Dr. Tom Healy:

There is not much of a focus on banking in this submission which, perhaps, raises a question about how long-term issues need to be considered alongside year-to-year budgetary plans and discussions. The banking issue is very significant. It weighs on households in terms of debt and the balance sheets of banks, with implications for the Exchequer in the next few years. The solution is going to take many years. Unfortunately, we are in a situation, five years after the events of September 2008, where there is the prospect of unemployment remaining at over 10%, with an overhang of private household debt well in excess of GDP each year to the end of this decade. It has been correctly described as a lost decade. Much of it has been exacerbated by unfortunate policy decisions, including continuing fiscal austerity through the mirage of the front-loading of measures to get the public finances out from underneath quickly. This was the view in 2010; it did not work in 2011 and 2012 and it is very much open to question whether it will work now if the adjustment is as much as €3 billion this autumn.

Banking is also a long-term issue that must be researched further. I am glad that we will be able to undertake further research in that area in the coming months. Some element of a negotiated settlement and debt write-down in a number of cases is unavoidable and the difficulty in facing up to this must be tackled before the entire banking system is brought into a more sustainable, solvent position. We also need to examine the structure of banking and develop new ways of banking, both retail and investment, and learn from the disastrous corporate governance mistakes and failures of regulation in the past.

Regarding the implications for debt, Deputy Boyd Barrett wondered whether we were in primary surplus. We probably will be next year, meaning that the cost of servicing debt at approximately 5% of GDP will be more or less equal to the Government deficit next year.

Could we default on that? That is an option, but it is not one I would countenance because the kickback and uncertainties from defaulting on debt are huge. However, there was an agreement in February that the interest on the promissory notes would be saved, that the promissory notes would be converted into Government bonds, as they have been in most cases, for 20, 30 or 40 years, depending on the maturity. We have scope. We have fiscal space of about €1 billion from next year onwards. We argue that that should simply be used to promote growth and jobs, and protect the most vulnerable members of our society. That was very much the agreement and understanding on that Friday morning after the deal around 6 and 7 February. Based on the initial reactions and ministerial statements, the understanding very clearly was that this would be used in its entirety to ease back on fiscal consolidation. It seems there has been a certain rowing back from that position in part or in whole since then.

I agree entirely that it is very important that any investment, whether in the public or private domain, is properly assessed and evaluated from a cost-benefit point of view. It is important to bear in mind that our investment levels from public and private sources are running at about 10% of GDP. That is the lowest it has been since the 1950s when CSO data commenced. It is the lowest in the EU 28 and will be the lowest in 2018 if the current IMF forecasts are borne out. From a public policy point of view, that is extremely worrying given the need to invest in renewable energy, broadband, water facilities and a range of social infrastructure. Mention has been made of early childhood education. It is not just about creating jobs. It will create jobs and we can produce research estimates of the policy impact on jobs and growth. More crucially, it will protect and equip us for economic recovery in the future. I am not talking solely about public investment, but public, private and European investment. That is why we have put so much emphasis on that as a form of fiscal consolidation.

When we talk about consolidation, we often think in terms of raising tax or cutting spending. While of course it can mean that, it can also mean investing in young people, infrastructure and green technology, with economic and social benefits and revenue buoyancy impacts on the public finance. That is one of the reasons investment is a key component of an alternative fiscal adjustment strategy and one that is of interest to the private sector that recognises the need for this to be competitive and to develop Irish businesses and jobs in the future.