Tuesday, 18 February 2003
Seanad Eireann Debate
I very much welcome this motion which endorses the recent measures introduced by the Government to improve the management of public expenditure and underlines the need for continuing effective control of public expenditure in 2003. In my address I will outline the context within which this debate should be approached, as well as dealing with a range of issues relating to the management of the public finances and, in particular, the management and control of public expenditure.
Following a prolonged period of unprecedented economic growth, we now face a more difficult economic environment. Given the nature of our open economy, the prolonged slowdown in global activity has had a major impact. Data for the first nine months of 2002 show an average GNP increase of 1.4% compared to an increase of over 5% for the same period in 2001. As in other developed countries, the lower than anticipated economic growth has created a new environment for budgetary policy. It was this environment which informed the necessarily more restrictive approach adopted in budget 2003.
It is important in this context that I correct some misinformed comment made in relation to budget 2003 and particularly the Government's handling of public expenditure. An often repeated erroneous claim is that the tighter budgetary stance adopted in relation to public expenditure in 2003 was because of budgetary profligacy by the Government in earlier years. The record proves this to be a wrong suggestion. In reality over the period 1997 to 2002 the Government and its predecessor ran up accumulated Exchequer surpluses of €6 billion. It reduced the debt-GDP ratio from 65% to 34%. In a notable act of prudence and budgetary foresight it established the national pensions reserve fund to help provide for the major pensions burden which will face the State in the coming years. Commentators have questioned the level of improved services we have secured for this investment. It is undoubtedly true that we must try at all times to ensure optimal value for money for investment funded by taxpayers and I will refer to this and other expenditure management issues shortly.
We must, however, deal with reality rather than perception. The reality is that massive increases in investment in the health and education sectors have facilitated a significant expansion in the range of services in these sectors, that the rollout under the national development plan of capital projects is unprecedented in size and scale and that there has been a real increase of 41% in the level of social welfare expenditure since 1997. We have, therefore, real and tangible achievements to show for our recent levels of public investment. The challenge going forward in a much less benign environment is to continue to invest in our public services in a prioritised way and within a sustainable budgetary framework.
The need for a more restrictive approach to public expenditure in 2003, coupled with the inflexible nature of much of our public spending, underlines the real challenge in bringing about a reduction, in a balanced and fair way, in the scale of increases seen in recent years. This difficulty was referred to by the independent Estimates review committee – the three wise men – in its report on the 2003 Estimates. In light of this, the Department of Finance is committed to undertaking a medium-term review of spending over the coming months which will allow Government to review and assess its overall priorities over the next three to four year period.
The Government did not embark on a strict approach to public spending in 2003 simply because it wanted to balance the books. The EU stability and growth pact requires us to keep the general Government finances close to balance or in surplus and to take corrective action when there is an actual or expected divergence from this objective. We made it clear in An Agreed Programme for Government that we would respect this sovereign commitment.
We also have responsibilities to the Irish people. We have a responsibility to protect the economy and to foster conditions which will maintain high levels of employment and generate the resources which we need to keep improving our public services. If this requires difficult decisions in the short term we are willing to take those decisions. We take these responsibilities seriously. The lessons of the past have shown us that high taxation rates and high levels of borrowing do not deliver the economic and employment growth levels of recent years. We cannot repeat the mistake of the past.
Looking at the economic prospects for 2003, the international outlook, which is critical to Ireland's open economy, remains characterised by uncertainty. At budget time last December we expected that growth would be modest this year, at 2.5% in GNP terms and 3.5% in GDP terms. However, the global economic and political outlook is shrouded in doubt and the risks to all economic forecasts are, therefore, on the downside. The difficulties in the Middle East, the prospects for the information and communication technology sector, as well as further exchange rate movements are key factors in this regard.
In the current climate of uncertainty, careful management of the public finances is particularly important. We are facing the prospect of having to borrow more than €3 billion in both 2004 and 2005, in addition to the €1.9 billion budgeted for this year. This reality heightens further the need to adopt a strict approach to the management and control of public spending in 2003 and beyond.
In the new and foreseeable economic environment, it is vital that priorities are established in relation to future resource allocation. Investment in education, health, infrastructure and protecting those on lower incomes will continue to command priority. Even within these areas, however, ambition will have to be tempered by the reality of available resources. Proposals which fail the Exchequer affordability test or would otherwise lead us to breach our stability and growth pact obligations do not assist the adoption of a prioritised framework for public expenditure policy.
A range of expenditure management reforms are mentioned in the motion. The improvements in management systems in those specific areas, which have been introduced since the beginning of this year, are as follows: the 2003 spending profiles for each ministerial Vote group area were published at the end of January, this is a new initiative and it will facilitate an informed and transparent assessment of emerging spending trends for the year as a whole; the Department of Finance is also publishing, for the first time, a breakdown by ministerial Vote group of the issues or spending figures which underlie each monthly Exchequer statement; and the Minister for Finance will continue to submit monthly expenditure management reports to the Government on overall spending and revenue trends, which will enable any emerging problems to be identified early at Government level and remedial action, as deemed appropriate, to be taken.
A number of measures have been introduced to facilitate expenditure control with Departments. These are: improvements in risk assessment measures and the introduction of contingency planning to cater for unforeseen pressures which may emerge as the year progresses; a requirement for spending on demand-led schemes to be managed effectively as with other spending programmes; and incentives for Departments to improve efficiency and cost-effectiveness. For example, where Departments secure savings as a result of efficiency measures or steps they have taken to curtail a programme, these should, as a general rule, be available for other high priority programmes within the same Department.
In this context, I am heartened by the responsible approach adopted by Ministers and their respective Departments to the overall management of public spending last year. When faced with a significant number of pressures across Votes, Ministers and their Departments contributed, in a positive and constructive way, to assisting the Government in establishing priorities and ensuring that spending at end December 2002 was slightly below the planned level for Government Departments and offices as a whole. This contributed to the surplus of €95 million achieved in 2002 and also underlined the ability of the Government to adhere to its expenditure targets. Similar resolve will be necessary this year to adhere to the overall post-budget level of expenditure.
While these control measures are important in their own right, they are also designed to encourage public service managers to seek out and exploit greater efficiencies. A number of initiatives are already in place which will help put the spotlight on value for money issues, including the management information framework, the expenditure review process and the forthcoming mid-term evaluation of the national development plan. I am aware, however, that more needs to be done. Greater delegation must be coupled with greater accountability. The public has a right to see whether it is getting value for money. I want to see a greater focus on results and outputs achieved.
Value for money and output commensurate with the level of investment is particularly important in relation to capital expenditure. As part of the new expenditure management initiatives, the Minister for Finance intends to agree a five year capital expenditure envelope with each of his colleagues. This will provide relative certainty to Departments in planning their capital programmes going forward. In return, Departments will be expected to identify the project and programme outputs they will achieve for the envelopes provided and to deliver this output as far as possible within both budget and projected timeframe.
Our economy is in good shape and in a good position to deal with the current slowdown. We want to continue to foster the economic conditions to create wealth and jobs in this country and we cannot do so through high taxation or high borrowing. The Government did not take decisions on the 2003 Estimates lightly and did not engage in some form of technical accounting exercise to balance the books. Necessary steps were taken to ensure our continued prosperity. The only way forward is to have an ongoing sustainable match between our revenue and expenditure and the 2003 Estimates will set us on that path. A key element of management is that Government will receive timely information which ensures that any emerging problems are identified early and remedial action is taken. The expenditure reforms recently agreed by Government, and set out earlier, will contribute to this.
Mr. Higgins: This self-congratulatory motion lauding the Government's management of the public finances is typical of the mechanical phraseology one would expect from the technocrats in the Department of Finance and not from someone with political know-how and experience or with a sense of everyday reality. It refers to the Government's determination and its commitment to keep a tight rein and keen eye on public spending and the public finances. This was reiterated by the Minister of State, Deputy Parlon. He spoke of a series of mechanisms to monitor and assess the situation and early warning and red alert systems to ensure that what happened in the past would never happen again.
Some congratulate the Minister for Finance for confounding the prophets of doom and the nay-sayers by bringing in an Exchequer surplus of €95 million. As has been said so often, not by Opposition politicians alone but by a cohort of independent economic analysts, while some of our current economic difficulties are the result of difficult international and external pressures beyond our control, the bulk of our current economic difficulties are self-inflicted. They were caused by the profligacy of both Government parties which in the 12 month period preceding the general election decided they would go for broke. In essence, the national interest was mortgaged once again in a reckless grab for power. We are now paying the price for the profligacy right across the economy.
I listened to the Minister of State list a whole series of realities. I shall point to some realities that he might usefully confront in his summary. An Exchequer surplus of €95 million is of little comfort to the 300 workers who will shortly walk out the gates of the Square D plant, Ballinasloe, County Galway, with their dole and redundancy money in their hands and no replacement industry and no prospect of compensatory jobs in sight; of little benefit to the 137 workers about to lose their jobs at the Terex CPV plant, Clones, County Monaghan; of little consolation to the 310 highly skilled workers about to lose their jobs at the recently merged Logica and C & G Company plants in Dublin and Cork, and of little comfort to the Dublin based technology firm, Marakesh, which three weeks ago announced it was to shed one third of its staff in an attempt to cut costs and keep the enterprise afloat. The Minister for Finance, Deputy McCreevy's Houdini-like Exchequer surplus trick is cold comfort to the distraught 250 workers at the Technicolour Company, Youghal, County Cork, who have been told their jobs will be phased out completely as and from next month, bringing to 5,000 the number of jobs lost in the east Cork region in the past five years. What a frightening figure and a frightening indictment. The reality is that jobs and enterprises are falling like ninepins.
I distinctly remember being in Cabinet as Government Chief Whip for two and a half years. At every single Cabinet meeting there was a presentation by the Minister for Enterprise, Trade and Employment of four to five files sanctioning and announcing new enterprises all over the place. Now we have a jobs closure every second day. All one has to do is look at the Forfás annual review and report for last year. The annual review revealed that almost 32,000 jobs were lost in companies supported by the IDA or Enterprise Ireland last year. In the past two years the number of jobs lost was 61,000. These job losses are mainly down to the Government's policy of hiking up charges, imposing stealth taxes and allowing inflation and costs to spiral out of control. Some 90% of the net jobs lost were in foreign owned companies which are more sensitive to cost pressures. The Government seems to have forgotten a fundamental lesson that in a small open economy like Ireland one cannot plough one's own furrow on tax and spend policies and not expect it to impact on the enterprise sector. The Government may have fooled the electorate but it cannot sidestep the hard realities of a competitive global economy.
The Forfás report only thinly veiled its criticism of the Government's failure to target, for example, the key needs of the economy, physical infrastructure, competitive energy supplies, the wide availability of broadband communications and an effective waste management policy. These fundamental requirements, some of the nuts and bolts, of a successful economy have not only not been met but also failed abysmally.
We have an appalling public transport system, heavily congested roads and a major lack of affordable housing. Last week the Minister for Transport, Deputy Brennan, acknowledged that the national roads building programme, targeted for completion in 2006, would at the earliest be met in 2007 – three years after schedule – with enormous additional costs in terms of additional expenditure and costs in terms of the logjam and strangulation that will occur in the main arteries of cities and towns. There are soaring costs, delays and non-delivery. The cumulative result of this incompetence and mismanagement is that more jobs will be lost and unemployment, which plagued us for so long and which we all thought and prayed was a thing of the past, will continue to grow monthly.
The reality is the economic miracle is well and truly over. Everywhere one looks prices and taxes are increasing. They are feeding off each other and pushing inflation in the direction of 6%. Any downward figure this month is only a slight and inconsistent aberration. The tax increases are so blatant that to describe them as stealth taxes any more is inaccurate and redundant. Motor tax is up 12%, hospital charges are up 26%, the drugs refund scheme threshold is up 31%, VHI premiums are up 18%, the cost of cigarettes and alcohol is up 15%, banking card charges are up 29%, ESB charges are up 13%, college fees are up 9%, parking fees are up 26%, bus fares are up 9%, and the television licence fee is up 40%. What an indictment of a Government which inherited an economy in the full flush of economic success and which has been left in such a decrepit condition.
One of the core areas where the Government lauds itself is income tax. Its target was that in a short period only one in every five income tax payers would be paying tax at the 42% high threshold rate. Recent figures show that one third of income tax payers will be paying at the rate of 42% massively above the Government's target – another target well and truly blown off course. In the education area, 500 Dickensian schools are not fit for the Third World while hospital waiting lists are getting longer as I witnessed in Galway Regional Hospital this week. Many of our key services are on the brink of collapse. That a Government should come before the House and phrase a motion in such crisp and arrogant terms is the height of arrogance and an affront to the intelligence of the people who are watching, waiting and wondering. Their day will come.
Dr. Mansergh: The immediate trigger for this debate was the concern about the Exchequer returns for January and, in particular, some alarmist comments made by commentators on RTE and the fact that income tax receipts had appeared to be down. If one studies the Exchequer returns, given the circumstances and conditions, they are extraordinarily good. Very often – even in good times – the January returns look distinctly flat and disappointing but this year total returns, taking all tax revenue into account, are up 10%. While I accept one cannot extrapolate too much from this, nonetheless it is comfortably above the target but if one does, there is a crude rule of thumb because tax receipts come in in different segments at different times of the year. If one divides the total by 12, it is 8.33% of revenue. In fact, 8.8% of the target of revenue was collected so the opening month is reasonably encouraging from the point of view of there not being a shortfall. I accept that one cannot extrapolate from one month, whether good or bad, but I do not think there was cause for alarm or for the sort of suggestion that the public finances were already off the rails in the first month of the year. Nothing could be further from the truth.
Dr. Mansergh: On the other hand, we have the new Labour Party line which is that there is a €5.2 billion surplus. My old friend and colleague, Fergus Finlay, laid out the argument in full and I have noticed many Labour Party spokespersons repeat this line. The clear implication is that there is a lot of money in the Exchequer, so why is the Government not spending more of it? If capital spending is €3.75 billion, according to the implicit argument there is at least another €1.5 billion or so which should be spent. With terms such as “broke”, “profligacy” and “the Government is not spending nearly enough” being used, it will be interesting to see how a coherent alternative will be arrived at.
I recall when Governments struggled through the first six or seven years of the 1980s with Exchequer borrowing requirements at 12% to 16% of GNP. Some of that borrowing was necessary, but there was little benefit from that sort of policy. There is a lingering belief – and not only among the current leadership of the Labour Party – that there is a great deal of virtue in the economic policies of the 1970s, in borrowing deficits and so on. I am not convinced of this, although I accept the argument that between the 1920s and 1950s we were too conservative and we should have borrowed for capital purposes. However, we went off the rails under the national coalition and under Fianna Fáil. For ten years after EU membership, we thought all our problems had been solved.
Dr. Mansergh: We must try to do the difficult thing. I accept the argument that, in many respects, our services are deficient. Infrastructural investment is well under way. I do not accept Senator Higgins's assertion that we have an appalling public transport system. I am grateful for the public transport system, which I use on a regular basis. I accept that it requires further improvement, but to use the word “appalling” is far too dismissive of the people who provide the service, which, in many respects, is quite good.
The objective must be to maximise revenue. We discussed the Capital Acquisitions Tax Consolidation Bill earlier. This is a primary test of the argument of what is the right economic approach. I do not know how many speeches I heard in the 1980s – these came not only from parties of the left but also from Fine Gael, which, in certain respects, was in a fairly social democratic mood at that time and I believe some of its members, though not Deputy Mitchell, refer to it as “social democratic”—
In 1986 we raised approximately £34 million from capital taxes and £247 million from corporation tax. That has been magnified. Corporation tax has increased by well over 1,000%. This was not done by raising the tax level and by making it more punitive. In many instances, it was done by easing the tax. The Labour Party bitterly condemned the reduction of capital gains tax from 40% to 20%. It thought this was wrong – socially, morally and so on – but the yield doubled. The Labour Party could not believe what happened because it was counter-instinctive. The problem is that many of the arguments about economics and social justice are counter-instinctive. In theory, there is a lot to be said for socialism but the trouble is that, in practice, it often does not work and is counterproductive. I do not want to be too critical because liberal capitalism and socialism have flown together to produce the type of mixed economic system we have today.
The Minister referred to value for money, a point I raised last week. I am deeply concerned about value for money and I wish there was more public discussion about it. I refer to the statement by the chairman of CIE that over half the cost of the transport investments which Dublin needs will go on property compensation. Is that what the national development plan is about? Despite what Senator McDowell tried to state, it is not primarily farmers. Large sums of money are being spent in the cities and, in particular, in Dublin where the overwhelming proportion of investment in public transport will take place. The Government needs to give serious consideration to that issue and I believe the Taoiseach has already made some noises on the subject.
Reference was made to the loss of industry and jobs. It is always traumatic for people when that happens. However, we have got better in recent years, partly because of the confidence we have managed to create, in finding replacement industries. Only yesterday a replacement industry was announced for Roscrea, which is good news. There were big job losses in Clonmel three or four years ago, but we managed to obtain replacement industries. I hope the industrial agencies will be able to attract replacement jobs in most cases. People referred to there being job losses every day. I accept that there have been job losses, but the figure is not remotely like that in the period 1983 to 1984 when major industries such as Dunlop, Ford and Verolme closed.
A point which is not always appreciated or accepted in debate is that the Government was elected not because it promised endless rosy times for the future, but because people recognised that there were more difficult times ahead. The question posed was which would be the best Government, or combination of parties, to take us through that period? It is always dangerous to extrapolate from the present to the future, particularly since we tend to lag a bit. In other words, bad flows internationally affect us with a time lag as, very often, does upward movement. We are not usually ahead in the case of upward or downward movement.
There is currently an unemployment rate of under 5%. This is very different from countries such as Germany and France. It is the best in our history, and so far it is stable. While I know it is an imperfect measure, the live register has not risen very much from one year to the next and long may that continue. I hope we will get through the current difficulties without unemployment going much over 5%. Historically, all of this is unimaginable.
I am pleased that inflation appears to be coming down. A certain commentator, who listened to a Fine Gael spokesman list the various charges and price rises that have taken place – most of them under some Government agency – said the social partners should see if they are getting a decent deal. Another commentator said that as inflation is predicted to come down, they may be getting a better deal than they thought when they negotiated the deal. I believe inflation will come down. Compared to previous economic crises, depressions and recessions, we are starting off in an unprecedentedly strong position, which will be strengthened further if, as I expect, social partnership is concluded.
While social partnership is not the only vital ingredient, it is a vital ingredient which has enabled us to be much more successful in the past 15 years than previously. I would counsel groups who are either not taking part, or are hesitating to take part, that my observation of social partnership is that it is not only about commitments and specifics – sometimes it is not always possible to be very specific – but as problems arise, they have mechanisms to discuss them with Government and to seek solutions with Government. It is an ongoing negotiating process over three years. I cannot imagine why any group should think it is in their interest or that they would make more point by boycotting the process. I hope as many groups as possible, including the community and voluntary sector and farm organisations, will reflect on this. While the farmers split in 1987 on whether they should or should not be partners, it has worked out very well for them over the past 15 years.
One of the problems in recent times is that commentators have been almost universally wrong. We should not listen to economists. Every economist who speaks should be literally gagged. Most of the main names are, in fact, third level teachers. The others work for financial institutions who require them to present an image which makes it easier to sell their product. These things should be said. We hear very little in the media from a small number of independent economists, because they are not the ones who are colourful. The colourful ones, who work in third level institutions, are the ones we hear regularly.
A classic example of this in the past three or four months is that these people were completely and utterly incorrect in their assessment of how the books would stand at the end of this year. The loudest of them, not a university teacher, was just €1 billion out. How can these people be €1 billion wrong and then have the brass neck to come on radio and television with no sense of what they said last month? In regard to January and February of this year, their prognosis on inflation has been almost universally wrong, with the exception of Robbie Kelleher who was quoted as taking an opposite view. All the others mentioned high inflation for these two months. They predicted it would be approximately 6%, even though we have seen it decrease from 5.1% to 4.8%. I do not know who is right or wrong in all of this. I suspect it is a bit like the recent debate with the Minister for Agriculture and Food, because people do their best in one way or another.
I want to point out some issues of Government policy with which I fundamentally disagree, but I also think that speakers should talk about their own experiences. I would like to hear my colleague, Senator Quinn, who takes a snapshot every day of what consumers are doing with their money. He could give a much cleaner interpretation of the way the economy is going than many people who are looking into books and ledgers. It is people on the ground who can give that viewpoint.
I do not know where growth is going and neither does anyone else. Certainly it is dropping, but I do not know how low it will go. However, I want to say one thing about inflation levels. Ireland is still developing and growing and it is the case in any economic model that as long as our growth is faster than the growth in the other member states of the European Union, so also will be the inflation rate because these patterns are always cyclical. As growth decreases this year to 0.5%, 1% or 2%, it will interesting to see if the inflation rate decreases also. The indications are that it will.
The Government should be more worried about stagflation than inflation, because the economic cycle is moving in such a way that we will be able to pull back inflation. If we come back to this debate at the end of this calendar year, we will be talking about the need to put some heat and growth into the economy, which is what I am more worried about. If we stop, it will be very difficult to get going again.
In terms of where we are nationally, it is incomprehensible to me that the normal approaches to good housekeeping, which are thrust upon all people in all places, are not adopted by Government. Over the years, I have heard Minister after Minister talking about the importance of multiannual budgeting and a multiannual approach. Multiannual accounting must go along with that, which may sometimes require borrowing. There is no substantial credible case against borrowing at this time, when we all agree that infrastructural investment has two key aspects at a time of depression. First, it is a good injection into the economy but, more importantly, it provides the net to get out of a depression. We need an infrastructure to do this.
It makes no sense to try to balance the books on an annual basis. We must live within our means, however, but it is like someone buying a house. If one had to wait to get the money, one would never buy a house. If something is a good investment, we must borrow in a way which is economic, makes financial sense and is cost-effective. This is what everyone does and the State should also do it. It is wrong that we are not doing it at this stage. I am not saying we should over-borrow but I am saying it is wrong to introduce the question of the 1970s and 1980s to this debate unless we are talking about a form of profligacy to which nobody is committed. One cannot pay for the infrastructural investment I have mentioned without borrowing, although we need to be sure that we will work our way out of it.
I wish to discuss one other aspect of Government policy in relation to the approach I have been advocating. I have decided to choose two issues which I do not accept on a macro level. I do not agree with the Government's determination to reduce corporation tax this year. It is unforgivable when one considers that the State cannot afford to pay for BreastCheck facilities in County Mayo. The tax breaks being provided by the Government are not necessary. Although I am fundamentally opposed to reducing corporation tax to 12.5%, I wonder why, if it had to be reduced, it could not have been delayed for a couple of years during which the extra funds could have been used in a positive way. Fair-minded people will accept that the decision was wrong and did not represent the desired approach.
The issues are the same for all sides of the political spectrum, regardless of one's perspective. It is important that we recognise that the first issue has to be the creation of wealth. Those of us who represent various interests should ensure this matter is on the agenda. Everybody understands that we need to be competitive and productive if we are to create wealth. One of the great things about national agreements, the importance of which was mentioned by Senator Mansergh, is that people on all sides have had to listen to each other's viewpoints, regardless of whether they agree or disagree with them. There is a commitment among the social partners to having a competitive and productive economy.
It is worth pointing out something to which reference is not normally made. My economist friends, whom I mentioned, rarely mention the fact that Irish workers have the best productivity record in Europe over the last ten years. That simple statement does not even begin to describe their achievements. Statistics from the CSO and the European Union show that they have exponentially increased their productivity over the last ten years. It is worth recognising the huge commitment of Irish workers, an aspect of social partnership often ignored. Similarly, the number of days lost through industrial disputes has decreased in the last ten years, despite media reports to the opposite effect.
Workers expect a fair share of the dividends of their efforts and want to be able to look to the future. An extraordinary error was made in UK legislation in the last two years and I understand it has ramifications for people in this country. The UK Act requires that pensions balance themselves on an annual basis, which is impossible to achieve as it goes against the philosophy and theory of pension planning. It seems that some companies may not be able to meet their long-term pension liabilities. Workers need to be protected in such circumstances. It has been suggested in recent times that we should tighten our pensions legislation to ensure pension funds are not based on the company for which the pension holder works. I recently discovered that the pension fund of a major store, involved in a possible takeover, holds 12% or 13% of the company's equity. It seems like a huge investment. A great deal of negativity has been associated with the collapse of Enron but we should not forget that the company's pensioners had hugely invested in Enron equities. They lost out in two ways as a result. I ask the Minister of State to bring this matter to his Department for consideration.
One of the things we look for in the model of the economy is the creation of wealth, which requires us to be productive and competitive. The creation of wealth can be conducted in a fair way. The Government's most significant step forward in recent times was when the Taoiseach gave a commitment to the social partners in the last ten days. He said the Government would support the inclusion of the European Union charter of fundamental rights in the next EU treaty. This statement represents a significant move in terms of the protection people will receive. There can be no partnership without a recognition that the rights of workers and their families need to be protected.
I suspect that the distribution of wealth, which follows the creation of wealth, is the source of the majority of arguments in relation to economic affairs. Wealth is redistributed through reinvestment, profit and taxation. I would like to hear more about this issue from the Minister of State's party, the Progressive Democrats. While I have heard its representatives discuss the issues, I would like to know the economic principle that governs it. How much of every 100 units of profit made by a company should be distributed into social services, health and education? How much should be pure profit and how much should be taken in the form of taxation? How should it be distributed? We would understand more about the party's philosophy if such figures were made available. Many of the labels used such as capitalism, socialism and communism involve people pushing their views on others but I prefer to hear people say what they feel should be done. When one's philosophy has been made clear, one can work out where it fits into our terms of reference.
While I know it is a minority view, I believe income tax is too low. The problems we are having in some service areas result from a lack of revenue. I certainly do not believe we can afford to further reduce income tax. It is not a very popular viewpoint, not least among those whom I represent in various places, but I firmly and honestly believe it.
Mr. Minihan: I am sorry to interrupt Senator O'Toole in full flow but I am sure he will have another opportunity to make his views known. I welcome the Minister of State, Deputy Parlon, to the House for this debate. People often find it difficult to be positive and upbeat about their circumstances. This is as true in relation to fiscal, financial and economic policies as it is in relation to any other form of human endeavour. There is no doubt that Ireland's growth has slowed in recent times and that the public finances have become tighter. A number of companies have closed and many workers have been laid off. We have realised that we will be unable to do the things we intend to do as quickly as we would have liked. I do not think anybody in either of the Government parties would have any difficulty in recognising this reality.
One would think, if one was to believe certain commentators, that the country was in dire straits, that confidence had collapsed, that unemployment levels were soaring and that the economy was sinking but nothing could be further from the truth. It is worth stating some of the facts. The economy is continuing to grow, albeit at a more modest pace than in recent years. Our economic performance is, in fact, among the best in the developed world. Despite recent job losses, our rate of unemployment is still at 4.5%, effectively equivalent to full employment. Our rate of unemployment is one of the lowest in Europe and about half the EU average.
It is understandable but sad that Opposition spokesmen would seek to make cheap political capital out of job losses in the private sector. I accept there have been job losses, but due to international factors there is very little any Government or company can do about that. We live in a dynamic economy, not the dead economy created by Fine Gael in the 1980s. Just months ago, the people of Roscrea were devastated by the closure of a local pharmaceutical plant. Today, they are celebrating the re-opening of that plant under new ownership. Opposition politicians might preach gloom and doom, but ordinary people get on with their business and avail of the opportunities on offer in a dynamic and fast-moving economy.
People point to the deterioration in the public finances as if they were in danger of drifting back into the dire straits experienced in the 1980s. This is not the case. We are still running strong surpluses in our current accounts and spending on day-to-day activities is more than covered by tax revenues. Our overall debt levels are the second lowest in the EU, after debt-free Luxembourg, and we are well within borrowing limits set down in the EU stability and growth pact. This is no mean feat at a time when as many as four member states are set to breach the key 3% GDP ceiling on government borrowing in a particular year.
That is not to say everything in the garden is rosy because it is not. We must recognise the difficult international environment in which we operate. There is great tension in the Middle East and the wider world because of the Iraq crisis. The American economy has slowed after a period of very impressive growth, the Japanese economy remains stagnant and growth levels in the EU's largest economy, Germany, have dropped to near zero. This is a challenging international environment. It is particularly challenging for Ireland, one of the most open economies in the world and where hundreds of thousands of jobs depend on our ability to export and to hold onto our global marketplace. I am confident that we will be able to meet the challenges of the international environment, that we will keep the competitive edge essential for success in the international marketplace and that we will maintain the stability in our public finances which is the vital foundation on which a competitive economy is built.
This Government made huge strides in reforming the taxation system during its first five year term in office. Taxes were cut on enterprise, investment and employment and the economic results are there for all to see. In five years, the lifetime of a single Government, the country moved from mass unemployment to full employment. The number of people at work shot up by almost 400,000 and the number caught in long-term unemployment – the worst of all poverty traps – fell from 90,000 to just 20,000.
The scope for tax cuts and tax reform over the next five years will be limited and the two Government parties recognised that in the manifestos they put before the people last summer and in the joint programme for Government, published in June. The Government did not make reckless promises, did not offer compensation to every group in the country and was in no way reckless with its fiscal policies when it went before the people. It is vital, however, that we preserve the progress that has been made, that we maintain low levels of taxation on enterprise, investment and employment and that we keep the public finances under firm control. Provided we do so, we will consolidate the gains made in recent years and will put the country on a sound footing for future growth.
Mr. McDowell: Senator O'Toole sought this debate because he questioned the independence of some of the economists and other authorities who regularly lecture us with regard to the economy. I could not agree more and I am not taking a cheap shot as this is an important point. Much of our discussion on these issues is informed by people who should carry a bias warning. The majority of them are academics or are those we hear most often on radio and television, those working for financial institutions with an interest in a particular analysis.
The best example of this is the way that the SSIAs were approached by those commentators heard on radio at 7.55 a.m. These people would have real difficulty with the Government spending €20 million more on BreastCheck to make it a nationwide service and would happily condemn any increase in public expenditure to improve public services. However, none of them has any difficulty with the SSIA scheme which will take €500 million per year for the next five years out of the country's tax base. Members can only imagine what could have been done with that money had we not taken that course, or what we could do if we were to try to recover some of it. Not one of these commentators – I challenge anyone to tell me otherwise – has ever said anything remotely critical about the scheme for the simple reason that the institutions and organisations for which they work are busily involved in selling products that depend on the scheme for money and profits. It is important that we realise, when they talk to Ms Geraldine Harney on the radio at 7.55 a.m., from where these people are coming, at least regarding public expenditure.
The Minister's speech was quite interesting because, although it is generally upbeat, it includes a few very downbeat figures, which are clearly intended to signal that we should lower expectations regarding economic growth this year. The Minister of State gave a figure of just 1.4% growth for the first three quarters of last year and, if the trend continues, that will come down even further in the context of the full 12 month figure.
That is a low level of growth. Some years ago, optimistically looking to the future, people thought that 5% was a sustainable level of growth and, to be fair, most parties going into the general election posited their fiscal intentions for the next five years on the basis of 5% growth. To talk of 1.4% or perhaps less for last year is a long way short of that and those figures are genuinely alarming. When Senators on the Government side say that we have nothing to worry about, I suggest that the evidence that we have something to worry about is not just in regard to the job losses to which Senator Higgins referred but also in regard to the figures outlined by the Minister of State. This is a matter of serious concern and, if growth continues at that level, we will be in real trouble from a fiscal point of view and otherwise.
The greatest risk at present is in regard to competitiveness. The appreciation of the euro in recent weeks will cause difficulties. We are still at a level which is, broadly speaking, lower than when the euro was introduced three years ago, but it is definitely causing difficulties. Ireland, in monetary terms, has appreciated by about 9% against its main trading partners and by more than that against sterling. As Senator Higgins pointed out, it is indigenous industry which is most susceptible to this kind of competitive pressure and that will start making itself felt if the euro continues to appreciate in the next few months.
There is only a limited amount we can do about that in terms of monetary policy, but there are things we can do about it in terms of other competitive pressures. There is a need to improve the infrastructure and reduce transport costs for industry. That falls within the remit of the Government.
Senator Mansergh referred to the differences between Fine Gael and Labour in their approach to fiscal policy. Given that they are different political parties, it would be surprising if there was not a difference. These differences will continue and some may be substantial. Neither party has anything to apologise for in that. I assume the Government parties would claim to hold differences. If not, perhaps members from one party should join the other, for example, the Minister for Finance might join the Progressive Democrats. Different parties manage to coalesce in Government provided they reach an agreement on which they are willing to deliver.
I believe there is scope for choice and that it should be in favour of additional expenditure. At present, the current budget surplus is €5 billion. I cannot foresee any circumstances over the foreseeable future where borrowing for current spending purposes should be countenanced. That should be a hard rule. However, I see no reasons why there should not be borrowing for capital purposes. It should be considered on a year by year basis. The general rule must be to take a multi-annual approach, as referred to by the Minister of State. Expenditure on the roads programme is an example of where this approach might be applied. In this context, there is a need to assess the needs of the economy over the next four to five years, to decide on how much should be spent on the roads programme and to then monitor delivery. Such programmes cannot be left to the whim of the relevant Minister on a year by year basis. To do so runs the risk of failure to deliver and, more seriously, failure to secure the necessary involvement of foreign contractors etc., to ensure delivery.
Multi-annual budgeting on capital programmes is a necessity. We have been very poor on this and there is a need to improve on our approach. A few years ago the then Government started a measure of multi-annual budgeting, but it was a disaster. It was never more than a loose guideline and was never adhered to. It did not provide a great deal more information than was previously available and it has effectively been discontinued. Perhaps the more intelligent and strategic approach is to select those programmes that clearly need multi-annual budgeting, such as capital programmes, and to proceed on that basis.
President Prodi said recently he considered that in current economic circumstances there is room for flexibility with regard to the Stability and Growth Pact. We need flexibility in this area, if not this year then within the next two years. It is daft that we should be prevented from investing in the infrastructure of the country by virtue of the pact's 3% limit, which was designed for reasons that have nothing to do with our circumstances. We can make common cause with other countries that have low debt to GDP ratios, such as the United Kingdom, in seeking to secure flexibility for the system. It is now time to proceed on this basis. Over the next several months there will be an open door on the issue when there will be an overwhelming argument for flexibility. We should push on that door rather than repeating the nonsense that the pact is a sovereign commitment we made several years ago. It was a political agreement made for the purpose of establishing the single currency. It succeeded in that, but it is now time to press for the flexibility which countries such as Ireland need to enable them to make necessary investments, especially in the infrastructure and public services.
The Minister of State referred to changes made in the past few months to improve the management of the public services. I accessed the Department's website to check the statement on projected current and capital expenditure by Department by month to the end of the year. I cannot understand it and it is difficult to envisage how anybody could. It is a series of two numbers per Department per month for the year. There is no explanation as to what underlies the figures, what expenditure is indicated on a monthly basis or why expenditure is heavy in one month, for example, October, while light in other months, such as during the summer. Doubtless officials in the Department know the answers to these questions, but if this information is to make sense it must be underpinned with much more information than has been made available to the public arena.
This is only a minor reform. It creates the impression that the Minister has sanctioned it with the sole purpose of letting people know if expenditure is on target for any given month. However, we should all recognise that what is required is greater control over public expenditure and, perhaps more importantly, greater evaluation, both before and as it is spent. I have previously spoken at length on this issue. In this regard, the NESC report on managing public expenditure, published before Christmas, contains a number of fine and useful recommendations.
In all of this the Department of Finance has the lead role and essentially has the power of veto. Given this it is perhaps not interested in establishing mechanisms that would inevitably broaden the level of accountability, remove some of its power and make it more accountable for the power it wields. However, it would be in the interests of the control of public expenditure and the management of the economy if some of the NESC report recommendations were implemented. The report points to difficulties, such as the absence of performance management and the undertaking of evaluations which are not used to inform subsequent decisions. It also points to a failure to concentrate on outputs and value for money in terms of expenditure. In terms of accountability to committees, such as those of the Oireachtas, it points to a concentration on whether money was spent correctly, regularly and in accordance with decisions that have been taken which ignore value for money implications.
Senator Mansergh outlined how various Governments have managed public expenditure. I do not wish to dwell on this because, inevitably, the debate tends to be sterile. My major criticisms of the management of public expenditure of the past five years is not that the Government is currently spending too much but that it has used expenditure as a tap, the flow of which has effectively been determined by the electoral cycle. The previous Government started its terms of office by spending too little and ended it by spending far too much. The result of this approach is gross inefficiency that, almost by definition, ensures value for money is not achieved. We need to stop this cycle and ensure that public expenditure is managed on a year to year basis in accordance with norms and determined outcomes to which we all have an input. All the signs indicate the Government has no intention of proceeding on this basis and that it has set on the same course it took during the last Dáil. It will begin by spending relatively little but in another two or three years, as it faces the prospect of a general election, it will spend more and money will become available for programmes.
The economy is still in reasonably good shape, sufficiently good shape to offer us choices in terms of how we manage it. There are genuine differences between the Government and the Opposition on the way to proceed. However, even on the admission of the Government, there are serious downside risks, which are increasing. That situation will require good management by the Government and vigilance on the part of us all.
Mr. Mooney: Like my colleagues, I welcome the Minister of State. This is a very important opportunity for us to reflect on where we stand economically and where we are going. I applaud Senator McDowell on the prudent approach he took. One could paraphrase his closing remarks by saying the good ship Ireland is moving through rather choppy waters and will require a good captain at its helm to ensure we overcome what I hope are the short-term difficulties facing the economy.
I could not help reflecting on the past 18 months because there have been many public discussions and political charges levelled at the Government regarding how it managed the economy in its first term of office and how it proposed to do so entering its second term. As a result of these charges and the ensuing public controversy, I thought it would be useful to examine the various positions the Minister for Finance, Deputy McCreevy, took over the past 12 or 15 months and which he continues to take.
An editorial in The Irish Times on 16 November 2001, six months before the general election, stated the Minister was using words such as “prudence” and “caution” when he launched the Government's spending programme for 2002. At the time it was becoming apparent that there was a slow-down in economic growth. Additionally, there was a real fear that the country's finances would be skewed to such an extent that the big spending Ministries, such as those pertaining to education and health, and the national development plan would be put in serious peril.
People make economic predictions that do not always turn out to be valid. I used to think economists made the predictions because they were not accountable but I suppose journalists are put in the same category in the sense that they can also make them. On 16 November 2001 Jane Suiter and Mark Brennock, two respected journalists with The Irish Times, stated in an article: “For the first time since the Rainbow Coalition was in office in 1997, the Government will have little choice but to resort to borrowing as declining growth, rising unemployment and falling tax revenues take their toll on Exchequer revenue in the run-in to the general election”. Furthermore, they stated: “Mr McCreevy insisted the Government should not spend money it did not have, although he said some new spending projects would be announced in the Budget on December 5th”. However, in the same article Fine Gael is quoted as having warned the Government that it would have to borrow as much as €1 billion, the largest amount since 1987. As we all know, there was a surplus of €95 million last year. Even as far back as September, there was much speculation among economic commentators that the Government would not reach spending targets by the end of the year.
Another important point relates to the alleged reneging on the Government's programme and the fact that it somehow misled the electorate on the economy and hid the real figures. An article in the Irish Independent under the heading, McCreevy rules out pre-poll spending splurge, stated the following: “With polling day no more than four months away, Mr. McCreevy has made it clear he is going to keep a tight hold of the purse strings and will not allow spending to run out of control”. This article was written on 16 January 2002, five months before the general election.
The same article states that, in an unusual move, the Minister called in the Secretary General of each Department to tell them the situation and impress on them the importance of holding the line. In the same article, he is quoted as having said to the Secretaries General that the fact that there was an election in the offing did not mean that there would be extra money available to spend. These are hardly the sentiments of a spendthrift Minister for Finance who did not seem to care about the direction the economy was taking.
I remind the House that the Government has fostered a climate in which it has been possible to deliver on our promises. In many cases, we have actually exceeded our commitments. There is no doubt we have improved the standard of living and the level of public services. We have also ensured the economy can continue to deliver good levels of growth so that we can make further progress into the future . The Government's record shows that we have policies that work now and will work for the future.
I do not mean to give these quotes primarily to score cheap political points but it is important that the accuracy of many of the statements made by the Minister be noted when people start losing the run of themselves, which inevitably happens in political crossfire.
At the heart of the Government's difficulties was a fall of almost 3 per cent in tax revenues for the first three months of the year . Income tax receipts fell . against predicted growth . At the same time, current Government spending rose . It is clear from the precipitous drop in spending that projects have been put on hold across a range of Departments.
However the reduction referred to was much less than that which obtained in the January-February period. There was obviously a very strong, fiscally secure climate in the Department of Finance prior to the general election.
My final quotation is from the economist, Brendan Walsh, who states: “Most commentators now doubt that the small projected surplus cobbled together by the Minister last December will be achieved.” He is referring to December 2001 and we know that there was a surplus last year of €95 million. He also states:
To his credit Mr McCreevy has tried to resist these pressures and to link increased spending to greater efficiency. But despite his misgivings about the “tax and spend” philosophy he has not been able to avert a rise in current spending relative to GNP.
The reason it is necessary to put matters in context is the Government has attempted to exercise fiscal prudence since it became apparent towards the last quarter of 2001 that there was a definite reduction in growth and economic activity, fuelled by the tragic events of 11 September 2001. It was obvious to financial commentators prior to that that there was a slowing down of economic activity. There is no doubt that, based on the record inside and outside this House and the figures circulated by the Department of Finance before and after the general election, the Government was aware of what was happening. It was transparent and conveyed the relevant details to the public.
If one looks back at the euphoria of the previous five years, one will note that things were so good across a range of Departments and the amount of money at the disposal of the Government from and prior to 1997 was so great that the public was inured to the possibility that the good times could end or decline. I acknowledge the contribution the rainbow coalition made between 1994 and 1997, when figures were beginning to come on line for the first time since the foundation of the State. It is human nature that the public might make such assumptions about the economy given that the State has come a long way since 1922 and went through a period of unprecedented growth and prosperity from 1994 to this year. Such growth was never experienced in our history until 1994, not even during the British colonial period that lasted for hundreds of years.
I refute the recent announcement made on road spending, particularly in my part of the country, and the allegations made in the public press that the Minister for Transport had ignored the west. The record speaks for itself and I would like briefly to quote the figures. Last week Donegal received €3 million for preliminary work on the Ballyshannon-Bundoran bypass, Sligo received €11 million for archaeological and other works on the town's inner relief road, Clare received €16 million for preliminary work on the Ennis bypass and Mayo received €5 million for the Knock, Claremorris, Ballina and Bohola roads. That expenditure is welcome, though it is not enough and my colleagues and I will be pressing the Minister to ensure a greater disbursement in the next spending round. The funding is enough, however, to give lie to the myth that the west has been ignored or neglected by this Government.
I hope the Minister will be successful in the relocation of Department of Agriculture and Food staff from Sligo to my home town of Drumshanbo. The move is at a sensitive stage, but hopefully the Minister will have positive news with regard to a development which would make a tremendous contribution to the economic well being of my area.
I resent the opening paragraphs of the Minister of State's speech in which he uses the words “misinformed comment” and “oft repeated, erroneous claims”. I remind the Minister and other members of Fianna Fáil, in particular Senator Mooney who seems to live in a tellytubby land of make believe, that before the general election, mothers were given a massive children's allowance pay-out and promised a huge increase after the Government took office. That increase was deferred and they were given only €10. The effect of abandoning the summer jobs scheme will be felt very soon and Senator Mooney will know many in Leitrim who will be affected. The schools building programme was the subject of promises by every potential Fianna Fáil Deputy in the run up to the election, but reality quickly dawned on the Government when it secured its win and cutbacks were made. What sort of country do we live in when the price of affordable housing in Kildare is €140,000? How can young people buy those houses?
Part-time education centres everywhere are being threatened with closure, as are the three full-time education centres in Kildare, Kilkenny and Sligo, near Senator Mooney's base. Depreciation of farm equipment has been extended from five years to eight years, which will have a massive impact on contractors and will push up costs to farmers. I presume the former and distinguished leader of the IFA, the Minister of State at the Department of Finance, was involved in negotiations with the NRA regarding compulsory purchase orders and the relevant capital gains tax changes. These will severely impact on farmers and landowners who are affected by the much-needed motorways. It is most unfair that those who are having land taken from them compulsorily are being doubly insulted by the capital gains tax changes which will cut back their options.
I resent the tendency of the Government to blame anything negative on outside forces while claiming credit for positive developments. In the USA insurance costs have not increased since 11 September 2001, which begs the question as to why they have risen so steeply in Ireland and other EU member states. The Minister should publish figures from other countries which would allow us to see what is happening and to correct any imbalance. I question the sincerity of the Tánaiste who is dancing around the issue of insurance. There is a very able Minister for Justice, Equality and Law Reform who could tackle the legal system which is intrinsically linked to the problems in the insurance industry.
The central question facing us does not relate to the creation of wealth, but to its distribution. The Minister for Finance controls expenditure and when there are surpluses it proves that not enough is being spent in the public sector. We should not rule out the idea of borrowing for worthwhile projects. One has to query the mentality in the Department of Finance which plans, correctly, for the distant future with a national pension reserve fund, but allows four and five year olds to be educated in sub-standard schools. A balance must be struck between long-term goals and current realities. Politicians know about the real world. We need a pensions fund, but we also need to put some of our money into proper worthwhile capital projects.
The introduction of stealth taxes is illustrated clearly by the increase in motor taxation which the Minister for Finance conveniently announced the day after the budget rather than on the day itself. We were told that extra money would be put into roads, but it has not materialised and there has been very little difference in the allocations to local authorities this year compared to last year, even allowing for the motor tax increase. I challenge the Minister to publish the sums received by local authorities in motor taxation to illustrate how little difference there is in the amounts they are receiving. The tax increase is being used to make up shortfalls in other areas.
In the long term we need to look at a consumer confidence index. For the first time I am hearing friends under the age of 30 talking about job insecurity, something they never mentioned before. People are worried as things tighten up. I am concerned at the increases we have seen in social welfare and I wonder if we can continue to sustain them in light of changed economic conditions. It is likely that the number of social welfare recipients will increase, but it is not clear that the Government has made provision for that.
I worry about the SSIA scheme and while I realise that when the money is paid out in four or five years it will go into the economy, there could be a great cost to the State. Perhaps the Minister will consider at this late stage an opt-out clause for people who cannot keep up their SSIA payments. It would be a generous gesture by the Government towards those who suffer job loss or changed economic circumstances.
Deputy Paul McGrath recently carried out research in the context of the row with the ASTI which the Government precipitated. Teachers were supervising for free beforehand. In County Westmeath alone, the use of external supervisors resulted in an overpayment of €500,000 which could have been saved if the teachers had been paid directly. That scenario is replicated around the country, which will help Senators to imagine the figures involved. The Government should hang its head in shame since that money could have been spent on primary and secondary school building projects.
I am delighted to hear from the Minister and Fianna Fáil Senators that money is plentiful. I look forward to the inception of the Barrow drainage scheme in Carlow which I have lately been told has been put on the long finger. I take it from the positive comments today that this should not be the case.
Another matter of concern is the deal hammered out between former Minister for Education and Science, Deputy Woods, and the religious orders. It is a pity Senator Mooney is not in the House. He attaches much importance to The Irish Times and would surely be concerned at the opinion poll it published lately.
Mr. Browne: I will conclude by saying that the majority of people interviewed for the poll in The Irish Times expressed grave concern at the deal that was hammered out. They were concerned also by the long-term implications for the taxpayer and thought it was a bad idea.
Mr. Browne: At present, DARTs and trains are using the same track, which is an indicator of how bad is our infrastructure. Major work needs to be undertaken and proper funding should be invested in the public transport sector.
Ms White: Senator O'Toole said that nobody predicted the Celtic tiger economy and that is absolutely true; not one professional economist or academic predicted its emergence. Economics is universally known as the “dismal science” and for years we listened to the predictions of doom. Despite those dark forebodings and the constant efforts of some to demean the Government's economic efforts, particularly throughout the 1980s, the economy became a universal model for small developing countries in eastern Europe and elsewhere. Corrective action is currently being taken because no country could sustain a 10% annual growth rate in the long term. Such corrective action was necessary because the expectations of young people, to whom Senator Browne referred, had become too high. They sought huge salaries and wanted to be managing directors as soon as they graduated from university.
In many other respects, Ireland is a model country. I am proud of being Irish and when I travel abroad I tell people that it is only 80 years since we won our freedom. Various Governments – particularly those containing Fianna Fáil, which has been in power for longer than other parties – together with the people, have delivered an economic miracle. We were colonised for over 500 years—
Ms White: —yet in 80 years we have produced this model by acting together. We should keep reminding ourselves how great we are because it is a fact. Ireland is the most beautiful country in the world. On each occasion I return from abroad and the plane comes in to land, I get an overwhelming feeling of pleasure when I see the variety of colours – literally, 40 shades of green – below. It is always a pleasure to come home and see what we have made of this country.
I listened carefully to the contribution of the Minister of State, Deputy Parlon, and I was pleased to hear about the management of expenditure now being put in place by the Department of Finance. We will have to convey the management of these accounts to the public in a transparent manner. For example, I was frustrated and shocked by the announcement of a €95 million surplus during Christmas week, having been told up to then how bad things were. We cannot allow these matters to be handled in such a way again. On one hand, the public was being told things were bad and that we all had to tighten our belts, while, on the other, the Exchequer had an end of year surplus of €95 million. I do not know how that happened.
I do not usually flatter Ministers or their Departments, but in this case the Minister of State's contribution was impressive. We are facing challenges ahead because people are cynical about politicians and Governments. They are opting for independent candidates at election time, rather than for mainstream parties. We must convey to the public that the Government is practising good housekeeping. During the Government's previous period in office, we preached about good housekeeping. However, we hit a crisis over payments to haemophiliacs. We do not want anything like that to recur.
Ms White: I am here to speak my mind and tell the truth. We should practise good housekeeping at home because we are supposed to be tightening our belts. People can have a meeting over a cup of coffee instead of during lunch or dinner. I do not wish to be dour about practising probity, but in the current circumstances the Government must provide a good example. When people read about such matters in the newspapers they lose faith in the political process.
The strength of the euro vis-à-vis sterling presents a serious challenge for indigenous companies, including my own. Most indigenous companies export to Britain, but they are losing their competitiveness due to the growing strength of the euro. If Irish companies do not keep their eye on the ball and get their act together they will not be able to compete in Britain. However, this matter is not attracting publicity in the media.
While future budgets will have to be prudent, I had a difficulty with the most recent which introduced cuts in community employment schemes. This is a pet issue of mine. Such a bureaucratic decision to cut funding for areas of social deprivation was absolute madness because budgets should look after the least well off.
The Government should do something about the cost of lawyers at the tribunals because that is another thing that drives the public crazy. Why does this happen with every tribunal of inquiry that is established? Last Sunday, I read in the newspaper that these barristers will not get out of bed for less than €2,500 a day. I do not know why specific arrangements setting parameters for the level of such payments cannot be made in advance of a tribunal being established. Barristers are the richest people in the country, but the Government should set an example by not allowing a small group of people to earn €2,500 each per day for this type of work.
Senator O'Toole raised the PAYE issue and said our tax base is too low, but that is ridiculous. PAYE workers do not want to see their tax base being increased again. The last occasion on which this happened was a debilitating period and everyone felt miserable because their salaries were being cut and they could not spend what they earned. We do not want to return to that situation. The Government should, however, provide leadership concerning those who are earning extravagant salaries.
Mr. Quinn: The Minister of State's contribution was extremely interesting. Earlier, Senator O'Toole asked us to speak from personal experience and I intend to do that. I was delighted to hear so many speakers doing so today. Senator White spoke from personal experience and the knowledge gained by running her own business, about the effect on exports of our currency's strength compared to sterling. That is a reminder of the challenges facing us.
Senator White also referred to the past 80 years, but it is only in the past ten years that the economy has become successful. Somewhere in the period 1987 to 1991, we got things right. We made a lot of blunders in the previous years. I remember well in 1991 meeting two people, one from Argentina and the other from Canada. They described how in 1922 their countries were equal in population, natural resources and opportunity. By 1999, one of them – Argentina – had become a failure and was practically bankrupt. The other had become a G7 nation and was successful. If we lose the economy we have enjoyed for the past ten years, we cannot blame anyone but ourselves. As Senator White said, we are an independent nation.
I wish to tell the House what I hear, as Senator O'Toole says, on the shop floor. I hear concern about job security. I hear concern when people are purchasing and spending. They are worried about the future, about the overtime and bonuses they were able to earn last year. Now they know of friends and neighbours who are losing their jobs and they worry that they will be next.
I hear concerns about inflation. They are aware that it is no longer in our own hands to control the rate of inflation, which is double what it is elsewhere in Europe. I speak from a business point of view. I do not agree at all with Senator O'Toole and I agree entirely with Senator Mansergh, who talked about the reduction in the percentage tax actually increasing the take, both in capital and company tax. The assumption that one will make more money if one increases the percentage of tax or increases prices by X per cent is not correct. If a business increases its prices by X per cent it will probably lose business. An increase in tax percentage will probably result in less earnings because less tax is earned on that basis. The Minister for Finance, Deputy McCreevy, has the real example with the betting tax. Every time he reduced it he got more money in.
I have heard a number of Senators make the point that it is all right to borrow. I know they will say that it should only be for capital purposes and not for current expenditure, but in my business I have seen a number of companies go out of business because they borrowed for capital purposes and did not have their sums right.
I want to ensure that this little country of ours is around in ten, 20, 30 and 40 years time. We must focus on what we can do at this stage to make sure that we do not take the wrong steps. I will concentrate on two inter-linked themes, competitiveness – which was mentioned by Senator McDowell – and public spending. They both pose serious problems for us which will certainly make big trouble down the road unless we change our attitude and our behaviour now.
For several years we have taken our eye off the competitiveness ball. As a country which depends crucially on being able to attract foreign investment, our success is directly related to our overall competitiveness. It is a mixed bag, consisting of our labour costs, taxation system, regulation regime, insurance costs, infrastructure and the quality of life that we have to offer. If we remain broadly competitive across the majority of these parameters we will continue to attract overseas investment and the companies that operate from here will be successful in their export markets.
Unfortunately over the past few years there has been a very steady erosion of this national competitiveness and with regard to almost all those parameters. We have already begun to lose investment as a result. We are certainly far from the heady days of the 1990s when companies were queuing up to get a foothold in Ireland at almost any price. If this trend continues we will not be far from the day when we will lose out on most investment decisions rather than winning most of them, as had been the case in the past 15 years.
One of the most pernicious aspects of the loss of competitiveness is that it happens very unobtrusively – it creeps up on us. It is due to a multiplicity of factors and there is no single cause or moment in time when we suddenly become uncompetitive. I suggest that over the past few years we have been closing our eyes to reality and allowing it to happen. Some of the consequences have been hidden or masked and we have been slow to realise what was happening. For instance, last year the exceptional performance of the chemical sector masked quite serious and sharp falls in our overall industrial performance. Our unemployment figures have been creeping up over the same period, but not by anything like they would have done had they not been masked by the one-off and quite unsustainable increases in public sector employment in the run up to the last general election.
As we know from hearing about factory closures, private sector unemployment is rising sharply. It is important not to blame this downturn entirely on external conditions and we are in danger of doing that. I heard those sentiments in the House today. The challenge of competitiveness would be there even if there was a world economic recovery. We should not console ourselves with the false idea that everything will bounce back once the world economy recovers. The world may bounce back but there is no guarantee that we will bounce back with it and certainly not to the position we enjoyed in the late 1990s.
Our failure to appreciate the importance of competitiveness goes to the heart of our attitude to inflation. For the past three years our inflation has been double that of the rest of the euro zone. By definition this has reduced our competitiveness by a corresponding amount but we have displayed the wrong reaction to this situation. Instead of trying to fix inflation and remove the threat we have simply sought to compensate each other for the price increases. In doing so we forget the obvious truth: that any attempt to deal with inflation in that manner will only make the situation worse, not better. The way to deal with inflation is to fight it, not to give in to it. Fighting means incurring a cost now but in return for long-term benefits, while giving in now means avoiding an immediate cost but at the price of a much greater cost in the future. We must fix our minds on the proper target which is how to maintain competitiveness.
It is in our own hands as to whether our political reality can cope. It is in the Government's hands and just as much in the hands of the Opposition. There is a linked problem of value for money in public expenditure. We can expect little growth in tax revenues in the foreseeable future. We may have difficulty getting the tax yield to deliver even what is expected now. That is why we must look at cost benefit analysis in everything. We must get value for money in public expenditure. For example, we have pumped money into trying to reduce the waiting lists in hospitals and as far as I can see the figures do not show that there has been any impact on the problem. We must take control of that aspect of public expenditure in order to solve the problems and create the future we deserve.
Mr. J. Phelan: Most of what I wish to say on this topic has been said already. I was particularly taken by Senator Quinn's contribution and I agree with most of his speech. The wide divergence of views expressed in this debate shows that economists have a difficult job because they must study a problem from many different perspectives before making a decision.
Senator Quinn has touched on what is probably the main issue affecting the economy, the question of competitiveness. We are led to believe the new national social partnership deal will include a package to deal with inflation which is damaging our competitiveness and progress. In recent months we have seen how Government decisions and increases have led to an increase in inflation. I do not share Senator Mansergh's view that because inflation reduced marginally in January it will keep reducing. By all accounts January is a month when economic activity can be somewhat flat. The problems we have with inflation look set to continue over the course of the next couple of months.
I was particularly interested in some of Senator Mansergh's comments. During the debate on the budget some weeks ago Senator White announced that she was a socialist and Senator Mansergh agreed that he was also. I did not detect much socialism in his contribution tonight. Perhaps he still regards himself as a socialist.
Mr. J. Phelan: Many Senators have mentioned social partnership, from which nobody can doubt that we, as a nation, have benefited tremendously since it was introduced. I was particularly taken by the contribution of Senator Minihan and that of the Minister of State, a party colleague of his. I was also interested in the comments of the Tánaiste in regard to the current social partnership agreement. The farming body finds itself in a position where it is forced to make a decision as to whether it will enter into social partnership again and the Tánaiste's best answer is they would be better in than out. As far as I can ascertain, there is nothing on the table for the agricultural community in the current negotiations.
I salute the stance taken by the social partners on the agricultural side in standing up to the Government for its lack of activity and promotion of the sector and its lack of a general policy for the area of agriculture in recent years. I know it is a particularly awkward position for the Minister of State as a former leader of a farming organisation. I urge him, as someone who has sat on both sides of the table in the partnership negotiations, to bring fruition and finality to the partnership with the involvement of farmers who must be given a realistic package. They will accept it if it is realistic.
I was taken by the historical nature of Senator Minihan's contribution. He went back to the 1980s which I only just remember. In this debate we must look towards the future and set clear policies and objectives. I regret that the Senator chose to enter into a party political broadcast on behalf of the Progressive Democrats and revise Irish history of the 1980s in the manner in which he did. We are looking for solutions to the present problem. The projected economic growth level for the next year is 1.4%, a startling figure and an indictment of the Government's, and its predecessor's, actions.
It was easy to be in government or Minister for Finance in the 1997 to 2002 period when the economy was booming. Taxes could be cut and spending increased without regard to future implications. Now that decisions have to be made by the Minister for Finance we will see what he is made of. I hope he has the courage of his convictions and will make the hard decisions needed.
Senator White touched on one cutback which I find objectionable in the announcements of cutbacks both before and after the budget – the cutback in the area of underprivilege. We have seen the abandonment of the student summer employment schemes. That is a retrograde step. Numerous voluntary bodies benefited from having students available to carry out essential work. The same bodies affected by the cutback are also affected by the cutback in community employment schemes. These cutbacks will have untold repercussions, particularly for sports organisations which often have their facilities looked after by people employed under the community employment scheme.
In a letter Deputy Noonan wrote to the Taoiseach before the general election he requested a response from the Taoiseach on the matter of the economy. The Taoiseach replied, “I can confirm that there are no significant overruns projected and no cutbacks whatsoever are being planned, secretly or otherwise.” That statement has shown to be an untruth. I regret that has come about. The promises and commitments given before the general election now ring hollow.
Another promise was made in a Fianna Fáil manifesto in 1997. It promised “to increase the first-time buyer's grant to £6,350 for couples”. That was some commitment in the light of the abandonment of the first-time buyer's grant. Now we are faced with its abolition and an increase in VAT which sees first-time-buyers with higher bills to pay. We are all familiar with the Bacon reports which were produced by the last Government and aimed at solving the crisis in house prices. We also know how useless those proposals turned out to be.
I am disappointed by the self-congratulatory tone of the debate. The problem of the man on the street is the cost of living. Owing to unfortunate circumstances I had the privilege of spending January in Australia where the cost of products in shops and pubs is reasonable in comparison with what we pay here. I remember when the cost of products was reasonable here. It is not that long ago as I am only 24 years of age. Our lack of competitiveness is where we lose ground. The cost of ordinary goods on the shelves is what concerns the man on the street. If the Government is serious about supporting the underprivileged and those on the margins of society, it must do something concrete about inflation in the economy. It is time for it to take action.
Minister of State at the Department of Finance (Mr. Parlon): I thank Senators for their substantial contributions. I noted the quality of the contributions, which helped make for a good discussion of the 2003 Estimates.
There was no attempt on the part of the Government to be over-congratulatory. Its purpose was to point out where the outturn was to come in light of the serious misconceptions that were held in regard to it. The reality is that we ended up with a surplus in spite of all the discussion to the contrary.
Mr. Parlon: Senator Higgins painted a grim picture in regard to job losses and it is true that we have some difficulties in this regard. He mentioned the issue of competitiveness, which came up throughout the debate. This appears to be a problem particularly in regard to our traditional manufacturing industries. The point was made that the bulk of these industries were owned by multinational companies that chose to relocate elsewhere due to our high cost base.
Thankfully, as other Senators stated, it is not all bad news. Today there was an announcement in regard to my home town. It is where I was born and went to school but, unfortunately, I do not get any votes from the area. It is not in my constituency, although it is situated within five miles from where I live. The IDA has attracted a substantial US company to replace the loss of Antigen, now called Miza. The indications are that the plant will re-open and the workforce will be taken back in what appears to be a strong investment in research and development. The Tánaiste also recently announced new jobs in Roscommon and I look forward to further such announcements. While there is not much we can do about our lack of competitiveness in traditional industries, we can build on our strengths, namely, an educated workforce with new skills.
Senator O'Toole raised the issues of the slowing growth rate and rising inflation. Our situation is not so bad when we compare it to Germany, which has zero growth and zero inflation. However, there are also 4.2 million people unemployed in that country. There appears to be a close link between growth and inflation. The figures for January are promising even though, as Senator Mansergh suggested, it might be difficult to extrapolate this from them. The ESRI indicated that we are at the top of the peak and the outlook is quite positive.
Senator McDowell raised a number of issues, including that of a lack of competitiveness and the inherent risks this presents. He acknowledged the steps taken to deal with this issue in the recent budget. He also referred to the stability and growth pact and the need for flexibility in regard to it. The Minister has reinforced his commitment to adhering to the pact. Other countries in the EU may need more flexibility on this issue than we do at this stage.
Senator Browne expressed resentment at some of the language used on this side of the House. I hope it does not affect him personally. He raised the issue of the extension of capital allowance in the budget in regard to the deal for the acquisition of lands for road building and the extension of roll-over relief. I was involved in securing the deal in regard to land with the previous Administration and believe it to be a fair one. People in my constituency who sold their land to the NRA for the Monasterevin bypass that is due to begin shortly are satisfied with it. While I am not going to quote figures, it is important that people realise how fair is the deal. Tax is unfortunately a reality we all have to face up to and the 20% capital gains tax is the cheapest rate people will ever have an opportunity to pay. I believe this point will be accepted when the new road networks are in place.
Senator Browne also made a point on behalf of those aged under 30. I appreciate that Senator John Phelan, who is now in the House, is 24. There is a good young front row on the Fine Gael front bench, with the exception of Deputy Higgins.
Mr. Parlon: The Senator certainly looks very fresh. The fact that such people are concerned about job security is an indication of the changed times. I have been through phases in my life where job security was a major issue, as is the case with many of the Senators here. The Government is concerned about job security and the need to be competitive and has attempted to tackle these matters in the budget. As I said earlier, some of the tough decisions taken in regard to the budget were not to do with balancing the books, rather they were designed to allow us to create jobs and wealth in the country.
Senator Quinn raised the issues of job security, inflation and borrowing. He strongly supported the decisions taken in the budget. Neither high taxation nor high borrowing is the answer to anybody's problems. We have learned from those mistakes in the past and remained steadfast in the budget in this regard. The ability to attract overseas investment will be vital for us in the future. Senator Quinn said that the pharmaceutical sector is the most exceptionally performing part of our industry. We have the expertise and by being competitive we will be able to maintain jobs.
We need to secure value for money in what we spend. Better management on the part of the Government is a positive step. Senator McDowell made a reference to the printout he received, but that is just a summary upon which we can improve. It is intended that every Department will in future issue figures on a monthly basis. The spotlight will be on Departments in regard to value for money and there is no Department, including my own and, in particular, the part of it – the Office of Public Works – for which I am responsible, that cannot deliver better in this regard. The more stringent the controls and scrutiny imposed by the Department of Finance on each Department and by the Members of the Oireachtas, the better focus people will have as we move forward.
Senator John Phelan referred to the social partnership and, in particular, to some letters. I did not have the opportunity to go to my office, but I could find there a pre-election letter that indicated much confusion in the Senator's household with regard to the direction some people were taking. However, I will not deal with that matter at present.
We ended up with a situation where the Estimates showed a surplus. In fairness, the Minister for Finance insisted that this would be the case in spite of all the accusations that were made against him throughout the year. While the sum of €85 million or €95 million might not be much it was a surplus and it exonerates his strategy, which is at the core of this matter. The decisions taken in the budget were not taken lightly, they were not in any way a technical exercise. They were necessary steps which had to be taken to ensure our continued prosperity.
The only way forward is a sustainable economy in which we match revenue and expenditure. The 2003 Estimates are taking us in that direction. A key element in managing such economic development will be ensuring any emerging problems are identified early and remedial action is taken. The budget provided the framework for this.
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