Brian Cowen (Laois-Offaly, Fianna Fail)

As the people of Ireland look to this House today they do so with understandable concern. Our people are concerned about their future, about the prospects for their children, about the well-being of their neighbours and of the country as a whole. They are looking to this House with hope and with expectation. They hope the political leaders of this country have the capacity to steer us through this period of unprecedented economic challenge. As they expect, there will be a clear plan, a pathway which charts our course to economic recovery and secures confidence in our country's future. The people need to hear from the Members of this House what we are going to do to fix these problems.

As the House is aware, I invited the Leaders of the Opposition to meet with me and my colleague, Deputy Gormley, last week, to discuss the budgetary crisis. I proposed that the Opposition should have full access to briefings by the Department of Finance, so that they could appreciate fully the scale of that challenge. I believe it is important to afford other parties in the House the opportunity to formulate their proposals for putting the public finances on a sustainable footing. I am also seeking to build external confidence in the determination of Ireland to achieve fiscal and economic stability through a broadly expressed commitment on the part of Irish political leaders.

It is, therefore, particularly important and beneficial that the leaders of the main political parties in this House have expressed their commitment to the target of reducing the deficit to 3% of GDP by 2014. That commitment will underpin confidence on the part of investors and workers and the community generally. I acknowledge that commitment and the spirit in which it was reiterated at our discussions last week. It is a sure sign of the strength of our democracy, and of the widely-shared recognition in the House of where the national interest lies at this critical moment in our economic history.

We should reflect on how far we have come in our efforts to overcome this unprecedented economic crisis – a crisis that has affected all the developed economies of the world. Since 2008, we have achieved budgetary savings of €14.5 billion in full year terms, in just two years. The economy is emerging from recession, with growth returning and the prospect of stronger growth next year and thereafter. There have been significant improvements in our competitiveness as Ireland prices itself back into the markets we sell to and a remarkably strong export performance is being recorded this year over last year.

The budgetary figures for this year are broadly on target. Despite all that has happened, our debt to GDP ratio in 2014, forecast to be about 110%, will not be significantly out of line with many other developed countries. Taking account of the National Pensions Reserve Fund, and cash reserves in the NTMA, our net debt position is forecast to be about 83% of GDP, lower than many other developed countries. However, our borrowing costs have increased significantly and our public finance position still requires a major additional correction to put it on a sustainable path.

The State, therefore, continues to be faced with an enormous budgetary crisis. Against that background, the Government has decided that an overall budgetary adjustment of €15 billion over the next four years is warranted in order to achieve the target deficit of 3% of GDP by 2014. This is based on a projected average annual real GDP growth rate of 2.75% over the period 2011 to 2014. It is also based on a working assumption that the budgetary adjustment will be somewhat front-loaded in 2011 and that it will be weighted more towards reductions in spending rather than tax increases.

It is the Government's judgment that while a degree of front-loading may dampen economic growth in 2011, it will give the necessary confidence to the international markets and secure our funding position which is, of course, fundamental to sustaining public services for our citizens and achieving sustainable economic growth in future years. The key reasons for the significant increase in the required consolidation are lower growth prospects both at home and abroad and higher debt interest costs. The size of the adjustment for 2011 and the distribution over the remaining years will be announced in the four-year plan, which the Government is currently discussing and preparing for publication in mid-November. However, more work needs to be done and more up-to-date information will be assessed, before a final decision on the precise figure for 2011 is made.

The projected adjustment for each of the four years is not arrived at lightly. It is based on a rigorous assessment of the balance between what is credible to the markets and to international institutions and the inevitable impact on potential economic growth in the economy. It is severe, but it is a necessary next step to economic recovery.

No one can forecast with complete accuracy how the Irish economy will perform next year, never mind over a four-year period. There is also considerable uncertainty about the international economic outlook, which has a powerful influence on the performance of our economy. For instance, last year we ourselves predicted a contraction of minus 1.3% in our budget and if one considers what others were saying about a medium position of about minus 1.1%, it looks like we will have perhaps zero or small growth rather than that. This is just with respect to the one-year forecast. However, there is also considerable room for continued action here at home. We are not passive spectators, watching helplessly as events unfold. On the contrary, I believe the four-year plan we will publish will be a call to action for our entire economy and society. The plan is not only about bringing order to the public finances by 2014, which is vital. It is also about bringing together our growth strategy, as set out in the smart economy plan, our jobs strategy and our proposals for structural economic reform. It will demonstrate how growth in the economy and in employment will be fast-tracked by building on the key competitive strengths I mentioned earlier. If we can do that, we can reduce the scale of the €15 billion adjustment that is necessary if we are to achieve the 3% target by 2014.

I emphasise that the best way to reduce the deficit is to accelerate a major programme of structural reform in our economy, aimed at increasing employment and national income. If vested interests wish to oppose reform, all they will do is help to deepen our problems. If they proceed with such an approach, they will help to condemn our society to persistent unemployment, deteriorating public services and reduced support for the most vulnerable in our society. Our problems are so serious that no vested interest and no section of society can escape from their consequences by trying to protect narrow sectional interests. We all have a part to play. Everyone is in this together. The public service has a critical role to play in achieving the goals of the plan we are preparing.

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