am glad to see that agriculture is relatively unscathed. I am also pleased that my office, the Office of Public Works, despite having a cut in expenditure of more than one third, is able to undertake the essential jobs it is tasked with doing, especially flood relief which I have protected, and also ongoing heritage and building works. As Minister of State, I am happy to stand over what is in the national recovery plan with regard to the Office of Public Works.
All of this takes place against a much larger canvas, which is, as the German Government pointed out, an existential battle to maintain the eurozone in which we happen to be in the front line currently. It is in our essential interest that this battle is won. We, as eurozone members, must play our part. We need to internalise the logic and the disciplines of belonging to the eurozone. Perhaps in the early years we felt we did not have to or it all seemed to go more smoothly than we expected. We have now seen the hard side of eurozone membership, but it is well worth persisting with it. I have great hopes for the future of the economy and believe that despite the reservations that have been expressed about various parts of this plan by Opposition parties, the next Government — if it is the current Opposition — will largely adopt this plan and work with it as if it was their own.
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