Seán Sherlock (Cork East, Labour)
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I wish to share my time with Deputy Arthur Morgan.

Brendan Howlin (Wexford, Labour)
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Is that agreed? Agreed.

Seán Sherlock (Cork East, Labour)
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In the interest of an overview, I ask the Minister to indicate the effect on buoyancy within the economy of the most recent budget and the subsequent publication of the Finance Bill. If the Labour Party's estimates are correct, it is proposed that more than €3 billion will be taken out of the economy as a result of the measures proposed in the Bill. This would have an effect on economic buoyancy through returns into the Exchequer. We are very concerned that the lack of buoyancy or the effect on buoyancy is extremely negative. This will have further negative consequences for economic growth in the economy. I would like a coherent and specific response from the Minister with regard to the measures proposed in the Bill and their effect on economic buoyancy. It is important that if we find ourselves in a scenario where we seek to stimulate the economy that we have those figures.

On the pension levy and its effect on part-time public sector workers, I have had representations from constituents who are employed by County Cork Vocational Education Committee. They work on a part-time basis, have never subscribed to a pension plan within the VEC, yet they have been hit by the pension levy. How were these people deemed eligible for the pension levy if they are only part-time employees and have never subscribed to a pension scheme or provisions? Is it legal to apply the pension levy to this coterie of workers, whether within the VEC or any other public sector body with part-time employees who do not pay into pension schemes?

I wish to raise the issue of capital allowances, specifically with regard to the low paid, self-employed and farmers. Section 2, in dealing with the income levy, outlines technical amendments to clarify that the levy applies on gross income. Subsection (1), paragraph (a) states:

'aggregate income for the year of assessment', in relation to an individual and a year of assessment, means the aggregate of the individual's relevant emoluments in the year of assessment, including relevant emoluments that are paid in whole or in part for a year of assessment other than the year of assessment during which the payment is made, and relevant income for the year of assessment;

In the past year a dairy farmer might have had significant capital outlay to comply with EU legislation through the farm waste management scheme and the nitrates directive and would have been subject to the farm improvement scheme, for which there is no economic return. He might have invested €100,000 in respect of those schemes and had single tax credits such as a €3,000 pension contribution. If his gross farm receipts amounted to €150,000 and one factors in costs between variable and fixed of approximately €115,000, his net income would amount to €35,000. Taking into account the income levy of 2%, the health contribution of 4% and the PRSI levy of 3% for the full year the total deductions come to approximately €2,700. The overall deductions on the income, net of capital allowances could be in the region of 9.4%. Adding the capital allowances to the pension contribution they could be in the region of 10.5%. Could provision be made within the Bill for self-employed people who have significant capital outlays to take those capital allowances into account in the calculation of income? That should be done particularly where someone is deemed to fall below a certain income threshold. There is scope to do this for someone who is self-employed when it is necessary to encourage growth, particularly in the rural economy.

In rural Ireland dairy farmers have had a significant outlay and their incomes have been dramatically reduced. It is, therefore, important to have some stimulus to maintain the income status quo. Not taking into account capital allowances made on Government schemes or obligations under EU legislation would bring some equity into play.

Arthur Morgan (Louth, Sinn Fein)
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The Minister's Second Stage speech warrants some examination. In it he told us, "We are continuing to invest in education at all levels in order to ensure we have the skills demanded by our knowledge-intensive economy". The opposite is the case, the Government has just cut €30 million from the education budget. That is a poor response. The Government spends €113 million per annum on prefabricated huts in school grounds. Many of these huts are damp and leaky, draughty and cold. The Educate Together school on Mornington Road outside Drogheda, in my constituency, comprises over 20 prefabricated huts. These cost the taxpayer an average of €12,000 per annum each. That is some investment. Will the Minister explain how he can stand over the part of his speech in which he states that the Government continues to invest in education? Many of these prefabricated huts are also rat infested, and are not a good environment in which to educate children. In other cases the toilets are not in the main school building and children must scurry through the rain or frost or snow to use a toilet which is sometimes a considerable distance away.

The Minister also stated: "The Government remains committed to providing a pro-enterprise environment and to maintaining our relatively low tax burden on business". That also warrants a challenge because whatever about low taxes such as the modest 12.5% corporation tax, businesses must endure steep charges well in excess of those affecting businesses in most other European countries. We know about the waste management charges, the development levies but what about the lack of infrastructure for those businesses? I have received representations for several weeks from a precision engineering business which has some expert capacity and is engaging in expert activities but there is no broadband in its area. This company grew from a modest family business into one with significant potential but it is struggling to develop because of the lack of broadband yet the Government says it is pro-enterprise. The Green Party says that it will ensure broadband is rolled out by 2013. I will believe that when I see it. The business community does not have the same patience in respect of these services.

The Minister also told us: "Our agility in responding to this most difficult of economic crises has been acknowledged by Mr. Jean-Claude Juncker". Mr. Juncker said Ireland is "making some very brave efforts and we very much welcome the feeling of national consensus that we detect in Ireland". The only national consensus we have is that the Government is totally incompetent and has no clue what it is doing. An official from the Department of Finance must have written that speech for Jean Claude Juncker because everybody here knows it is nonsense. The Government spent €440 billion of taxpayers' money to underwrite the bail-out of the banks in September, it recently recapitalised some banks and nationalised Anglo Irish Bank, all measures that have required it to re-visit what it has been doing. The national asset management agency is the latest episode in the saga. The Minister stated:

The purpose of the supplementary budget was to restore order and stability in the public finances so that we can protect existing jobs and generate the essential economic confidence that will lead both to further employment creation and to a return to prosperity.

In his dreams. Where is there a single measure for job retention and job creation in the supplementary budget? I cannot find it so I would appreciate it if the Minister, in summing up, could point out to me where it is. It is not there, yet the Minister continually uses bland phrases that mean absolutely nothing or bear no resemblance to reality.

The Minister also stated, "We must demonstrate that we have the ability to make the right choices for everyone in this country". My goodness, that would be some demonstration and I would certainly like to see it. However, there is no sign of it or of the right choices being made. I must therefore ask whether the Minister is serious.

The Minister stated, "We must never lose sight of the principle that economic and fiscal renewal cannot be achieved at the expense of fairness." Is it fair to close two wards in a children's hospital in Temple Street? Is it fair to rob pensioners of their bonuses at Christmas? All the language in the Minister's statements needs to be challenged specifically line by line because it is all wrong. The Government is misleading this House and the people of the State, and that is grossly unfair.

The Minister also stated tax increases are required although he advocated the complete opposite. Perhaps the increases are required but he needs to explain that, at the last general election, which was nearly two years ago, the Government parties were advocating the absolute opposite to tax increases. They were advocating tax cuts. This is how the Government received its mandate; it was not on the back of tax increases. There is a very strong argument that a completely fresh mandate is required for exercises of the scale envisaged.

The Minister referred to the "redistributive impact of the budgetary measures". I assume he is referring to the redistribution of wealth. The National Asset Management Agency is to shift wealth on a scale not seen before in this State and probably never seen before in any European State. The Government is proposing to move a sum in the order of €90 billion, not from the wealthy to the poor but, rather, the complete opposite. It proposes to move this sum from the poor to speculators and bankers. The scale is such that an explanation is warranted.

The Minister stated, "The Government will continue to protect the vulnerable in this difficult period but in doing so it must be borne in mind that we all have a responsibility to accept a proportionate share of the burden of adjustment needed in this economy." A sense of proportion is required. Is it reasonable and proportionate to underwrite the banks to the tune of €440 billion and to bail out Anglo Irish Bank entirely? Allied Irish Banks and Bank of Ireland are receiving €3.5 billion each, which we know is not nearly enough. This is regarded as fair and equitable by the Government. It is disenfranchising children by removing their opportunity to have a decent education and to sit in a dry and reasonably warm classroom, and it is removing the opportunity of those in receipt of welfare to have some tiny bonus at Christmas with which to deal with the issue of Santa Claus or pay bills they owe. This was regarded as proportionate by the Government but I do not see it that way, and cannot do so by any stretch of the imagination.

The Minister made more very interesting remarks in his speech. With reference to sections 3 and 4, he referred to the making of supplementary budgetary measures for mortgage interest relief. The relief is being cut for anybody who has held a mortgage for more than seven years. We must remember that the people who took out huge mortgages did so to the cheers of the Government and its regulators. They were happy to cheer on those taking out mortgages for grossly overpriced properties because their doing so enriched the speculators who had been friends of the Government for so long.

The Green Party has a great responsibility in respect of what is taking place. Until now, it has told us that every aspect of the mess we are in is not of its creation and that it has no responsibility therefor. However, it is on the other side of the House voting for cutbacks, voting against proper education facilities for children and voting against pensioners. It now has a duty to explain to the people where it stands. It got into power on the basis of an election manifesto and election promises that represent a position totally the reverse of its present position. It cannot get away with this any longer and needs to explain its position.

Martin Mansergh (Tipperary South, Fianna Fail)
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The primary aim of the Government is to stabilise the economy, unemployment, the public finances and the banking sector. The problems Ireland faces are also faced by practically every other country in the European Union and the developed world and have systemic causes that cross all borders. Irish exceptionalism is not the cause of the crisis that hit us, although the vulnerabilities in each country that has been affected, including Ireland, differ to some degree.

In a debate on the crisis in New York between leading economists and commentators, reported in yesterday's Financial Times, Nobel prize winner Joseph Stiglitz blamed the bubble on the misuse of easy money after mismanagement of risk by financial institutions and lax regulation. In our own case, despite scattered warnings, society as a whole and the political system, not just the Government, became over-ambitious and over-extended and underestimated the risks.

How did we use easy money, much of which I hasten to add was well earned? The picture is mixed. On the positive side, we drove down the national debt to pre-1973 levels in real terms. We put aside more than €20 billion in the national pension reserve fund, which has been our salvation in helping us to deal with the banking crisis. We invested heavily in infrastructure and a national motorway system, which will be complete next year. There have been major improvements to public transport, there are new research institutions, schools and hospitals, and there are far better arts and sports facilities and environmental initiatives. Social welfare payments, particularly pensions and the children's allowance, were increased very substantially. We cut direct taxes - probably too much with the exception of corporation tax, which was cut to 12.5%. The latter is one of the foundations of our industrial policy. I am happy to acknowledge that was announced by Deputy Quinn, as Minister for Finance, in May 1997, but negotiated with the European Union and implemented by Mr. Charlie McCreevy when he was Minister for Finance.

In the past 20 years, we put 1 million more people to work, nearly doubling the workforce. For many years, we were consistently the best performing and most dynamic small economy in Europe, with living standards moving ahead of the EU average although we were coming from well behind. There is a positive legacy and balance sheet to be seen all around the country in virtually every community. There was also a downside. We did not just catch up in the process; we lost an important part of our competitiveness, which can be corrected in a eurozone framework only by a significant fall in prices and incomes, which is now occurring. Far too much loose money was invested in property developments that were not really needed. One of the by-products of the introduction of free third level fees by the rainbow coalition was that wealthier parents were able to buy apartments for their sons and daughters who were studying. Construction activity was further boosted by tax incentives that have been dismantled but, in some cases, perhaps not quite soon enough. Perhaps we will all now be cured of the belief that an already booming industry needs tax incentives of every kind from which the better off benefit hand over fist and that they need to be bribed and let off taxes in order to invest. Social partnership was a cornerstone of our prosperity, and we greatly improved pay and conditions, outpacing most other countries as the price of social harmony. The Opposition and the media backed virtually every spending demand on the grounds that the country was awash with money. Opinion polls confirmed that people wanted better services provided they did not have to pay for them in higher taxes, relying instead on tax buoyancy.

The sudden impact of the crisis we face has been severe. The public finances were blown completely off course. Unemployment has soared and the banking system has been under siege. Never has the intervention of the State been in such demand, not long after it had been declared almost redundant by neo-liberal ideologies. Cavalier capitalism, with all its success worshippers, has had a mighty fall, and the State, here as elsewhere, has been left to pick up the pieces. The Government has risen to the challenge. Firm action to maintain the solvency of the State and of the principal financial institutions has been vital to the welfare and living standards of every citizen of this country. We hear much criticism of the individual measures taken, but which, if any of them, are the parties opposite pledging to reverse if in government? It is natural for parties in Opposition to soft-pedal the hard decisions they would have to take in Government and imply there is some easier and fairer way of coping with our problems or that a change of personnel would somehow transform our difficulties.

Paul Connaughton Snr (Galway East, Fine Gael)
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It could hardly be much worse.

Martin Mansergh (Tipperary South, Fianna Fail)
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If there is a change of Government over the next three years, the public should watch out for an abrupt change of tone as parties enter Government Buildings, although with an ever more strident blaming of Fianna Fáil when they realise that in most matters they can do little but follow the same course.

Paul Connaughton Snr (Galway East, Fine Gael)
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They will not.

Martin Mansergh (Tipperary South, Fianna Fail)
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The former Fine Gael leader and Finance Minister Alan Dukes wrote a great deal of common sense in an article in Business and Finance of 7 May. He states, "Every fiscal crisis produces demands for "innovative" or "imaginative" policies to "get the economy moving again"."

Deirdre Clune (Cork South Central, Fine Gael)
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That is right.

Paul Connaughton Snr (Galway East, Fine Gael)
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He was right.

Martin Mansergh (Tipperary South, Fianna Fail)
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He continues, "This usually means that the Government is accused of being obsessed with "balancing the books" to the detriment of other, more important, considerations." He points out that nearly all such measures would require additional borrowing from international markets when we are already borrowing to the hilt, and concludes: "At the end of the day, we must bear in mind the lesson of the 1980s and 1990s which is simply that there is no substitute for fiscal common sense as the essential backbone of growth and prosperity." Recognition of that reality while pursuing the smart economy is the bedrock of what the Taoiseach, the Minister for Finance and the Government are trying to achieve. It was the successful financial retrenchment of the late 1980s that first made the great leap forward of the Celtic tiger possible.

The Government is drawing on the best advice available to it. I welcome the entry into the political arena, on the other side, of a nationally known economic journalist who was beginning to find too onerous the requirements of maintaining objectivity and impartiality on the national broadcasting station. I would not be inclined to quibble too much over any slight messiness in the transition. As someone who, in 1981, had to resign - without any prospect of a way back - his position as a permanent civil servant, where political impartiality is equally required, in order to work in the political sphere, I am torn between regarding the right of return, albeit to a less high-profile position-----

Paul Connaughton Snr (Galway East, Fine Gael)
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The Minister of State did not have far to go for employment.

Martin Mansergh (Tipperary South, Fianna Fail)
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-----as a better arrangement, and asking whether this is the type of feather-bedding that has us all in trouble.

Paul Connaughton Snr (Galway East, Fine Gael)
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He knew where he was going.

Martin Mansergh (Tipperary South, Fianna Fail)
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We need to recognise that the ability to analyse and criticise trenchantly is not necessarily the same as the ability to devise solutions and win sufficient support to implement them. The ten-point plan published in the Evening Herald last Friday by this candidate, which would be fine as an aspirational wish list, does not even begin to add up. The full-year cost of one measure, a 3.5% cut in the 13.5% rate of VAT, would cost €1 billion on its own.

The fiscal policy of the Government in this crisis is, in the technical meaning of the term, highly progressive. While those on low incomes or social welfare have been largely protected, a scaled contribution has been demanded from those in a somewhat better position to pay, although I accept that most people at all levels find themselves under pressure.

The future pension bill, including the public service pension bill, is not sustainable. There is little doubt that those of us working in the public sector enjoy more security and better pay and conditions, on average, than those working in the private sector at present. It is unrealistic to imagine that the public sector could continue in the current circumstances as an island of prosperity cut off and insulated from the harsh economic winds buffeting the rest of society.

As a former member of the Houses of the Oireachtas Commission until 2007, I am bemused at the reports from Westminster, given how strongly we were advised to adopt its system of vouched expenses. I particularly like the alleged case of the cleaning of a castle moat being put down to parliamentary expenses. I admire the decisive and clearcut response of the Leader of the Opposition in Britain to abuses in his party. Here, the Minister has suggested that the pay of office holders and most senior public servants should be benchmarked against smaller European countries.

The Labour Party was critical of the low capital tax rates and thresholds introduced by the former Minister for Finance, Charlie McCreevy, even though revenue increased significantly as assets were traded more freely. These are now being adjusted but remain relatively generous. The changes will have more significance when the economy picks up, but they make the system fairer now. A concerted attempt is being made to propagate the patently absurd notion that the Government has imposed onerous taxes and levies on ordinary people in order to bail out builders and developers. The only help being given, on rigorous terms, is to the commercial banks, many of whose board members have had to resign.

Nor can it be argued that the Government's measures are in any way tailored to short-term electoral considerations. They are in fact a courageous effort to measure up responsibly to the needs and gravity of the situation, and that has been acknowledged and respected internationally, if not always at home. This Government, and any Government elected at a general election, has a mandate to deal with unexpected crises - by definition, most crises are unexpected - that arise from time to time during its term in office. The ship of state is being steered through extremely stormy waters. It will be time enough when we have reached shelter to consider shelter who would be the best crew for the next voyage.

Paul Connaughton Snr (Galway East, Fine Gael)
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It will be too late then. That is the problem.

Michael D Higgins (Galway West, Labour)
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It is time for the lifeboats.

Deirdre Clune (Cork South Central, Fine Gael)
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I wish to share my time with Deputies Connaughton and Hayes.

John O'Donoghue (Kerry South, Ceann Comhairle)
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Is that agreed? Agreed.

Deirdre Clune (Cork South Central, Fine Gael)
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I am glad to have the opportunity to speak on the Finance Bill, which implements the statement of the Minister for Finance on the recent supplementary budget. I must comment on the contribution of the previous speaker, particularly with regard to the situation in which we find ourselves currently. To say the economic difficulties we are facing are due entirely to international circumstances is not true. The Minister of State blamed lax regulation, Irish society, international events and the political mass as a whole. However, if we look back at the post-budget statements of Deputy Richard Bruton for the last number of years we will see it was pointed out time and again to the Minister and to the Government parties the potential error of their ways. The chickens have now come home to roost.

Last week in an article in The Irish Times, Michael Casey, a former senior official at the Central Bank, pointed out that two thirds of the difficulties in which we find ourselves are due to national policies - that is, of our own making, or of the Government's making - and one third to the international financial crisis. That will answer the Minister of State's comments.

He also criticised the introduction of free third level education by the rainbow coalition of 1994-97, implying that all it resulted in was wealthy parents' buying apartments for their sons and daughters. The Minister criticised the introduction of free third level education by the rainbow Government. He implied that it resulted in wealthy parents buying apartments for their children, a total misrepresentation of the situation. He clearly has no concept of the value of education and ensuring equal access for all children to third level education.

It is particularly cynical that the Government is leaving any announcement about its intentions until after the local and European elections on 5 June. It smacks of a Government afraid to announce its own intentions. The Minister has said it will not affect students attending third level in September but those students will face an increase in registration fees from €900 to €1,500, another whack for the families struggling in the current economic crisis.

I was very disappointed that there was no mention of job protection or job creation in the Bill, no mention of any measures that would have ensured we could stem the tide of job losses across the State and give some sense of hope to employers struggling to retain employees. We could have been imaginative with the PRSI system, introducing a measure whereby employers would not have to contribute for new employees. That simple measure would have given hope and helped companies take on new staff but it was ignored.

A reduction in VAT to encourage activity in small jobs and home improvements was ignored. It would have helped the construction, tourism and hospitality sectors but such measures have not been introduced. Instead the Bill increases the pressures on middle and lower income families.

Consumer confidence is gone. Retail figures show a further reduction, a sign that consumers are spending less, with a fall of 29% in 2009, much of which is due to the car industry, but with a 7% decrease in consumer spending in February 2009. Ireland has seen the largest fall in consumer spending in 2009, with a drop of 8.1%, compared to 4.9% in Italy, the closest to us. Other countries are not experiencing the same lack of consumer confidence.

That will only be added to this month when the health and income levy increases kick in, taking a huge amount from the economy that will no longer be available for spending. The Fine Gael approach to the budget laid an emphasis on stimulus, not taxing people so much, and focused on public service inefficiency and dealing with waste. We see none of that from the Government, where there is a complete lack of emphasis on tackling those issues that must be tackled to ensure we return to competitiveness.

Our competitiveness has been eroded in the last ten years. In the early 1990s there was a lean, fit economy. The explosion in public spending caused us to become unfit and has ensured that those producers dependent on the export market are competing in a market overburdened with high charges. It does not matter if one is exporting financial services or butter, they are all saddled with the same high costs.

Paul Connaughton Snr (Galway East, Fine Gael)
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In my time in this House, no Finance Bill was ever introduced against a more dismal financial backdrop. It is chilling that 12.5% of income tax is needed by the Government to pay the Government debt. Under the Minister's own projections, in 2013, 60% of all income tax will go towards payment of the national debt. That is before we talk about the €90 billion in toxic assets. Many economists believe that, if things pan out the way they appear at the moment, 75% of all income tax will go to pay the Government debt. If that day comes, we will have a massive problem.

I was in Argentina ten years ago when it ran into horrendous trouble. I met teachers, doctors and civil servants who had not been paid for the previous eight months. People might say this is scaremongering but if that day arrives there will be trouble, given that we had so much trouble finding €2 billion in the first budget and another €2 billion in the second. Now we are talking about taking on the toxic assets from the banks. I do not call them toxic assets, I call them smelly assets. There is €90 billion in toxic assets on paper. The Taoiseach claims the final figure will be nothing like that, the assets will realise more when the time comes. Even if we realised €30 billion, writing off €60 billion, that will impose enormous pain on every single taxpayer in the country. In view of this we believe it is time to call a halt to the method by which this Government proposes to get this country out of the current mess.

This proposal for a National Asset Management Agency goes too far, too quickly. It will be an easy way out for those who got rich very quickly when times were very good. It is against that background that I heard the Taoiseach talk about an EU scrutiny committee that will somehow evaluate these toxic assets. I cannot see how it will do it. I have no idea where this will finish, just as the Government has no idea. Many Governments in Europe have no idea either. When we talk about toxic assets, however, it means that throughout the country there are half-finished estates and land purchased through illogical and irresponsible banking. If we are to put a valuation on those, we must ask if anyone wants to buy them and for how much. At the moment they could not be given away. It is only when the demand for such products picks up that the NAMA will get its money back and that could take many years.

I wish to raise another point. I cannot understand why, when the ECB rate is reduced - on the last occasion it was reduced to an historic low of 1% - the many thousands of people who are tied into fixed rate mortgages do not benefit from that reduction. When those people signed their mortgage contracts they thought they were doing the right thing, but only some eight to 12 months later these people are paying interest rates of 5.9%, 6.1% and 5.6% when tracker and variable mortgages are freely available at rates of 3.3%, 3.5% and 3.6%. Many people will consider such terminology jargon.

I know of a couple where one partner has become unemployed and the other is on social welfare. A fortnight ago, that couple went to their bank to ask if they could have their mortgage repayments reduced to the current tracker or variable interest rates. The Minister of State knows what I am talking about because some of his constituents would have raised this issue with him. That couple told the official in the bank that if the bank could accommodate them, they would be just about able to repay their loan every month. However, the bank said they would require a breakage cost of €16,000 to make that change. The couple told the official they would not have had to make the request if they had that sort of money.

There are good banking reasons the change requested cannot be done, but there were many good banking reasons during the past five or six years when certain things that should not have been done were done. I am speaking on behalf of every couple throughout the country who is caught in this mess. As Deputy Clune rightly pointed out, when people receive their May cheques they will note the huge increase in the levies imposed on them. These are the people who are being penalised on the double and they are paying interest rates they should not have to pay at this time. That does not make sense. I accept that many people will say that mortgage holders signed a contract with the bank and the bank had to borrow extra money, and it was more costly to do it at that time. However, what was not possible yesterday might become a necessity tomorrow. If the Government wants to keep people from becoming dependent on social welfare and give them some degree of dignity, this is a measure that should not involve a cost, given that the banks are now in a position to borrow money at a lower rate than ever before. The Government has been feather-bedding the banks all the time, and what is happening is nothing short of a disgrace.

Tom Hayes (Tipperary South, Fine Gael)
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I pleased to speak on this important subject. A debate on any measure concerning our economy is important. If any good proposal emerges from this debate, it should be Deputy Connaughton's last point about interest rates. During the past six months interest rates have continued to fall and people have welcomed that. I cannot reiterate more strongly than Deputy Connaughton the difficulties faced by people tied into fixed rate mortgage interest rates. Thousands of young people signed fixed rate mortgages in the belief they were doing the right thing. They were delighted with their new houses, be it a second-hand house or whatever home they purchased. They are now locked into fixed rate mortgages in what are difficult times when people are trying to cut back on their expenses and have to make choices in that respect. If the Government wants to send out a signal that it cares or is interested in ordinary taxpayers, something must be done for those people who are paying very high interest rates. It is unjust and unfair. Different economic circumstances prevail now and I support fully what Deputies Connaughton and Clune said on this issue. It is one that should be addressed because the Government is taking over the banks and that is what the Government and many other people believe is the right approach for the economy. The first time I heard of the setting up of a toxic bank was when Deputy Bruton told our parliamentary party many months ago that this was the way forward. There is considerable consensus on setting up banks. We must also have regard for the houseowners who have to pay high interest rates and another tier of people, namely, those in business.

A constituent who is indebted to the banks came to see me the other day. He has a viable business, employs 16 or 18 people in a rural area and has three months' work on his books. He cannot get a schilling from the Bank of Ireland, AIB or any other bank. He has sought to get credit from every financial institution. I will advise the reason he cannot get credit and change is needed to address this issue. This man owed money to the Revenue Commissioners on foot of which they took a charge against him last year. He paid them every schilling he owed, including the interest that had accumulated.

Paul Connaughton Snr (Galway East, Fine Gael)
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There is a mark against his name.

Tom Hayes (Tipperary South, Fine Gael)
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He is a risk taker. He cannot get credit because there is a black mark against him. That is wrong and unfair. The Government's claim to want to help businesses is only bluff when it can turn its back on such an individual. We need risk takers in this economy. We need people who will invest their money in setting up businesses. We need people who have paid their way during times of hardship and difficulties. This is one instance where an individual cannot get access to credit. There are many more such people, and there will be many more of them. When these risk takers have cleared their debts, they should be allowed back into the system. It is wrong that they are not allowed back in. I do not care they have had such a difficulty because they have tried to be successful. Nobody tries to fail in this world. The economic climate in Ireland has caused many good businesses to face financial difficulties. I urge that changes be made to address those two issues, particularly when the banking system is being re-organised.

It is unclear how the asset management agency will seek payment from builders and purchase tracks of land, etc. A long-term view needs to be taken of the land that will be bought and the value of the assets to be purchased. In the current market nobody can forecast the value of an asset because of the economic depression. It cannot be stated that land is worth this or that value. In 1989, 43 acres of land were for sale for €68,000. The land was not sold and an offer of €1.2 million was made for that land two years ago. The man that owned the land was sticky and plucky in difficult economic times and he was able to hold on to his land at that time. He is now a successful developer and builder. Nobody can forecast the value of an asset at any one time. Those are the points I wanted to make concerning the banking sector.

I also wish to address the great number of people who have become unemployed. It is the most crucial issue with which the Government must get to grips. The figures are stark, people have mentioned the figure of 500,000, but the number could be closer to 600,000. This is a major issue and it needs to be addressed. They are the people we need to help.

Michael Kitt (Galway East, Fianna Fail)
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I wish to share my time with Deputy Chris Andrews.

John O'Donoghue (Kerry South, Ceann Comhairle)
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That is agreed.

Michael Kitt (Galway East, Fianna Fail)
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I welcome the opportunity to speak on this Bill. It is being introduced in the context of a deep and widespread recession in the international economy that we have not seen in more than 50 years. Ireland is experiencing a sharp decline in its GNP. I look on the positive side and hold the view that as the international recovery gains momentum, the impact on our national economy in terms of the residential housing output - construction of which passes through to our economic growth rate - should turn positive in the next few years. No one is suggesting that the process of recovery will be easy. This Bill, and the supplementary budget to which it gives effect, will play a major part in securing our future prospects.

Deputy Tom Hayes made a good point in regard to not being able to forecast the value of property. The same principle applies to the economy. It cannot be forecasted accurately what will happen. The measures detailed in the Bill are progressive and fair. The income levy was mentioned. This is a progressive measure. Those who are most able to pay will pay the most and the more vulnerable people will be protected with exemptions. The Bill clarifies the redundancy payments made in the first four months of the year. These will be subject to the income levy rates in force during that period.

Mortgage interest relief for the first seven years for qualifying home loans will focus on those most in need and provide a saving to the Exchequer. I agree with the point made by many Members that it is very unfair to have people tied to fixed rate mortgages when there are tracker or variable mortgage rates available. The Minister for Finance has known our views on this and he has been trying to address that issue. The measures in this Bill reflect the need for us all to be very aware of the need for a fair and proportionate share of the burden of adjustment required. Our tax base needs to be broadened and measures to achieve this are included in the budget, such as the termination of certain property-related accelerated capital reliefs, the abolition of the special 20% tax rate applicable to trading profits from dealing in or developing residential land and a reduction in the level of tax relief which investors may claim on the interest for mortgages and loans on residential rental properties.

One of the concerns raised with me on many occasions is the 12.5% corporate tax regime to which the Government is committed. It is important to emphasise that our tax system remains competitive and is pro-enterprise in character. I refer to the enterprise fund which was established in the budget and which is to be welcomed. The Taoiseach and various Ministers have spoken on the need to develop the smart economy. Tax reliefs have been announced for the acquisition of intangible assets as a means of maintaining employment in our existing industrial base and to attract sustainable high quality jobs.

This country continues to have advantages and these have contributed to our success in the recent past. I refer to our skilled labour force and almost 2 million people are in employment and the Government is continuing its investment in education which is very important. Our economy has flexibility and resilience and there has been investment in infrastructure which will continue. The Finance Bill is very important to this country as we endeavour to position Ireland to benefit from the global recovery when it emerges.

I was very glad that the budget emphasised the area of alternative energy. I refer to the proposal for energy independence made by Spirit of Ireland. Many Members have seen these proposals for energy self-sufficiency and for the export of energy which would be a crowning achievement for this country. Much of our energy requirements are imported and at this time when money is scarce we need to look at the question of investing in wind and water energy in particular and this has been promoted by the Spirit of Ireland group.

The cost of energy is referred to as one of the many reasons for our lack of competitiveness. The Minister for the Environment, Heritage and Local Government today referred to the export of waste and he is examining new markets for our energy products.

The budget has been complemented by the announcements made about the insulation grants worth €75 million for housing and the extra €75 million for school buildings and in recent days the announcement that the summer works scheme will be provided with €80 million to insulate school buildings. The proposals for alternative energy are very important. I hope the Acts relating to the ESB will be examined to provide definite proposals for alternative sources of energy.

The Minister stated he would welcome suggestions and I wish to make a brief suggestion about the work on the insulation of houses and schools. I refer to radon gas which has been a significant issue for many people in certain parts of the country where readings have been very high. It was stated that up to 200 people die each year from the effects of radon gas, a gas which has no odour, colour or taste and cannot be detected by humans. However, the gas can be measured by means of a specialised, easy to use home test kit.

I suggest that radon gas readings be taken in social housing and in public buildings such as schools. Studies have been carried out in Europe, the United States and China. When I was Minister of State at the Department of the Environment, Heritage and Local Government, I pressed the case to have radon gas readings taken in local authority housing where tenants had concerns and that remedial measures should be taken where necessary in those housing estates.

A related issue is the question of lung cancer. Many people are smokers and this is an added risk when radon gas is present in those homes. It has been found that counties Carlow, Galway, Kilkenny, Mayo, Roscommon, Sligo, Waterford and Wicklow, have seen an increase in amounts of radon gas and these areas should be given priority for the measurement of radon gas. A simple measurement system is available through the Radiological Protection Institute of Ireland. I hope that insulation grants will be included in the programme as well as a remediation programme for radon gas. This is being carried out in primary and post-primary schools, thanks to the summer works scheme and I hope it will be rolled out throughout the country.

Chris Andrews (Dublin South East, Fianna Fail)
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I thank Deputy Kitt for sharing his time with me. I am delighted to have the opportunity to speak on the Finance Bill which the Minister published last week. It gives effect to the measures announced in the emergency budget of 7 April. As the Minister has stated, the Bill strikes a difficult balance between the need to show a credible way forward for dealing with our structural problems and also the need to protect the economy. Like everything in life, it is about balance and this budget is a very balanced contribution towards getting us back on the right track.

The Bill contains measures that, although difficult, are necessary to stabilise the economy. I welcome the decisive action taken by the Cabinet and the Minister for Finance in dealing with this economic crisis. The Bill outlines the six essential steps we must undertake for financial renewal, namely: stabilising our public finances; restoring our damaged banking system; regaining competitiveness; protecting the jobs we have and investing in retraining those who have lost jobs; supporting and stimulating economic confidence as much as we can within the resources available; and, crucially, restoring our reputation abroad.

Ulick Burke (Galway East, Fine Gael)
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The Government has missed a few of those steps.

Chris Andrews (Dublin South East, Fianna Fail)
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The last number of months has seen much finger pointing and accusation about who is to blame for our economic problems. Mistakes were made but the reality is that over the last ten years we dramatically cut the national debt and invested significantly in infrastructure and services, which remain in place and which will put us in a very good place when the turnabout comes, which it inevitably will.

James Bannon (Longford-Westmeath, Fine Gael)
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Does the Deputy agree we must get rid of the Government, which suffers from paralysis?

Chris Andrews (Dublin South East, Fianna Fail)
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One need not look too far. Dublin was almost like a derelict site some ten or 15 years ago.

Michael D Higgins (Galway West, Labour)
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It was not.

Chris Andrews (Dublin South East, Fianna Fail)
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It has been transformed. In the docklands, not far from here, we see the new bridge coming in for Macken Street. It is a huge investment. People ask where the money was spent. In 1997 we had approximately 200 special needs assistants; now we have almost 10,000.

Ulick Burke (Galway East, Fine Gael)
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Some 128 are to be sacked.

James Bannon (Longford-Westmeath, Fine Gael)
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What about the e-voting machines? What is happening today?

Chris Andrews (Dublin South East, Fianna Fail)
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They have made a difference to people's lives and to young people trying to get a start. The Opposition can wave a hand and dismiss that but that investment has made a difference.

James Bannon (Longford-Westmeath, Fine Gael)
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The electorate will wave a hand on 5 June.

Chris Andrews (Dublin South East, Fianna Fail)
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The supplementary budget was one of a series of budgetary measures that will ensure Ireland's future stability.

James Bannon (Longford-Westmeath, Fine Gael)
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Not under Fianna Fáil.

Chris Andrews (Dublin South East, Fianna Fail)
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By taking these steps now, we can realistically aim to recover by the year 2012 or 2013 and I welcome some very positive measures introduced. In this Bill, the Government has spread the burden as fairly as possible and has ensured that those who can afford to pay the most will carry most of the pain. For example, the plan to close a potential capital gains tax legal loophole allowing Irish resident companies disposing of shares in other companies to avail of what is termed a "participation exemption" where the shares derive their value from exploration or exploitation rights is very welcome.

The Bill aims to provide support to people who lose their jobs and I am glad to note that redundancy payments made in the first four months of the year will not be subject to the higher income levy rates introduced in the supplementary budget. This is only fair to people who have found themselves faced with the uncertainty and difficulty of unemployment. As a member of the Oireachtas Joint Committee on Enterprise Trade and Employment and the Joint Committee on Finance I very much welcome the move to reduce the rates of interest applied by Revenue to late payments and underpayments of tax by businesses. These will come down by approximately 20% to annualised rates of between 8% and 10% from 1 July. This will ease pressure on businesses which are finding things very difficult in the current economic climate.

I also very much welcome the introduction of a scheme of tax relief for the acquisition of intangible assets, including intellectual property. This measure enhances Ireland's competitiveness as a location for the development of intellectual property, and it links in with the aims outlined by the Government in Building Ireland's Smart Economy. The smart economy plan launched late last year aims, through investment and incentives, to reach a research and development target of 2.5% of GNP by 2013. We have already trebled our economy-wide research and development spend over the last decade. Again, this will be dismissed as inconsequential. This spend is approximately €2.5 billion of which some two thirds comes from the enterprise sector. This refocusing of our economy will ensure Ireland's long-term future and viability.

The Government is doing everything in its power to take the hard decisions that ensure Ireland returns to growth as quickly as possible. There are four corner-stones to the Government's strategy.

Ulick Burke (Galway East, Fine Gael)
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What strategy?

Chris Andrews (Dublin South East, Fianna Fail)
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The first is concerned with addressing the banking situation to restore credibility nationally and internationally and get credit flowing. The establishment of the NAMA is necessary and critical to restoring our damaged banking system. There is a case against the establishment of the NAMA, but the case in favour of it is stronger. This measure will restore the credit flow to businesses which are in critical need of working capital. I look forward to the NAMA beginning its work and I am confident that the best interests of the Irish taxpayer will be served.

The second pillar is concerned with attacking the gap in our public finances by increasing revenue and cutting spending, in a planned way, over the next five years. Difficult choices have been and will have to be made, but it is in the best interests of the economy and the country. The third pillar is concerned with protecting as many jobs as we can, restoring competitiveness to the way we do business and supporting viable businesses which are vulnerable. There are many businesses that are doing business every day but are finding it difficult. They are good, solid businesses and they need the support. They are vulnerable, as I said.

Michael D Higgins (Galway West, Labour)
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They are starved of credit by the banks.

Chris Andrews (Dublin South East, Fianna Fail)
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We have put in place measures to deal with that and ensure credit is flowing and will flow.

Ulick Burke (Galway East, Fine Gael)
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It is flowing in the wind.

Chris Andrews (Dublin South East, Fianna Fail)
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There is no silver bullet or magic wand. It will have to be done carefully and in a manner which is not like a rush of blood to the head, which Deputy Bannon would recognise.

James Bannon (Longford-Westmeath, Fine Gael)
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The silver bullets.

Chris Andrews (Dublin South East, Fianna Fail)
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We need stable government and a stable banking system, and this is being done.

James Bannon (Longford-Westmeath, Fine Gael)
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There is no stability in the Government. One week after the local elections we will have a general election. The Deputy knows that.

Chris Andrews (Dublin South East, Fianna Fail)
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The fourth pillar is concerned with investing in those who are out of work so they can return to employment as soon as possible. Measures outlined to support people who have lost their jobs include enhancing access to the back to work enterprise allowance scheme, which will facilitate almost 1,400 additional claims and encouraging further education through earlier eligibility for the back to education allowance.

Last week we heard news from the US Federal Reserve that the US recession would bottom out over the coming months with the economy beginning to grow again by the end of the year.

Ulick Burke (Galway East, Fine Gael)
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There is an election coming. These are the first signs.

Chris Andrews (Dublin South East, Fianna Fail)
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The view on Ireland and the rest of Europe is that because we entered it later than the US we will not emerge until next year. However, the important thing to remember is that we will inevitably emerge from this recession. I believe in and support the steps taken by Government to ensure that we in Ireland are well positioned to take full advantage of that upturn.

James Bannon (Longford-Westmeath, Fine Gael)
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I wish to share my time with Deputies Burke and Crawford.

John O'Donoghue (Kerry South, Ceann Comhairle)
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Is that agreed? Agreed.

James Bannon (Longford-Westmeath, Fine Gael)
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It is easy to dismiss this Bill as merely technical but behind the imposition, repeal, remission, alteration and regulation of taxation, stamp duties and duties relating to excise and regulation of customs lies the face of human suffering. The word "taxation" is calculated to send a shiver down the spine of every citizen in the State. It will ruin the quality of life of every lower and middle income family in the country and see families forced to endure the heartbreak of losing their homes and children losing their schools, their summer holidays and even their toys at Christmas. It is the modern equivalent of the thief in the night.

The Bill is an exercise in closing any perceived loopholes that may have been created by recent ill-conceived budgets. It is also the statutory instrument that will give force to NAMA which may prove to be the final nail in the coffin of the country's finances. As proposed, the measures in the Bill will affect PAYE workers who received a bonus in the first four months of the year. It is intended to ensure those who are able to frontload their incomes in an effort to avoid higher levies will not be successful in doing so. Tax specialists have said that in the history of the country levies have never been backdated in the manner now enforced by the Government.

If there is a flicker of light at the end of the tunnel it is that the Bill should protect those who took redundancy payments before the new rates were introduced on 1 May. The plan to cut the interest charge on late tax payments is an appeasement measure by the Government, a move that will ease pressures on businesses. This concerns interest charged on late tax payments and underpayments and the cut will be in the region of 20%. The Bill proposes to introduce the new rate from 1 July and will reduce the interest charged in most cases to 8% per annum. This proposal was not part of the October or April budgets. One hopes it is a sign of a more cohesive plan by the Government to tackle the fallout of the economic downturn for businesses. However, it is regarded by the Small Firms Association as too little, too late.

I am pleased to see a measure in the Bill that will see an extension of the deadline for tax break applications under a scheme designed to boost tourist facilities in the midlands. This is the mid-Shannon tourism infrastructure scheme which was introduced last year following EU approval. I demand that it include County Longford which was omitted at the time. The current application deadline for projects under the scheme is 31 May which the Bill proposes to extend until the same day next year. Importantly, it also proposes to extend the period in which the money must be spent to 31 May 2013. These are important concessions for the midlands which has seen the Government sucking the life blood from its tourism industry. With County Longford designated as a tourism black spot, too high a price on the future of the midlands as a tourism destination was being sought by the Government. Tourism figures have been hard hit by such measures as the departure tax, increased stealth taxes, lack of broadband roll-out, substandard sewerage schemes, poor water quality and some of the worst roads in Ireland. At a time when tourist numbers are dropping alarmingly, with figures from the CSO showing a 19.9% drop in the number of trips to Ireland from North America in February 2009 compared to the same period in 2008, a 5.8% drop in the number of trips from the United Kingdom, and a 5.5% reduction overall, this sector is on its knees.

Easy access to the natural amenities and unique heritage of the counties that border the River Shannon and which have so much to offer tourists, anglers, boating and other sports enthusiasts would make a huge difference to local development. The midlands region is crying out for infrastructural development, having been overlooked for funding on so many occasions. It received a particularly raw deal in the national spatial strategy and Transport 21. It urgently needs improved access. The long promised rail lines between Killucan and Kinnegad and Athlone and Mullingar are still mere figments of the Government's imagination, while the Longford bypass and motorway project have yet to be delivered. The expansion of Abbeyshrule airstrip is essential to create a gateway to the midlands.

According to the Institute of Chartered Accountants in Ireland, the Bill sets out a legal mechanism to increase the hit on workers' wages. Workers have yet to feel the full impact of the doubling of the income levy, as it only came into force on 1 May. Although it is quick to grab anything it can in increased taxes, the Government has failed yet again to get to grips with measures to stimulate economic growth. The biggest failure of the Bill is that it has not clarified some of the more controversial aspects of the supplementary budget. Despite publishing further details about proposed changes, it has not come to grips with exactly how some of the changes will be implemented. This begs the question of whether the Minister for Finance has any coherent idea of what he is doing. PAYE workers will be particularly lost in the haze of confusion as those without a filing obligation or required to submit a tax return at the end of the year do not know exactly what will be their liability. The Bill is the stamp on a budget which was designed to make taxpayers pay the price for the Government's drastic and disastrous failures during the past ten years.

Ulick Burke (Galway East, Fine Gael)
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I take the opportunity to congratulate the Minister of State, Deputy Áine Brady, on her appointment. I wish her success in her ministry.

Yesterday, when the Minister introduced the Finance Bill to the House, he said that in recent weeks there had been some glimmers of hope that there might be an end in sight to the deepest depression we have witnessed for seven years. I thought he was going to go on to say that the end of the Government's reign might be in sight. The Government has made four attempts to rectify the finances of the country and to date all have failed. Without a strategy of any kind, the Government latches on to glimmers of hope at international level - in the United States and some parts of Europe. It may look for these but at its own back door we see the constant stream of job losses and its failure to rectify the banking system, despite its many efforts to do so, all of which have proved disastrous. We realise the state the country is in, without hope or credibility, or the trust of the people in the Government and its capacity to lead us out of the depression. There is no confidence in the Taoiseach, the Minister for Finance and the Tánaiste, three long-standing Ministers. They should have seen the signs, the darkening clouds over the economy.

There is also a clear indication that personnel within the Department of Finance must have seen what was happening with regard to the national finances and the way in which they were deteriorating in recent years. As recently as the last general election, all Opposition parties were told that we were looking forward to and would achieve a 4% growth rate. That figure was given to Opposition finance spokespersons by officials in the Department. As it has turned out, this was clearly and completely unsustainable. I do not know how they could have made such a crucial mistake at the time. If it had been identified and the alarms had gone off, surely something might have been done more readily.

The Minister said the Finance Bill was giving effect to the supplementary measures addressed in two important requirements, showing a credible way forward on our structural problems and protecting the economy. I do not know how any Minister could make such a statement, as regards the Government's credible way forward. It has made three or four attempts and all of them to date have failed. A Minister who makes a statement such as that in the current crisis must not care for what the people think nor have any concern as to how the country could be directed towards recovery in the future.

There is a constant list of job losses. Every single week we hear, tragically, that additional numbers are losing their jobs. While, to the Minister and this Government, it might be just numbers, behind them are people with families and mortgages who must live through each day, having lost their jobs - and they are being put to the pin of their collar to sustain their livelihood.

When one looks at the lists of cutbacks in this budget and the October one, one sees that the most vulnerable people in our society are affected. In October medical cards were withdrawn for the over-70s. In this most recent budget the Minister for Education and Science has reduced the number of special needs teachers throughout the country, with serious effects for many families. As if that were not sufficient, we have all the other cuts, too, such as increasing class sizes and the impact this will have on opportunities for people. When we talk about a "smart society" in other situations, how can we justify increasing class sizes, affecting every child in the country?

I endorse what my colleague, Deputy Bannon, said earlier about welcoming the Minister's proposal to extend the mid-Shannon scheme for improving tourism in the inland areas throughout the country, particularly in the area around Portumna. The record will show that throughout the terms in office of the three previous Ministers for Finance I had asked that the pilot scheme that was in place for the upper Shannon region be extended to the mid-Shannon. It is a worthwhile initiative, although it is being restricted to the area of tourism. It will give tourism in the mid-Shannon region the impetus it needs.

Seymour Crawford (Cavan-Monaghan, Fine Gael)
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I welcome the opportunity to say a few words on the Finance Bill, while noting that this is just one of a number of occasions we have been discussing Finance Bills over the past 12 months - and it certainly is not a pleasant one.

In reality, the only thing that will bring this country back to some type of structure is "jobs, jobs, jobs", and we cannot get away from that. This budget, however, does absolutely nothing to encourage, safeguard or create jobs.

Within the past few days I have been contacted by a number of business people about the pressure they are under as regards taxes and all the rest - yet, they have no access to finance. That is because the whole financial crisis has been allowed to drift. Although money is being paid into Allied Irish Banks today, as it was a short time ago to Bank of Ireland - up to €7 billion, at this stage - there has been no quid pro quo for small business people or, in fact, mortgage holders. They are not being given a leg up.

Surely, if a Government is prepared to put €7 billion into two banks - quite apart from what the total cost will be - there should have been agreement to the effect that hard-pressed business people and mortgage holders will be getting some relief.

Take the case of a young girl who tied herself to a mortgage, as she was advised, to start on the home ownership ladder. She was in what she considered to be a good job. Her mortgage was fixed, yet her income has dropped because of levies and other taxes, so that she cannot meet it. When she tried to renegotiate her mortgage she was told there was no problem, and that she could be released from the fixed mortgage for a sum of €6,000 - although it only has a year to go. The relief on the fixed mortgage, had it occurred, would have been of extraordinary benefit to that young person, but nothing has been done to relieve that.

The Minister for Transport, on 2 February, announced the allocation for roads. He made a wonderful speech on that day about the importance of these roads, the employment it would give and the guarantees it would provide for industries such as agriculture etc. in rural areas when the work was carried out. On 14 February, however, he withdrew €173 million from that sector. In my constituency, Cavan-Monaghan, that means €10 million has been withdrawn from the regional and county roads programme.

That removes jobs, opportunities, everything. I know we are in a tight situation, but when one sees that being removed and no effort being made to curtail the waste of money at administrative level, it is absolutely sickening. Not only will jobs be lost in the area, but the roads of Cavan-Monaghan, which were renowned for their potholes in the early 1990s, will revert to that level of deterioration. It is important to realise that the roads in my constituency carry lorries to and from the pig and poultry units and the intensive farms and this level of activity is comparable to no other part of the country. That is just an example of not understanding where the problems are, and how to deal with them.

Housing schemes in Monaghan have been curtailed. Work was to be done in Mullaghmatt housing estate, Monaghan town, Bree in Castleblayney, Cloughvalley, Carrickmacross - all to do with homes for the elderly or single parents. That would have given work to small builders etc., as would jobs in education structures. I welcome the summer scheme, which has certainly been a big help to schools all over the country. However, a devolved scheme was available up to two years ago, which allowed small schools to be built or restructured. I am mindful of Laragh, County Cavan, some of whose inhabitants were in here with the Minister the other day. They have the site ready and a local builder could go ahead and create jobs straight away, taking people off social welfare, and ultimately providing a proper structure for the children. The same is true in Rockcorry. I could go on and on.

We need to have some rethinking as regards how we actually create jobs. If we continue to put people onto social welfare, while not creating any employment or exports, then we are in real trouble. We must give people some hope, and unfortunately this Finance Bill gives neither the element of hope nor assurance that is needed. All it does is take these away when it is jobs and more jobs that we want.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I welcome the opportunity of speaking on the Finance Bill 2009. It is significant enough to be dealing with a supplementary budget which was introduced on 1 April 2009. I congratulate my colleague, Deputy Áine Brady, on her recent promotion as Minister of State at the Department of Health and Children and wish her every success in that post.

In my 12 years in the Dáil, I have never seen a major Finance Bill introduced mid-way through the financial year. It is right that the Bill is being introduced. Some people seem to think there is an instant solution to the world's economic difficulties and that the problem can be solved with a single announcement. The Government is continuously watching the national finances and the country's overall economic and financial situation and, where necessary, bringing forward extra measures. This is what is being done on this occasion. We will see another budget before the end of 2009. In a small open economy such as ours, it is right that the Government operate in a flexible manner and be in a position to take corrective action when that is required.

It would be negligent of the Government to introduce a single annual budget and let the economy fend for itself for 12 months. That was all very well when the economy was in a strong position, exports were booming, tax rates were strong and there was strong domestic demand. In those circumstances people wanted less Government interference in their lives and to be allowed to get on with spending their own money. When situations change it is essential that the Government react accordingly. In difficult times, it is important that the Government take a hands-on approach, as it is doing now by introducing a second Finance Bill.

Many measures in the Bill are not popular. We do not like having to introduce them but it is the responsible thing to do. We accept that some measures are not popular but I believe people will soon respect the Government for taking these decisions. Not all of the decisions are perfect. Every Member of the House, and even on this side of the House, would quibble with some aspect of the Bill. It is not possible to be fully right and there is no single magic solution. The Government is doing its best, based on the information made available to it on a monthly basis.

The establishment of the National Asset Management Agency was announced on the day of the supplementary budget. Legislation for this will be brought forward. This is another example of the Government taking a hands-on approach to issues which it would not have had to deal with in previous years.

Ireland is not alone in its difficulties. Many Irish people have Sky television and can watch news programmes from the United States, France, Russia and other countries. It is clear from watching worldwide television stations that people in every country believe theirs is the only country suffering a recession, that their Government is in the worst possible situation and they cannot understand how they got into their present difficulties. People think local. In Ireland, we think about this country and we do not worry about problems in France, Italy, Turkey or anywhere else. However, all of these countries have problems, just as we have. We are all having to fight our own corners but we are all suffering the same vagaries of the international economy.

We are seeing some signs of a pick-up internationally. The world recession has hit Ireland harder than other countries because we are one of the most open economies in the world. The ratio of our exports to total economic production is among the highest among OECD countries. As we are more reliant on a strong world economy we are more affected by a world downturn. Despite this, international figures show that Irish exports are performing better than those of most other exporting countries. Although there is a significant downturn in world trade, the relative downturn in Irish exports is substantially less. We are holding, and even increasing, our market share while other countries are losing market share in the world economy. This is partly due to the nature and quality of our exports. Many of our exports are in the food sector. Food is an essential daily necessity and not a luxury item Computer technology and information systems are also significant exports. They are now essential to every business and in every walk of life. Ireland also exports medical devices and medicines. These are also essential to people's daily lives. These commodities are maintaining their hold on the market.

Other countries which have been heavily reliant on export trade are dependent on the sale of cars and high end luxury electronic items such as plasma TV screens and computer games, demand for which has dropped greatly. Countries which rely on the luxury holiday trade are also suffering. These items are seen as luxuries and purchase of them can be postponed. One cannot postpone one's purchase of food. Because of the make-up of our economy, we will pick up quicker than many of our exporting competitors.

However, we have domestic problems. The Supplementary Budget Statement on 7 April dealt with the establishment of the National Asset Management Agency. This is very welcome. The agency is being discussed in every home and television studio in Ireland, and there are significant differences of opinion about it. There is no single answer to all our difficulties. The task of the Government is to take account of all available information, make the best possible decision and work through that decision. This evening, during Private Members' time, we will hear one Opposition party demand the instant nationalisation of the banks while another will oppose that approach. The Government is somewhere in the middle. It is taking control of the difficulties without actually nationalising the banks. That is the correct middle ground.

There will be inherent difficulties, no matter what approach one takes. One of the reasons quoted for the privatisation of Irish Life, which was a state supported commercial organisation, was that it could not do business in certain countries, such as the United States, which did not want state controlled financial companies operating in their jurisdictions. If we were to nationalise Irish banks, they would immediately be prohibited from carrying on some of their banking activities in certain countries which do not like the concept of state controlled or state monopolised banking institutions operating within their economies. We should not forget this fact of life, even though some people think it is not an issue. We are part of a world economy and we must operate on that basis.

We have heard of Allied Irish Bank increasing the write down of its property portfolio. It has gone to €4.3 billion in the last number of days, which is up a significant amount, and it may increase again. If it requires legislation as part of NAMA or something else, it must be done but I have no wish to see these write-downs being allowed to be carried forward by the banks and financial institutions as losses against a future corporation tax bill. That would represent a further subsidy to them by the taxpayer. They have made a mess of it and are being bailed out, more than generously, by the taxpayer.

Bernard Durkan (Kildare North, Fine Gael)
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That is correct. They should be punished.

Seán Fleming (Laois-Offaly, Fianna Fail)
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We agree. This is the second time I have referred to Sky Television. On Sky Television and a good many American television programmes it seems every night that people are being led away in handcuffs, even for a parking offence. As a result, most people in Ireland work on the basis that if one does anything wrong but is not led away in handcuffs, it is no good. There is a different way of doing business in Ireland, England and other European countries.

Bernard Durkan (Kildare North, Fine Gael)
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We tend to reward those who are recalcitrant.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Perhaps it is better or worse, but we have a different way, which may require a cultural change over the course of some decades. However, we have not yet reached that point. Most believe every time there is wrongdoing a person should be paraded along what is termed "the perpetrators walk" in handcuffs in front of television crews even before a case is put before them.

Bernard Durkan (Kildare North, Fine Gael)
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Such a person should not be given a golden handshake.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I accept that is an issue and recognise it would be a populist move. Although it might make us feel happy for an hour or two, it would not put bread on anyone's table at the end of an evening.

Bernard Durkan (Kildare North, Fine Gael)
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That is the cop-out factor.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Most would take a certain amount of glee from it and I understand the Deputy's point.

Bernard Durkan (Kildare North, Fine Gael)
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No, there is no question of glee but a case of fairness.

Seán Fleming (Laois-Offaly, Fianna Fail)
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I understand; it is a human reaction. However, I am serious about this issue.

Let us consider a calculation. If the banks have a write-down of €8 billion in their property portfolio and the corporation tax rate is 12%, that is the equivalent of €1 billion in tax which need not be paid if the write-downs can be carried forward. That would make it very attractive to a potential purchaser, perhaps a foreign international institution. Such an institution might purchase these banks for the €1 billion of income tax that could be written off through double taxation agreements in respect of the various countries in which reside the parent companies of such financial institutions. Perhaps this issue is being addressed but it would grate on people if such write-downs were to be offset against future tax receipts which should be paid to the Exchequer. Most would agree with me in this regard.

I refer to the chairpersons and chief executives of the six major banks. Each one of them should be out of office in the immediate future. The majority already are. It is only right that the 12 chairmen and chief executives should go. They should go in an orderly manner rather than have every one of them leave on a given Friday evening or Monday morning, as that would cause further difficulties for the credibility of Irish financial institutions. Those who sat at the top of these institutions, regardless of how capable or intelligent they believe they are, have caused significant problems for the taxpayer. They have no role in solving these problems and it is important that we recognise this.

I was amazed with the survey from ISME, the Irish Small and Medium Enterprises Association, about which I heard on radio this morning. Some 58% of small and medium sized industries which approached the banks for credit in the past three months were refused.

Bernard Durkan (Kildare North, Fine Gael)
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That is correct.

Seán Fleming (Laois-Offaly, Fianna Fail)
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Some 100% of the local businesses represented in my office last Monday evening had been refused credit or loan facilitates which they might otherwise have been granted.

We can use all the fancy words we wish, but the simple, basic stimulus needed in the economy is cash flow from the banks to businesses. Businesses seek additional finance by way of loans and overdrafts because they are owed money by debtors. In addition, they cannot afford to pay their creditors. The major banks are telling businesses not to pay their suppliers. If the next supplier in the chain is not paid, he or she cannot pay the next supplier in turn and so on.

Bernard Durkan (Kildare North, Fine Gael)
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That is correct. It is the domino effect.

Seán Fleming (Laois-Offaly, Fianna Fail)
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There is a vicious circle and the banks are starving companies of funding. I understand they are nervous and that they do not know where they are going. However, there are good and viable businesses which are vulnerable. They should not be but they are because the banks will not provide the normal source of credit to companies. Any business producing a product has the intellectual ability to do so; it has the marketing ability to sell that product; it has the raw materials to manufacture it and the financial resources to carry on the business while doing so. Access to credit is a basic material in any business. It is as fundamental as the raw materials that a given company needs. When a business is starved of one of the materials it needs to operate, there is a detrimental effect. I hope when NAMA is up and running and the banks receive a cash injection from bonds they can cash in with the European Central Bank, it will translate into cash flow. There must be absolute guarantees in this regard. If that does not take place, the entire exercise is pointless. I do not believe it is but when the implementation of the measures takes place, we must make that case very strongly.

In the past ten years there has been an increase in living standards for many. In recent weeks I have listened to elderly people such as those we all meet in the course of our daily business. They may be in their 70s or 80s. Some have addressed me as "Young lad", for which I am thankful, and stated they really know what tough times are and that current circumstances are not nearly as bad as before. They are taking it in their stride. People who have been around for a long time and, perhaps, are a generation older than the rest of us have been through tough times before and know what it means. Nevertheless, they have survived. I do not underestimate the difficulties we face. They are as bad as they have been for more than a generation. However, previous generations faced greater difficulties which they overcame and I believe the same will happen in this case.

One challenge facing the Government is the €21 billion or €22 billion to be spent on social welfare. A mechanism should be put in place whereby a portion of this sum will be allocated to employment or job supports. Many who were earning between €500 and €700 a week and have now lost their jobs and are in receipt of jobseeker's benefit or jobseeker's allowance would be happier to be in work. If social welfare payments could in some way be linked to their employers to keep them in employment, it would be far better for the people concerned and the economy. Ultimately, we must work our way out of the recession. We will not be able to tax or spend our way out of it.

I refer to specific sections of the Bill. I realise the income levies are unpopular but because we are in mid-year and because of the way the PAYE system works it is the most practical way of proceeding. Perhaps at the end of the year such levies could be integrated with the normal taxation system. However, what is important is that the levies catch a great many who might otherwise escape if the revenue was raised based on taxable income because of the various write-offs available.

Certain amendments to mortgage interest relief were introduced on 1 May. I do not believe Revenue handled this matter well. Some have difficulties in respect of whether they have been making repayments for more than seven years and so on. Revenue should have let the scheme roll until it sorted out the problems and if there was something to be recouped, it could have been done during the course of the year.

During January and February there were 30,000 job losses each month. However, that has not been the case since. We have not reached green pastures yet but the worst months are behind us. The situation has not fully bottomed out but in terms of job losses, the worst is behind us. I welcome the change in the corporation tax rate from 22% to 25% and the reduction in the amount of interest one must pay in respect of late payments of taxation as a result of reducing interest rates.

I commend the Bill to the House and trust it will move successfully through Committee, Report and Final Stages in the coming weeks.

Michael D Higgins (Galway West, Labour)
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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.

Beverley Flynn (Mayo, Fianna Fail)
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I wish to share my time with Deputy Michael Ahern.

Jan O'Sullivan (Limerick East, Labour)
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Is that agreed? Agreed.

Beverley Flynn (Mayo, Fianna Fail)
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I welcome the opportunity to speak on the Finance Bill. I recognise that because of the current economic climate in which we find ourselves it has been necessary to broaden the tax base of the economy. I welcome the fact that we have retained the corporation tax rate at 12.5% and that the exemptions for the income levies have been extended to those with a medical card and that higher thresholds have been introduced for those over 65 years of age.

I would like to spend my time dealing with the final point made by the Minister when he said he would give consideration to any constructive suggestions made during the debate. The first issue I wish to consider relates to sections 3 and 4 of the Bill and deals with mortgage interest relief. We all know that relief will be restricted to the first seven years for persons with qualifying loans. From my experience in my constituency and having received texts from many people today, I am aware that many families are experiencing significant pressure with their mortgage repayments as a result of the pension levy and the change to the income levy. I received an e-mail today from a person in my constituency who has seen a reduction in his weekly income of 40.7% when all of the changes in allowances and mortgage interest relief are taken into consideration.

Many are annoyed by the recapitalisation of the banks, at €7.5 billion plus, that will materialise in the coming weeks. They are annoyed because they do not see any benefit for ordinary citizens. They are paying for it through their pockets, but they are not receiving any real benefit. I am not just talking about small businesses, although these are essential, but about ordinary individual citizens of the State, people with one house - their primary residence - and mortgage. Through no fault of their own, many of them have lost their jobs. We are in a dreadful situation where so many have become unemployed in recent months and the people concerned find themselves in a very difficult situation with regard to the banks. Deputy Ardagh referred to this issue and I support his call for real movement on the part of the banks to ease the pressure on those with mortgages who find themselves in this situation and relieve their fears. The Government has asked for a period of five years to get the public finances in order. Therefore, it is only fair that we should say to the banks that those who find themselves in a difficult situation because of the economic downturn should be given a period of years to get themselves back on track. This means giving them the opportunity to pay only interest on their mortgages for a number of years. Whether they are on a fixed or variable rate, those in crisis must be looked at with sensitivity and flexibility, particularly by the banks which are being funded by the taxpayer. I ask that the rate of interest to be applied be reduced to the cost of overnight money in the banks which is in the region of 1.75%. If this suggestion was implemented and breathing space was given to mortgage holders, it would make a huge difference. It would keep people in their homes and ease their fears. It would also mean greater acceptance by ordinary citizens of the importance of protecting the banks in order that the economy can be protected and would create an awareness that this also affects Joe Bloggs in his or her pay packet. I urge the Minister to give consideration to this measure on Committee Stage.

I have spoken on many occasions in the House about a sector that does not find favour with many - the construction industry. I agree with some of the comments made by Commissioner Charlie McCreevy when he addressed the Leinster Society of Chartered Accountants last week. While we are in this mess because of problems caused by the banking sector and property developers and builders, the people concerned will play a significant part in the recovery of the economy. They may not be the same people, but we will require developers and builders to play an important part. This may not be to the same extent as in the past, but they will have an important role to play.

There are negatives in the Bill for the construction sector, in particular the abolition of mortgage interest relief which is to be phased out over seven years. The reduction in interest relief on residential property loans, from 100% to 75%, is also a negative. Many may have invested in a second home in order to put their children through college. Rents have reduced and barely meet repayments. Now, following the reduction in interest relief from 100% to 75% and despite the fact that interest rates have reduced, they are in a situation where it may not be possible for them to retain these properties. This will result in a flood of additional properties onto the market, which is a further negative for the construction sector.

The one positive in the Bill is to be found in section 20 which deals with the exchange of houses scheme. However, to be honest, this a complete and utter waste of time - in my constituency at least. I hope the Minister will pardon me for saying this, but this measure does not offer any value. It has been included as a positive, but it will make no impact in my constituency.

Bernard Durkan (Kildare North, Fine Gael)
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Hear, hear.

Beverley Flynn (Mayo, Fianna Fail)
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I do not believe any bank in my constituency would accept an exchange of property as part of a deal on the sale of a house. As this does not appear to be a positive measure, I make a suggestion. I checked the information on my constituency of Mayo today, where there are 1,704 on the housing list. We have 40,000 unsold units in the housing market, many of which may be taken over by NAMA and sold in getting rid of toxic debt. We should buy up some of these houses now so as to reduce the number of unsold housing units. The Government could borrow €3 billion to purchase 20,000 units which would reduce the unsold housing stock by half. It could pay the money back over ten years. If it was repaid at a rate of 5%, it would cost the Government €315 million per annum, but the reduction in rent supplement being paid would help in reducing this. In addition, the average rent of €100 per week for people in social housing would bring in an additional €104 million in income for local government which sorely needs these funds. We are all aware of sewerage and water schemes that have not been able to go ahead because of the shortage of funds at local authority level. I urge the Minister to consider this measure.

I have also suggested to the Minister that the amount of VAT tied up in the remainder of the unsold housing units is significant. It would be better to get in as much of this VAT now and use it at a time it is needed. If what we received only amounted to 60% to 65% of the VAT payable, it should be used to try to encourage young first-time buyers to buy a house within the next 12 months so as to stimulate growth and the economy. I say this as someone who comes from a constituency where some 9,000 construction workers are out of work. County Mayo has one of the largest proportions of construction workers in the country and unemployment is a problem. I am not talking about high rollers but about carpenters, electricians and blocklayers, people who find themselves in great difficulty.

I welcome the fact that the Minister has said discussions are ongoing with the car industry. It is interesting that in all counties more people work in the car industry than in the banks. Before the supplementary budget was introduced, SIMI suggested a car scrappage scheme, coupled with VAT proposals relating to the sale of second-hand cars. I note the point the Minister made with regard to changes in VAT but urge him to re-examine introducing a car scrappage scheme in conjunction with the VAT changes. Such an approach worked very successfully in Germany. I know both economies are in recession, but in Germany a €2,500 trade-in price for a car more than nine years old resulted in an increase of 21% in the sale of new cars. This is something that should be considered. I am aware that the Minister said previously that in order to be viable such a measure would require the sale of 20,000 new cars, but it should be considered.

I would like to touch on section 17 and the exemption from the air travel tax for small airports. During the debate on the previous Finance Bill I welcomed the fact that the Minister had reduced the air travel tax from €10 to €2 for regional airports such as Knock. I ask that this charge be done away with. There should be no travel tax at airports such as Knock. People assume that the airport at Knock depends on operational subsidies but this is not the case. Ireland West Airport is a low-cost, profitable, independent airport that receives no operational subsidy and 97% of its traffic is directed to 28 international destinations. Its success works against it because being in profit it receives no State operational support but the introduction of this travel tax will result in a reduction in tourism numbers and, therefore, the Government needs to revisit this issue.

The Minister for Finance should examine the introduction of a Government bond for citizens. I do not have time to explain the concept now but I will try to do so during Private Member's Business later this evening. Instead of looking for funding internationally, the Government might look to its own people. For those who have money, the average amount of savings has gone up from 3.8% to 8% in the past 12 months. Many people may like to play their part in the recovery of our economy instead of the Government's seeking money on the international markets.

Michael Ahern (Cork East, Fianna Fail)
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I am delighted to have the opportunity to say a few words about this Bill and what is happening in our economy.

We are all aware that the world is in recession and we are becoming more aware of this every day, although some people are in a state of denial. We are experiencing a greater contraction in activity in the economy than was anticipated. In his past year, as Minister for Finance, the Taoiseach indicated that the Government was aware of the downturn that was coming, especially in respect of the building sector, and he stated the effect that would have on our growth rate. Nobody, whether politician, economist or banker, foresaw the collapse of the banking system around the world, commencing with Lehmann Brothers and others in the United States, the United Kingdom and elsewhere. This had a serious impact on our economy because we export 85% to 90% of our goods, which accounts for the same percentage of our GDP. A total of 18% or 19% of our exports go to Britain. The 30% devaluation in the British pound against the euro had a significant effect on our exports to that market and similarly to the US which takes 20% of our exports. Despite this we have held our share of the export market compared with similar trading countries, such as Singapore which has lost up to 30% of its export markets, and Taiwan which has lost 40%.

Opposition speakers continue to say the Government has no strategy but this is patently untrue.

Bernard Durkan (Kildare North, Fine Gael)
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They are right.

Michael Ahern (Cork East, Fianna Fail)
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Since the middle of last year the Government made a decision to secure the banking sector, not for the benefit of individuals in, or directors of, the banks but for the benefit of the people, those who have deposits in the banking system, for the trade and commerce which could not operate without a banking system. It is not perfect but if the Government had not made that decision the banking system would have collapsed. In order to make it more successful, it is necessary to clean out the banks, which NAMA will do. That will enable banks to extend more credit to those who are having difficulty getting it now.

The British Central Bank printed billions of pounds and put them into the economy to keep the system alive but that has not worked. The United States printed trillions of dollars and put them into the system but that has not kickstarted the economy in the way it had been hoped. As Deputy Fleming said, people watching Sky News can see that the same, if not worse, is happening around the world.

The Government has proposed NAMA to make the banks operable again. An asset purchase scheme has a threefold goal. It can remove the distraction from bank management of trying to recover problem loans, and allow it to refocus on new, sound lending which is essential for the future of the economy; it can help improve loan recovery by separating that task from the team that made the loans; and it can replace assets of uncertain value with safe and marketable assets. There will be further discussion on this but a similar scheme succeeded in Spain, Sweden and the United States but not in Ghana, Mexico, the Philippines and Senegal which are undeveloped economies. When we get these systems going the banks should look sympathetically on people who are having trouble repaying their mortgages and reduce the interest charges to 1.75% for the next four or five years while the economy is in recovery mode.

Opposition spokespersons have said time and again that nothing is being done to promote enterprise and employment. This is another lie.

Bernard Durkan (Kildare North, Fine Gael)
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They are right.

Michael Ahern (Cork East, Fianna Fail)
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The budget of 2009 provided for investment in excess of €500 million in enterprise through the IDA, Enterprise Ireland, the county and city enterprise boards and Science Foundation Ireland. It provided €100 million for the establishment of an enterprise stabilisation fund to help indigenous trading companies to reduce costs and gain sales in overseas markets; a capital investment programme of €3.1 billion, the largest per capita programme in Europe, which will help to maintain jobs in the construction industry; €100 million for the sustainable energy and green economy, which will assist and support the creation of up to 7,000 jobs; €613 billion for the 2009 building programme which will create up to 3,000 jobs; and €60 million additional funding for 16,500 training places in FÁS. The Department of Education and Science has provided €19 million to create approximately 7,000 places for those who are unemployed. We hear that the money was wasted and thrown down a black hole.

Bernard Durkan (Kildare North, Fine Gael)
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It was.

Michael Ahern (Cork East, Fianna Fail)
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The investment in infrastructure was twice the EU average. Public investment in the roads programme was €295 million in 1997 and €1.5 billion in 2007.

Bernard Durkan (Kildare North, Fine Gael)
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Yes but where did it lead us?

Michael Ahern (Cork East, Fianna Fail)
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This delivered the largest road modernisation programme in history, with approximately 200 kilometres of new motorway and 480 kilometres of new dual and single carriageways, and more in 2007 and 2009. Within a couple of months we will have all but 15 miles of a motorway from Cork to Dublin.

Garda numbers increased from 10,500 to 15,000. Income tax rates were significantly reduced, from 48% to 41% at the top rate, and 21% to 20% at the standard rate. More than 300,000 people were taken out of the tax net. A total of 10,000 new teaching posts were created, and 8,000 resource and learning support teachers, 10,000 special needs assistants and 45,000 more places in third level education were provided. Between 2002 and 2009 in east Cork alone more than €13 million was invested in sporting, recreational and community facilities and more than €7 million was invested in child care, elderly and youth services.

Bernard Durkan (Kildare North, Fine Gael)
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The Government is going to cut that now.

Michael Ahern (Cork East, Fianna Fail)
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In 1987 the national debt was 125% . It is now down to 25% and if the €20 billion in the pension fund was subtracted from the national debt it would bring the debt ratio down to 10%.

Bernard Durkan (Kildare North, Fine Gael)
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The Deputy might as well dream here as in bed.

Michael Ahern (Cork East, Fianna Fail)
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No other country in the European Union has such a small debt and that has allowed the Government to borrow now when it needs to borrow. It is because of the prudent policies followed by the Government in the past ten to 12 years that we have the facility to get out of the trouble in which we find ourselves today. This trouble was not caused wholly by what happened within this country; it is a global problem.

Bernard Durkan (Kildare North, Fine Gael)
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Some 90%of the problems were caused here.

I wish to share my time with my colleague, Deputy Deenihan.

Brendan Howlin (Wexford, Labour)
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Is that agreed? Agreed.

Bernard Durkan (Kildare North, Fine Gael)
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He says he only requires five minutes but I am quite sure no self-respecting Kerryman could say what must be said in five minutes.

I cannot believe what I have just heard. I believe Deputy Michael Ahern's speech was delivered about six or seven years ago. The Members who have just spoken, Deputy Michael Ahern and Deputy Flynn, have gone home already. This is crazy and demonstrates how the country is being run. Members are coming into the House and obviously using scripts that were in mode five, six, seven or ten years ago. I cannot understand what is happening.

What worries me most is that the Government is not only denying the existence of the circumstances into which it has brought the people and the country, it is also promoting more of the same. It is suggesting that if it had more money, it would have done the same with it and shoved the whole lot down the drain in one fell swoop. The country needs a general election in a hurry to create some rationale for what is occurring and counteract the madness on the other side of the House. The country is in an appalling financial mess, brought about by a Government that was delirious, roaming around the countryside as if there were no tomorrow, spending money on every single thing that could be thought of, wasting money left, right and centre and living in dreamland or cloud-cuckoo-land. All of a sudden the chickens have come home to roost and everything has dried up.

Some very interesting remarks have been made. On the banking system, for instance, it has been suggested Members on this side of the House would be gleeful if bankers were put in prison. Nobody would be gleeful. It used to be said around the House that politicians would never be put in prison, but they were. There are a few sacred cows around yet who obviously have no regard whatsoever for the national good and can walk away grinning about it. I do not want to see anybody being punished publicly but I do want people to accept their full share of responsibility. This includes the politicians on the other side of the House who have been promoting this nonsense for the past ten years.

We were told until now that the economic fundamentals were sound and that the country, therefore, could not go wrong. The fundamentals have not been sound for the past ten years and there is no sense in pretending that they were. The macro-economic sector was being handled badly and the micro-economic sector could not follow it and had nowhere to go. Therefore, the whole lot went down together. I cannot understand for the life of me why people make speeches such as those we have just heard and continue to do so, even in the current climate. Some 90% of the problems we face were created within the country by the Government. Down in Ballybrit, before the tent was closed, Government members used to rub their hands in glee over what was happening. They claimed the country was making a fortune and was the second or third richest country in the world. I cannot be sure whether it was the second or third richest but, irrespective of which, it no longer has that honour.

It appals me that we are in the current circumstances. In the budget first mooted last September there was a prediction of unemployment levels and likely expenditure on social welfare was identified. The social welfare budget is still far short of what is required in the current year. This is because the Government could not even plan properly when the recession was close.

Individuals have said this is the first time we have seen such a recession but that is not true. They have said it is the first time the banking system has collapsed in the way it has but that is not true either. The banking system collapsed throughout the world, particularly in the United States, in the 1930s after a spending spree similar to the one we experienced in the past ten years. Reality failed to dawn and everybody was living for today and saying, "To hell with tomorrow".

In recent months loans of 100% to first-time house buyers were identified as the problem. They never were. There was nothing wrong with 100% loans but there was a problem with 180% loans and 200% loans. I was in the courts a couple of weeks ago giving evidence on behalf of a constituent who had received from a mortgage company a loan of exactly 200% instead of what he should have received on the basis of his income. There are long lists of repossessions in the courts every day, all pertaining to unfortunate, gullible, innocent first-time buyers who were placed in appalling circumstances. They are in over their heads to such an extent that they cannot salvage themselves, with the consequence that their houses are now being repossessed. Their spouses and children are all vulnerable. The State will have to address this issue.

Deputy Flynn has made the realistic point that thousands of houses are locked up and will have to be sold. Nobody will buy them at the prices at which they were expected to be sold last year or the year before. They will have to be sold at a knock-down price and there will at last be a bonanza for the first-time buyer. The existence of first-time buyers will be recognised, I hope before too long. However, there will be a serious problem of negative equity for those who bought houses in the past seven or eight years. This can be resolved, although I do not propose to speak about how it can be in the short time available to me tonight. Until such time as this issue is dealt with, there will be no movement in the economy. It will be stuck with a huge overhang of debt - a cantilever of debt - which, unfortunately, is beyond the powers of management of ordinary people.

At a time of economic crisis such as this, the obvious stimulus is to cut taxes and reduce the burden on the citizen but the Government has done the very opposite. This is a new form of fiscal rectitude. The Government has decided to punish the unfortunate people who had nothing to do with the downturn and who are receiving a punishment beating daily. Sadly, as the Leas-Cheann Comhairle and everybody else in the House knows, in a few months the Government will be back again with a carrot in one hand and a stick in the other to beat up the people once more. This will happen because its economic policy is flawed and just does not work. Tired as the Government may be of hearing this, it is time it got its act together and listened to advice on what is going wrong and what was going wrong for a long time and which needs to be addressed. If this does not occur, the recovery will be postponed for years. It will not be possible for it to take place.

What has happened in the international banking system has happened before. There was no magic overnight panacea, nor will there be now. Deputy Michael D. Higgins compared the Irish, European and US social models. We have had lots of debates in this House on the issue during the years. I have no hang-ups regarding the public and private sectors. There are some areas in which services are delivered better by the public sector. For example, utility services are delivered at least as well by the public sector. I do not want to debate Eircom now but it is a case in point that continues to come to mind. There are also other examples. In some jurisdictions it has always been recognised that where the public sector concedes to the private sector in areas such as those to which I refer, there should be ongoing investment in infrastructure to ensure the service provider can continue to operate. Apparently, we do not have such a system here. The theory is that the primary interest is that of the shareholder but it is not because the customer is also a shareholder. The interests of customers must be borne in mind at all times.

I cannot understand why people say nobody could have foreseen the downturn. I am sure the Leas-Cheann Comhairle cannot understand this.

Brendan Howlin (Wexford, Labour)
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The Deputy should not draw the Chair into the discussion.

Bernard Durkan (Kildare North, Fine Gael)
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There are times, a Leas-Cheann Comhairle, when I am looking around frantically for somebody to draw into discussion, because I cannot draw that side of the House into it, as we know.

If they could not foresee what was going to happen they should not be there. It is as simple and stark as that. The dogs on the street were talking about it, but anybody who dared to say what had to be said was denigrated, cast aside and regarded as unpatriotic. They were ignored.

It is sad that we have had this financial episode. I have no doubt the country will recover, but it will require good leadership and foresight. We have recovered from similar situations in the past. However, a recognition is first required from those responsible that they did wrong. They must apologise to the Irish people in the first instance.

Jimmy Deenihan (Kerry North, Fine Gael)
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I think I have five minutes.

Bernard Durkan (Kildare North, Fine Gael)
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Ten minutes.

Brendan Howlin (Wexford, Labour)
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The Deputy has nine minutes.

Jimmy Deenihan (Kerry North, Fine Gael)
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Deputy Durkan was in full flight; I am sure he could happily have kept going for another ten minutes.

I am grateful to Deputy Durkan for sharing his time with me. If we care to read the spring report of the ESRI, we will see it outlines the serious economic circumstances in which we find ourselves. The most staggering information in it relates to the growth in unemployment. The ESRI commentators expect employment to be 1,917,000 in 2009, which is 187,300 lower than in 2008. That is frightening. It is now possible that we could have half a million unemployed in a year's time. That will have major implications for our system and I doubt we are prepared for it.

The Government is coming up with few real job creation initiatives. One such initiative, which I mentioned here recently and which I wish to bring to the attention of the Minister, is the restoration of the community youth training programmes, which were successful across the country in providing community initiative and care centres, dressing rooms for sporting clubs and so on. These projects were discontinued during the boom. The Construction Industry Federation was opposed to them on the basis that the trainees may have been replacing some of its contractors on projects. However, there is now little work for anyone, and apprentices in particular cannot finish their courses because they are unable to find employers with whom to complete their employment modules. Thus, many apprentices are now being told they will not qualify.

I suggest this be considered carefully and seriously. I mentioned this to the Minister of State's colleague, Deputy Dara Calleary, and he was supportive of such an initiative. A fair amount of serious employment would be created, and it would allow various apprentices - carpenters, plasterers, blocklayers, plumbers and electricians - to qualify while providing a good boost for communities across the country. I am aware of a number of projects that could go ahead tomorrow if such labour was available to them, as they have money available locally. Obviously, in the absence of National Lottery funding this year they cannot take on contractors, but they could use this type of system. I suggest, as a positive contribution to the debate, that this should be considered.

As the unemployment figures soar, unfortunately - unlike in the 1980s and early 1990s, when large numbers of people left to go to the USA, the UK and Australia - there are few places where people would now be rewarded sufficiently to encourage them to go. We know how difficult it is to get into America, but it is also the case for Australia. I have had inquiries from a number of parents looking for contacts in places such as Sydney, where there was an abundance of jobs some years ago but it is now difficult to get work. This will become a major challenge for the Government in the next five years, but in the immediate future we need creative ideas and approaches to meet this challenge. Sitting back and doing nothing will only make the problem worse.

The other economic commentary I examined was the report of the Economist Intelligence Unit on Ireland from May 2009. This is also quite pessimistic. It reports that correction of the banking system will be a considerable challenge because of the way in which we are exposed. The EIU is more or less in agreement with the IMF's analysis of Ireland in its financial stability report, indicating that we have major problems and because of our toxic assets it will be quite challenging for us to resolve our banking crisis.

As I have mentioned here before, although there have been major changes in the structures and directorships of AIB, in Anglo Irish Bank most of the same people are still there and there has not been major reform. The Minister will probably know more about this, but Anglo Irish Bank is still issuing loans to some of the people who have received major loans in the past. This sends out a bad signal. There has been major scrutiny of Anglo Irish Bank and there shortly will be a report recommending more capital input from Government to keep it going, but it is still approving loans for people who may not be held in the highest regard. The same people are still there running the business. The Government did act but the banks themselves have not so far taken any action. Except in AIB, the same personnel are still mostly in place.

NAMA will have major difficulties with many of the assets that are spread around the world, including trophy assets in places such as New York. I know of people who are involved in property in New York who could not compete with Irish investors because they could get money so easily.

The Minister no doubt has been approached by incoming tour operators, especially those involved in golf. This Finance Bill will introduce the tour operators margins scheme, TOMS, which is VAT on tour operators' profit margins, with an implementation date of 1 January 2010. I understand the details have not been finalised by the Revenue Commissioners, but this will put the operators at a major disadvantage. Most incoming tour operators already have business on their books for 2010, and they will be forced to carry the VAT charges themselves. More importantly, Ireland will be offering prices for 2010 that are at least 2% higher than those for 2009. This is at a time when suppliers in Ireland and every other destination are maintaining or reducing prices. At a minimum, there should be a derogation and the implementation date could be pushed back until at least January 2012. I ask the Minister to give serious consideration to this on Committee Stage.

The tour operators margins scheme will add between 2% and 4% to the cost of a tourist package holiday in Ireland, in addition to other increases such as airport charges, and will make Ireland a less attractive destination. Tourism faces major challenges across the world and every country is responding in various ways but we seem to be heading the wrong way, making our tourism product less competitive. Golf attracts many high spending tourists to County Kerry. Golf clubs are reducing green fees in Waterville, the Barrow in Tralee and even in Ballybunion. This charge, however, will lead to an increase in prices, making us less competitive. Perhaps the Minister will introduce an amendment on Committee Stage that will postpone it for two years.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I thank Deputies for their many considered and useful contributions to the debate on the Finance Bill 2009. I look forward to a constructive and informed discussion on Committee Stage. I will respond as far as possible in the time available to me to the points raised by Deputies. I note, in particular, the points made by Deputy Deenihan.

Before moving on to address some of the points made specifically about the Bill, I would like to reply on some of the more general issues raised, particularly by Deputies Bruton and Burton, on the management of the public finances and the banking system.

The supplementary budget struck the appropriate balance between the need to restore order to the public finances and protecting the economy. It was suggested here yesterday that too much of the adjustment had taken place on the taxation side of the account and not enough on the expenditure side. It is important to see the full picture. In making adjustments to the fiscal position for 2009, the supplementary budget was the final step in the process that began last July. In July 2008 expenditure savings of €1 billion were delivered for 2009. The savings made focused on reducing the payroll bill, introducing a range of efficiency measures across Departments and agencies and reducing expenditure on consultancy, advertising and PR. In addition, there was a re-prioritisation of capital projects. In October 2008 the budget strictly contained planned expenditure for 2009. Most areas of expenditure saw reductions, with the health, education and welfare budgets being the main areas where the amount of spending was allowed to increase, reflecting demographic and labour market pressures. The October budget also introduced revenue raising measures of almost €2 billion, a significant element of which was the introduction of an income levy. These adjustments were followed in February with expenditure savings of almost €1.8 billion in 2009. The most significant measure in this package was the introduction of the public sector pension levy which will have the effect of reducing the public service pay bill. The final step taken for 2009 was the April supplementary budget. This delivered improvements to the Government finances of €3.3 billion in 2009. Approximately €1.5 billion of this improvement is due to expenditure adjustments, with €1.8 billion in additional taxation being raised.

When the adjustments are viewed in their totality, it is clear that more of the impact has fallen on the expenditure side. This is an appropriate and a more sustainable approach in the long term to improving the public finances. The cumulative effect of the budgetary measures has been to rein in the deficit from a probable 15% of GDP to 10.75%. No other country in the eurozone has made such an adjustment.

It is important to also point out that the supplementary budget marked a new departure for budget formulation in Ireland. For the first time, detailed multi-annual plans were contained in the budgetary projections. Targets have been set for adjustments to taxation and expenditure in 2010 and 2011 and, while the detailed specifics of the measures are still being formulated, the overall policy areas for examination in this context have been announced. This multi-annual consolidation plan will ensure we restore the public finances to a sure footing by bringing the general government balance to -3% of GDP by the end of 2013. In this regard, the Commission on Taxation and the special group on public service numbers and expenditure programmes, both due to complete their deliberations this summer, will have an important role to play in identifying measures that will improve the budgetary situation in the coming years.

Deputy Bruton expressed concerns about our budgeting model. There have been significant reforms in recent years to the entire system of allocating and accounting for resources. Annual output statements were introduced in 2007 to provide details on public service performance. These statements are considered alongside the corresponding Estimates allocations. Dáil select committees now have an unprecedented opportunity to assess performance and budgets in their totality. In last year's review of the public service the OECD was complimentary about the annual output statements and noted that Ireland was on "a sound trajectory of modernisation" in this regard. It also made a number of recommendations for improvement which have been acted upon.

The Government's commitment to budgetary reform has put the tools of accountability at the disposal of elected representatives. It is contradictory, on the one hand, to pretend that these tools are not available while, on the other, using them in a facile manner to complain that performance targets are not being met. Transparency, value for money and accountability have been the hallmarks of the Government's approach to budgetary and Estimates reform up to now.

Deputy Sherlock asked about the recent budgets and their effect on economic buoyancy. Measures have been implemented which will support economic growth. For instance, the introduction of the pensions levy in the public sector earlier this year will lower the cost of running the public sector and send a positive demonstration effect in terms of private sector wages. In addition, the Government is helping to support employment and enterprise by redirecting the national development plan, as well as implementing a number of activation initiatives to further encourage individuals into employment.

At a more macro-level, maintaining the public finances on a sustainable path is a prerequisite for economic growth. In this regard, the various expenditure reducing and tax raising measures introduced since October will have a beneficial impact by restoring confidence, as well as improving our competitiveness. Further measures will be introduced in 2010 and 2011. Notwithstanding these increases in taxation, I reiterate that our tax system remains competitive and pro-enterprise.

Several Deputies, including Deputies Bruton, Burton and O'Donnell, raised concerns about the banking sector. While the range of measures introduced have gone a long way towards ensuring the stability of the sector, it is clear that Ireland, like many developed countries around the world, will need further measured and appropriate action. That is why the Government acted to address the asset position of the banking system by establishing the National Asset Management Agency. The aim behind the establishment of NAMA is to reduce uncertainty and the lack of transparency surrounding the level of bad debts and, consequently, to ensure the flow of credit on a commercial basis to individuals and businesses in the real economy. I subscribe to the view expressed by Professor Honohan that the need in banking reform is not just to capitalise the institutions but to ensure the deterioration in asset quality is addressed through asset purchase. The NAMA proposal will provide the certainty that the market needs and recognise the reality of the reductions in property values. The model proposed is broadly consistent with measures taken in other countries, including Germany, Britain and the United States, to address concerns over certain assets on the balance sheets of banks which restrain them from lending to the real economy.

Of course, the State will not take all the risk. The banks will have to take an appropriate write-down in value of loans transferred to NAMA, taking account of NAMA's objective, which is to operate commercially and optimise the return on such loans over time. The amount to be paid by NAMA, therefore, will be significantly less than the €80 billion to €90 billion figure to reflect the loss in value of the underlying collateral. The price will take account of current and expected market value of the relevant assets and what is sustainable for the taxpayer. In the longer term, if NAMA fails to recoup all of the costs, the Government intends to apply a levy to make good any shortfall incurred. While the initial write-down of loans may have an effect on the banks' capital, there also will be a reduction in risk weighted assets as a result of the transfer of the loans to NAMA. The setting up of NAMA and transferring the more difficult asset portfolio to it will leave the banks in a stronger position to lend to the real economy and make profits which will facilitate increases in their capital bases over time.

The Government has received expert financial, economic, legal and valuation advice at every step of its structured response to the banking crisis. The agency will be developed and implemented in close co-operation with the European Commission to obtain prior state aid approval. The Government is committed to ensuring this very significant initiative will be an example of best practice and meet all the objectives we have set for it.

Moving on to measures contained in the Bill, in respect of the income levy, I must take issue with Deputy O'Donnell's comment yesterday that the introduction of the composite rate was some form of mistake. That is not the case. It was necessary to devise a composite rate for the year as a whole. The composite rate is essentially an anti-avoidance measure which prevents individuals who can control their income from front-loading their yearly income to avoid a higher liability to charge. It was essential in the interests of equity and absolutely the correct course of action to take. For the vast majority of PAYE workers whose income is evenly distributed the composite rate will have no impact. However, it will apply directly to those subject to self-assessment and those PAYE workers who make a return to Revenue. PAYE workers who received bonus payments before 1 May will be liable to the composite rate on their bonus payments on a full year assessment, for example, at a figure of 1.67% rather than 1%. However, given the unique nature of redundancy payments, I have decided to ensure in the Bill that any taxable element of redundancy payments made before 1 May will only be subject to the income levy rates in force at the time.

Deputies Bruton, Burton and O'Donnell expressed concern about the marginal tax rate taking account of income tax rates, PRSI and the levies. Deputy Bruton asserted that the marginal tax rate was 51% for the average worker. Taking the average industrial wage as being approximately €34,000, the marginal tax rate for the average worker is now 30%. However, what taxpayers are interested in is the actual amount they will pay as a percentage of their wages. The average worker on €34,000, in fact, has an effective tax rate of just 18.5%. Deputy Burton mentioned that the average tax rate for a single income earner on €80,000 was 36%. She asserted that these were early 1990s levels of taxation. The point was well made in response by Deputy Michael McGrath earlier today who pointed out that annex A of the budget book showed clearly that average tax rates had fallen since 1997 for all taxpayers. An average tax rate of 36% for single individuals earning €80,000 represents a return to 2004 levels rather than early 1990s levels as Deputy Burton suggested.

Joan Burton (Dublin West, Labour)
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I talked about a married couple with children.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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For the Deputy's information, the average tax rate for a single individual on €80,000 was 45% in 1997, some 9 percentage points higher than it is today.

Joan Burton (Dublin West, Labour)
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The Minister should check what is stated in annex A about a married couple with children.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I welcome the comments of the Minister of State, Deputy Kelleher, and Deputy Fahey that the income levy is a progressive measure. It is never easy to raise taxes but when it is necessary to do so, it is important that those who can pay pay the most, while the vulnerable in society are protected as far as possible.

Deputies Burton and O'Donnell referred to the changes to mortgage interest relief. As the Deputies may remember, I indicated in my Budget Statement in October last year that mortgage interest relief was not set in stone and was very much tailored to market conditions. The European Central Bank has since reduced its lending rates significantly. This reduction by 2.75 percentage points has resulted in considerable savings for the majority of mortgage holders. The reality is that with mortgage interest relief being available for non-first time buyers at 15% of the qualifying interest payable, the interest rate reduction is worth far more to mortgage holders than mortgage interest relief. For example, monthly repayments on a typical tracker mortgage with a margin of 1.75% over the ECB rate to the value of €300,000 taken out in 2002 over 30 years have fallen by approximately €390 since October 2008. The limiting of mortgage interest relief will, at most, reduce the value of mortgage interest relief to the affected mortgage holders by €38 per month, if single, or €75 per month, if married or widowed. I appreciate that fixed rate mortgage holders do not benefit from the reduction in interest rates, an issue raised by a number of Deputies. However, I understand that over 60% of fixed rate mortgages are fixed for between one and three years and this cohort should be able to avail of the current low interest rates once the fixed period has expired.

I want to clarify for Deputy Burton the Government's position on child benefit. As the Minister of State, Deputy Kelleher, explained, it is not right that better-off individuals can avail of the same child benefit payments as the less well-off. In times of scarce resources we need to target the resources available at those most in need. The Commission on Taxation is examining options in relation to the tax treatment of child benefit. I will be informed by its proposals on the matter. My Department, together with the Department of Social and Family Affairs and the Revenue Commissioners, is also examining the issues surrounding means-testing or taxing child benefit.

Deputy Bruton queried the end-2013 termination date for capital expenditure on qualifying private hospitals to qualify for capital allowances. The extended date will only apply where certain criteria relating to a valid application for full planning permission have been met. The Deputy will understand that I must make reasonable transitional arrangements for hospital projects which are in the pipeline and which, due to the complexity of the various strands of work involved in such projects, from design through planning, construction and fit-out, will take a considerable period of time to complete. The end-2013 deadline for hospital projects is not unreasonable in the circumstances.

Deputy Burton asked whether I proposed to introduce a restriction in the Finance Bill on the ability of property developers to claim loss relief. Sections 6 and 11 of the Bill, apart from abolishing the concessionary 20% tax rate on income and trading profits from dealing in residential development land, also introduce restrictions on the use of losses incurred in this activity. I have no proposals for further restrictions on loss relief in this general area at this time but will be keeping the matter under active review.

Deputy Burton also raised the issue of restricting the ability of the institutions covered by the bank guarantee scheme to avail of loss relief arrangements under the tax code, given the level of State support for the banking sector. I am conscious of the Deputy's concerns in this matter and while I do not propose to include a provision in this legislation, I will be examining the issues raised by the Deputy in this regard.

I appreciate the support expressed by Deputies Chris Andrews and Bannon for the reduction in interest charged by the Revenue Commissioners for late payments and underpayments of tax. Likewise, I welcome the comments of Deputies Michael Kitt and Breen on the provision for intellectual property relief and our efforts to develop the smart economy.

Turning to some of the other points raised by Deputies, Deputy Burton stated that no action had been taken against what were known as tax exiles. In my previous Finance Bill I made it more difficult for people who are effectively based in Ireland to become non-resident for tax purposes by abolishing the Cinderella rule which provided that an individual would not be treated as being present in the State on a day unless he or she was present at midnight on that day. As Members are aware, the report from the Commission on Taxation is due to be completed in July. Given the imminence of that report and because the changes I introduced have only been in place since 1 January, I do not intend to make further changes in this area at this time.

Deputies Bruton, Burton and O'Donnell questioned the increase in the standard VAT rate in budget 2009. As I have previously stated, it appears that the timing of Ireland's VAT increase in budget 2009, given the subsequent temporary reduction in the UK rate, may have sent the wrong signal to consumers. However, given the current Exchequer deficit position, the decision to increase the standard VAT rate continues to be necessary to support the public finances. We are borrowing to fund day-to-day public services, which is unsustainable as future generations will be required to pay higher taxes unless we correct the public finances. It is an inevitable feature that where there are two jurisdictions, with two currencies and two tax regimes, there will be distortions at different times in the marketplace. The balance in trade has switched at various times to different sides of the Border, giving rise to swings and roundabouts for both sides in terms of who benefits or loses in the local economies. The increase in cross-Border trade in recent months was to be expected, given the size of recent exchange rate movements. Although the United Kingdom cut its standard rate of VAT to 15% on a temporary basis from 1 December 2008 to the end of 2009, at the same time it increased excise duty on alcohol, cigarettes, petrol and diesel in order to offset the 2.5% reduction in VAT on these items. For Ireland to reduce the standard VAT rate to the UK level of 15% would mean a reduction in the standard VAT rate of 6.5 percentage points and cost in the order of €2.5 billion in one year.

The VAT rate is only one factor in the price differential between North and South. The report on the implications of cross-Border shopping for the Exchequer prepared by Revenue and the CSO at my request and published on my Department's website noted that the main causes of price differentials between goods in Northern Ireland and the Republic were operating costs, profit mark-up, taxes and the rapid depreciation of sterling against the euro of about 30% between January and December 2008.

Brendan Howlin (Wexford, Labour)
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As it is now 7 p.m. I must put the question by order of the House.