Professor Alan Barrett:

I thank Deputy Higgins for his questions, to which my colleagues and I will respond. As the Deputy pointed out, current circumstances are bad. The Deputy used the word "disastrous" in this regard. Unfortunately, however, it is quite possible to make bad circumstances worse. Even today, if we were to repudiate completely all the debt, we would have to note the anticipated primary deficit for this year of 4.2% of GDP, assuming there are certain improvements. Essentially, we would have to close the deficit immediately, with greater pain for people and a much greater fiscal adjustment. If we want to phase the burden out over time and limit the pain, we must retain our ability to borrow. I hope we will be able to borrow from market sources or, failing that, official sources. It is not enough to say circumstances are bad without considering that some of the solutions being offered risk making circumstances much worse. We are balancing the risk of making circumstances much worse against the real cost of slowing the economy in the present.

The Deputy called the property tax a home tax. I believe he would support a substantial role for the Government in the economy, which necessitates substantial expenditure. This must be funded somehow, either by taxation or borrowing. Given that borrowing will, for the time being, be an important way to fund expenditure – this is why we need to retain our creditworthiness – there will be no really easy form of taxation. Therefore, one needs to develop a tax system that does as little damage to the economy and people as possible. All other developed economies have identified the property tax as a central component of any well-designed tax system. The Deputy is absolutely correct that, for the most part, it draws from the same income pool from which income tax, the universal social charge and PRSI are derived; the difference is that it does not raise marginal income tax rates in the sense that, depending on the design, there should not be a need for one to pay a higher property tax. It does not have the same incentive-damaging effects of bringing marginal income tax rates to very high levels - they are currently at 52%. Most people across the political spectrum who have considered well-designed tax systems see an important role for a property tax.

Let me discuss those whom the Deputy calls speculators. There are certainly speculators but many of the participants in the financial markets in whom we are most interested at present are the people we want to buy our debt. This is to allow us to continue to spend more than the income we are bringing in. It is a question of financial market participants deciding that we represent good credit so we can phase out the adjustment over time, thereby limiting the near-term damage to the economy and the people. It is not right to dismiss outright speculation as having a considerably adverse effect on the economy and people's lives. We are very much dependent on their judgment that we represent a good risk if we are to prevent further damage from being done.