Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to make a contribution to the debate on the outcome of the second quarterly EU-IMF programme review mission. This review has resulted in a new set of programme documents which the Government released yesterday evening, including a draft of the updated memorandum of understanding between Ireland and the EU and IMF.

I welcome the fact that the conditions of the programme have been broadly met to date. The programme presents an essential funding source for the running of the State. The programme agreed in November last has been much criticised but I have yet to hear a credible source of funding which would allow for essential public services in this country to be maintained. All of us hope that Ireland can return to the sovereign debt markets as soon as possible and, therefore, no longer be subject to the onerous conditionality imposed under this agreement. I will return to this issue later.

The review concludes that the fiscal programme is on track. The new Government has now fully accepted the €6 billion fiscal correction for 2011 which was introduced by the previous Government in December last. No changes have been made to that budget despite the most trenchant opposition to it in December last from those parties now in Government.

The Minister for Finance, Deputy Noonan, indicated in the Dáil yesterday that the Exchequer returns to the end of April, which I understand are being published this afternoon, are ahead of the projections set out in December last's budget. This is to be welcomed. It will remain essential that the path of fiscal correction which has been laid out continues to be pursued. That will not be an easy task for the new Government and will require a seismic change in the attitude adopted by the Government parties since 2008 when the process of fiscal correction was commenced by the previous Government.

One point is clear. There has been no wholesale renegotiation of the EU-IMF agreement which was reached in November last. Last year the Minister, Deputy Noonan, referred to the deal as an obscenity and a disaster. The Tánaiste, Deputy Gilmore, stated it was "Labour's way or Frankfurt's way". The Irish people were promised substantial renegotiation of the deal. What they got was a copy and paste of November last's deal with some strictly fiscally-neutral tweaking. There has been, and will be, no change to the fiscal targets. Any changes to the detail of the agreement must be fiscally neutral and must be agreed in advance with the troika. There will be no burden-sharing with senior bondholders, a point to which I will return later.

There even seems to be some doubt about the reduction in the interest rate that was being negotiated by the previous Government on leaving office. A final decision on this is now to be taken by the euro group and the ECOFIN Ministers, and hopefully this will happen sooner rather than later. A reduction in the interest rate will not solve our fiscal problems, but it can make an important contribution. While a 1% interest rate reduction would result in annual savings of €130 million based on the current drawdown of the facility, a 1% reduction on the rate charged on the full €45 billion available from EU sources, as opposed to the loan from the IMF and the bilateral loans, would result in a €450 million saving for each full year borrowed. That would make an important contribution. If this €45 billion was held for an average of seven and a half years, that is, the term envisaged in the programme, the total saving would amount to €3.375 billion. We support the Minister and the Government in the efforts to secure this reduction. The sooner it can be achieved the better.

The truth is that the Government parties are now fully supporting and implementing a programme that they resolutely opposed while in Opposition. In his banking statement to the House at the end of March, the Minister made clear the Government parties' new-found commitment to the EU-IMF programme. He stated:

For the benefit of our people and of market participants, I want to be clear that we are committed to the EU-IMF programme. We have issues that we wish to raise and changes that we need to make in the context of ensuring growth and recovery in the Irish economy. However, we will respect the overall fiscal parameters of the programme and where adjustments to the programme affect these, we will make appropriate offsetting adjustments.

This is a far cry from the rhetoric of the election campaign only a few short months ago.

We were told during the recent general election campaign by the parties now in Government that there would not be another cent for the banks in the absence of burden-sharing with all classes of bondholders, including senior bondholders. The same parties have now agreed to put a further €24 billion into the banks without a single cent being taken off senior bondholders. The Minister had already stated that the debate is over on burden-sharing with senior bondholders in the proposed three main banks, AIB-EBS, Bank of Ireland and Irish Life & Permanent. In reply to a parliamentary question of mine yesterday, he stated:

I also reiterated in my statement [at the end of March] that it is Government policy to work out Anglo Irish Bank and Irish Nationwide Building Society in an orderly manner over time and to minimise further injections of taxpayer capital into either institution. I have made clear that should additional capital be required, the Government will consult the external partners on the timeframe and means of recapitalising those institutions at minimum cost to the taxpayer, having regard to the financial stability impacts in Ireland and abroad.

In other words, the issue of burden-sharing with senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society only arises if further money must be put into these institutions beyond the recapitalisation that has already been committed.

In essence, when confronted with the reality of the European Central Bank's position on the issue of burden sharing with senior bondholders, the Government threw in the towel. Asked on radio in January about the renegotiation of the deal Deputy Eamon Gilmore, now Tánaiste, stated it had to be renegotiated as several aspects were just not acceptable such as the fact that it had been struck without any contribution being made by senior bondholders. Sadly, we no longer see any of this no-nonsense straight talking by the Tánaiste. As was pointed out on many occasions, the issue of burden sharing was raised by the previous Government with the international authorities during the negotiations last November. However, the then Opposition parties did not believe us. The Government has acknowledged that in respect of the €36 billion of outstanding senior debt in the Irish banks, a contribution will not be required to the banking bailout.

The updated draft memorandum of understanding makes reference to the jobs initiative to be announced next Tuesday in the House by the Minister for Finance, Deputy Michael Noonan. I sincerely hope whatever measures are included in next week's announcement will actually work. We all accept the point that growth is the key to working our way out of our current economic difficulties. Assuming the pathway of fiscal correction is continued, we need economic growth. Unemployment is a scourge in society and we must replace the hopelessness experienced by thousands of unemployed people with optimism. Yesterday the Taoiseach and the Minister sought to lower expectations about the impact of the jobs initiative, but next week they will have to be clear about how the initiative will be funded.

We already know the jobs initiative will provide for a reduction in the lower rates of VAT and employers' PRSI. Based on written replies by the Minister to parliamentary questions, these two measures alone will cost up to €1.3 billion to the end of the lifetime of the programme - the end of 2013. A reduction in the lower VAT rate will cost approximately €850 million, while the PRSI reduction will cost more than €400 million. As I acknowledged at Question Time yesterday, it is hoped the net costs will be considerably lower if the measures result in additional economic buoyancy. All of us hope these measures will remove people from jobseekers' payments and increase income tax revenue for the State. However, it is not possible to anticipate their impact in advance. Therefore, the Government must ensure the package of measures is fully funded. The European Union and the IMF are very clear that the estimated costs must be offset in full in the period to 2014. Presumably, we will find out next week whether the package will be funded by spending cuts, tax increases or a combination of both.

The Government is examining the McCarthy report on State assets and liabilities. On a number of occasions it has informed us that the European Union and the IMF were agreeable to allowing the proceeds from the sale of State assets to fund job creation initiatives and it is hoped this will be the case. However, the programme document published yesterday makes no reference to using the proceeds for job creation measures but instead states on page 16, "It is important that we make effective use of our state assets and, where appropriate, dispose of them to help reduce our government debt". The Troika appears to have asserted its authority on this issue also.

At Question Time yesterday the Minister and I had an exchange on the issue of national debt sustainability. The downward revision of the growth forecast by the Department of Finance in the stability programme update is a serious development which underlines the debt sustainability issue Ireland faces. According to the Department of Finance's projections, interest payments on the national debt will use up 21% of State tax revenues by 2015. However, this is based on a tax revenue figure in 2015 of €44.3 billion. For comparison purposes, the expected tax revenue this year is €34.9 billion; therefore, the Department is factoring in an increase of almost €10 billion in the tax take between now and 2015. That would be a 27% increase in the four-year period. We all hope these figures are correct.

I am not privy to the economic model being used by the Department, but I believe it is healthy to ask questions about some of the figures being used. For illustrative purposes, let us assume tax revenues increase by a more modest 2.5% each year from 2011. This would give a tax revenue figure of €38.5 billion in 2015 as opposed to the €44.3 billion estimated by the Department. However, with national debt interest payments set to reach €9.2 billion in 2015, this would mean 24% or just under one quarter of the tax take would be going on interest payments alone at that stage. This is still lower, as the Minister would point out, than the amount of the tax take that went on interest payments in the 1980s. However, it would take us to a very dangerous level.

For 2012 the Department is predicting GDP growth of 2.5%, whereas the IMF and the European Union believe the rate will be less than 2%. They believe a figure of 1.9% is closer to what is expected. As the Minister indicated, the Department believes the economy will grow by 3% in the period 2013 to 2015, following the three successive years of economic contraction we experienced to the end of 2010. However, it is only right and proper that we question the Department's ability to make such growth predictions. Yesterday the Minister stated these were the Government's economic growth predictions, as did other Ministers outside the House. They are made by Department of Finance officials. I am sure the Minister did not interfere in the Department's decision to revise downwards the forecast for the current year to 0.8%. Equally, it was not the then Minister, Deputy Brian Lenihan, or any other Minister, who came up with the figure of 1.75% last December for the rate of growth in 2011.

The question I ask is whether the Minister really believes Ireland will be borrowing on the international sovereign debt markets next year. He has stated the NTMA is in constant contact with market participants and that its view on market perception of sovereign debt in Ireland is a crucial input into our deliberations. It is clear from the bond yields that market perception of our sovereign debt is not favourable. On the basis of the evidence it seems less rather than more likely that Ireland will be back to the markets any time soon to meet its funding requirements. The truth is that, irrespective of the level of the fiscal correction any Government can reasonably be expected to achieve, if the growth forecast pencilled in by the Department is not at least achieved, the prospect of debt restructuring will loom on the horizon for Ireland at some point. I have no doubt that the European Union and the IMF are acutely aware of this and the Government needs to be also. It is only prudent that in private the Government should conduct contingency planning and enter discussions with the Union and the IMF to discuss the possibility of the rate of economic growth in Ireland not reaching the level we anticipate it will. On page 14 of the document published yesterday it is stated "the scale of the necessary consolidation in Budgets 2013-2015 will have to be reviewed in the context of the likely growth prospects nearer the time". This underlines the point I am making, that if the growth projections made by the Department prove yet again to be too optimistic, clearly the Government will have to increase the fiscal consolidation measures in 2013 and beyond.

I agreed with the Minister who stated yesterday that the issue of debt sustainability was not black and white. If we anticipate that the level of tax revenue accounted for by national debt interest repayments could reach one quarter by 2015, how much further are we prepared to go in terms of fiscal consolidation and the impact on ordinary people's lives? These are discussions we need to have on a contingency basis with the relevant authorities at the earliest opportunity.

If I had time, I would go into many other issues. I have just come, like the Acting Chairman, Deputy Joe Costello, from a meeting of the committee established by the House to examine the subsidiarity issues arising from the CCCTB proposals. I wish the Minister well in the forthcoming meetings with his finance Minister colleagues at ECOFIN and among the euro group. In particular, I wish him well as he seeks to achieve the reduction in the interest rate which we all hope will happen as soon as possible.

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