Michael D Higgins (Galway West, Labour)

I have already congratulated the Minister of State and wished her well.

I listened with great care to the speeches made by Government speakers. It is important that we are forthcoming, clear and honest with the public who are evaluating this debate, yet so far there has not been the slightest statement that there will be any departure from a model of the economy that has significantly failed. I have just heard it said again that it was a feature of the good times that people wanted little State interference, that they wanted their own money and did not want to pay tax. In fact, that was the seed of the disaster.

The seed was sown by one of the worst Ministers of Finance since the State was founded, Mr. McCreevy. It was suggested there should be light regulation of the banking sector. Those who supported this, under the influence of the Progressive Democrats, were not anti-State as some on the left have said. They wanted the State to work for them. They wanted all the transfers that were necessary to socialise costs, but they wanted the least State interference in the yield. At a certain stage, we could assess the value of what Mr. McCreevy introduced. In November 2004 the Revenue Commissioners calculated that the annual cost of tax reliefs was €8.4 billion. When we looked into how they were disposed of and who participated, we saw something very interesting, particularly in the information on schemes such as those for car parks and hotels. The figures provided in volumes 1, 2 and 3 of the invaluable work the Department of Finance prepared in 2006 show that 83.3% of those who participated in schemes for car parks and two thirds of those who participated in schemes for holiday camps had an income of more than €200,000. How many on €50,000 or less participated? The figure was zero. In other words, contrary to the notion that we all had it so good until somehow it all fell apart, a small number were doing very well.

Let us have some real, honest facts about what happened and why we are where we are. I have listened for weeks to people saying Anglo Irish Bank was of systemic importance to the Irish banking sector, this bank with few retail outlets, 50 of whose customers had loans of €500 million each. That is what the Government side described as being of systemic importance. No one who is serious about economics suggests Anglo Irish Bank was of systemic importance. That is why the Department of Finance, in preparing the legislation, decided not to include it in the guarantee scheme but to nationalise it directly. It was disruptive for reasons we will never know.

Another reason for our problem is that we had a financial sector with light regulation. Mr McCreevy did not take this up from the wind. This is a problem for parties of the right which must tell the public whether they are in favour of reviving light regulation and speculative investment in property rather than investment in a productive economy. Are they saying everything we do this year, next year and the following year should be to get back to that point again? The defining characteristic of everything the Labour Party and I say on the economy and the banking sector is that there is no going back to that failed model. We need a social economy and a form of banking regulation that give us the quickest possible credit flow. We need the system to be transparent to the public and a method of valuing toxic assets. That must be done with the least risk to and the best chance for the taxpayer to participate in the upside when the NAMA exercise, if it is to happen, is over. However, we do not believe the NAMA model can work. I will return to this issue.

I agree with the previous speaker who is at least trying to think his way through the Government's proposals, but we should consider the following horror scenario. The Minister has spoken about the two sections of the Bill that seek to curtail the possibility of banks registering the losses that will be identified by whatever mechanism is used as concessions against tax. Unfortunately, however, the Bill does not deal with tax from the previous year. The taxpayer stands to lose bank losses, building speculators' losses and what might have been future provision for tax to be paid in the next few years. I am not deliberately painting a black picture. I am simply saying a responsible Finance Bill would not only have addressed the issue in the way sections 5 and 6 of the Bill do, but would have reached back and also have anticipated future tax benefits, which will now be lost.

It is important that the public know the figures. In the seven years of the McCreevy era, between 1999 and 2006, the cost of urban renewal in tax forgone was €1,423 million. Again, two thirds of those who participated had incomes of more than €200,000. A small group in the economy benefited from the McCreevy tax breaks and drove the property bubble using Anglo Irish Bank as their gambling club. When everything fell apart, the Government fell back on the laziest and quickest way of receiving income - through levies on people whose incomes can be accessed easily.

Was any of this accidental? I can guarantee it was not. In a written question I asked the Minister for Finance "the research that has been carried out over the past ten years by his Department on the extent and breakdown of wealth, as opposed to income here; the findings of such research; if he will make these findings available" and "the changes in findings and figures on a year to year basis over this ten year period". On Thursday, 26 March, he replied: "I have been informed that no general research has been carried out over the past ten years by either the Department of Finance or the Revenue Commissioners regarding the extent and breakdown of wealth as opposed to income". The ideological mindset that wanted light regulation, invented the property bubble and funded it through this little racket called Anglo Irish Bank never even intended to allow studies of wealth. The Government could go after its strategy and then, when everything collapsed, cut expenditure, even on vital services such as the homes for people with Alzheimer's disease that will not go ahead and the schools that will lose special needs teachers. On the income side, it is using levies because, as we heard, it can be done quickly.

I turn to other interesting suggestions made. We need to decide on the best model for dealing with a banking sector that is standing like a ghost and preventing progress on what we regard as the central problem: job protection, job creation and investment. If that is the case, the issue is how one will get credit flowing again from the banking system. The notion we have had since that night in September last, namely, that there would be a public interest director sitting there, is useless and insufficient because company law has not been changed and such a director has a responsibility in law to the board. I suggest in principle that one must minimise the risk to the taxpayer and ensure the taxpayer has the best prospect at the end of the exercise of participating in any gain as we come out of the recession. Does NAMA do this? No, it does not.

The Government proposal contains the possibility of further capitalisation which may, in turn, lead to higher proportions of equity, and one will end up providing the equity but not having control. There is no point indulging in childish argument that nationalisation is expropriation; it is not. The temporary nationalisation that has been suggested by the Labour Party and the majority of academic economists dealing with banking in this country is intended for the short term because it is the fastest way of putting a transparent valuation on assets that are toxic. It also has the benefit of being able to deal with several different institutions where the collateral has been spread.

I am perfectly interested in listening to people's strategies for dealing with issues in regard to banking, to which the Minister referred. However, I see another downside, namely, the predators who are waiting internationally for asset disposal. It is funny to have Fianna Fáil decide to begin using Peter Sutherland as a kind of recently discovered saint. Goldman Sachs, for example, has a Vintage Fund V, which has $5 billion waiting to purchase distressed assets. Therefore, does one write down the value of the assets to such a point that one leaves oneself open to predators? Alternatively, if one wants a lesser discount, this will mean the taxpayer must carry a greater burden. I have no time to go into the detail of this. I simply state that nationalisation as suggested by the Labour Party is not suggested on any limited ideological ground; it is suggested as the way of giving the most transparent valuation of assets and the fastest possible method of creating credit within the banking system, which gives control through a banking commission in regard to the top level.

I heard talk of how they are quietly going away. They are not going away. The chairman and chief executive of AIB are in fact standing for election to the board. This notion that somehow they are all walking away is nonsense. There is not the slightest suggestion from any of these people in the banking sector that they did anything wrong.

I do not suggest the situation with regard to toxicity is similar to the position in the US, where rating agencies, disgracefully conflicted as some of them were in regard to the proportion of shares that were owned by major investors in the United States, gave AAA ratings to absolutely dud instruments that were then sold internationally. In the Irish case, what is very important is how we will ever get a credit policy from the banking system that will enable the real economy to take off. I support those on all sides of the House who correctly point to the highly educated population, our experience and the high tech nature of our industry, which we all want to get going again. In that regard, I support the tax concession in the Finance Bill for the purchase of instruments such as an international technology patents and processes which will enable start-ups. However, I noted an absence of strategy in the budget speech, which very quickly went away from the Second Stage text and moved on to the sections in summary, which is really a matter for Committee Stage.

I know the Minister is in a difficulty. Having put all of the resources that are available into trying to bail out the banks, there are no resources for a stimulus package similar to what has been announced in more than 40 other countries, which is what we want to see. People on all sides of this House want to see a graduate placement programme and measures like the Earn and Learn scheme where one can work part-time and be educated. They want to see FÁS expanded to deal with upskilling and they want local bodies such as community development bodies being turned into employment creation bodies. I believe we have many rich resources in the creative economy, particularly in the west, where there are highly educated people and possibilities for new jobs in music, the film industry, the arts and so forth. However, if we are to do this, the real economy's needs should be up-fronted in regard to employment.

Every unit of employment we add to the unemployment statistics costs us between €25,000 and €35,000. Given the half-baked way it is being done, one could end up with cuts in vital areas of expenditure and increases in levies to give yield but with the greater proportion not keeping up with what one is losing on the employment side because of the necessity to pay social welfare while losing tax income. One has to change this around. It is interesting to note the European Commission's advice to the Irish Government and other members of the European Union. The good point about Ireland is the debt to GDP ratio. However, it makes sense to borrow internationally for a stimulus to the real economy rather than being forced late in the day, after NAMA has faced its legal challenges, after it has been obstructed and even after the delays in bringing the legislation through this House, to use vital resources, even borrowing, to service at an increased rate the day-to-day borrowing requirements which have been largely and massively increased by the strategy for the banks. What would make sense, therefore, is to consider the requirements of the real economy and the liquidity that is necessary, structure it into a fiscal strategy and then, in turn, we can argue about the banks in regard to the working of NAMA.

Some of my former academic colleagues are debating the issue of the difference between nationalisation and NAMA. One must deal with this question and I have one piece of advice. There are certain things we know. For example, Ray Kinsella in his contributions has a good idea in regard to the exposure of the loan book of, say, Allied Irish Banks. While I have no time to go into it here, I ask whether one would trust the board of a bank that first said it needed no capital injection from Government, then sought a capital injection, then said it was not sufficient and has now said that 24% of its loan book is under scrutiny and, as we have just heard, its bad debt provision is being increased by 250%. While we know certain things that are factual, there are other things that are matters of opinion. There is not a jot of evidence to suggest the international lending system would perceive a nationalisation model as different from any other structure. The European Commission's document is very interesting and specifically states that some member countries may go for a nationalisation model before they move to the other instruments of restoring their banking system. We should draw a distinction between what are matters of fact and matters of opinion.

While I welcome the debate among economists in regard to what is the best strategy, the temporary nationalisation of banks of systemic importance offers us the fastest and most complete option. It minimises the risk for taxpayers and maximises the up-front yield in regard to the end of the process. It gives us the best transparency, the best management system across institutions and the best possibility of being able to link real economy possibilities and strategies through the boards on the banks. I believe it is temporary and will recommend itself. It is not true to say this is in any way bailing out shareholders or bondholders at the cost of taxpayers. It is possible to deal with the shareholder issue through the trust we have suggested.

Another myth is the suggestion that if we do something such as I suggest, this would discourage international bondholders. When our banking system has been made clean and profitable, they will be back within hours, not days. Therefore, the notion of the discouraged bondholder is a myth.

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