Leo Varadkar (Dublin West, Fine Gael)

I wish to share time with Deputies Neville and Burke.

In a radio interview four years ago, then Minister for Finance, former Deputy Charlie McCreevy, told us there were only three socialists in the Dáil, one being the Taoiseach and another, he later explained, former Deputy Joe Higgins. Mr. McCreevy left us speculating on the identity of the third comrade. After yesterday's tax and spend budget we can be certain that Deputy Cowen has been unmasked, at long last, as the third socialist in the Dáil.

We have witnessed in the past year an extraordinary turnaround in the public finances, the worst in the history of the State. A €2.3 billion Exchequer surplus has been transformed into a €4.9 billion deficit. The Minister expects this deficit to rise to €5.8 billion in 2009, equivalent to more than €5,000 in borrowings for every family in the State. Over the past three years Deputy Cowen has ridden the roller-coaster of economic growth in revenue buoyancy. He used major increases in revenue from stamp duty, VAT and income tax, most of which were created by the debt-fuelled housing boom, a Government initiative geared to increase spending and cut taxes. With the downturn in the economy for the first time this Tánaiste, Minister and Government have had to make some real economic decisions.

He should have introduced a reforming budget that would have brought about real public sector reform, the insistence on a 2% efficiency target for every Department and State agency, the deferral of the pay hikes for senior Ministers and public servants and the allocation of resources only to those Ministers who were prepared to accept service targets in tandem with resources. He should also have insisted on a root and branch reform of the 400 or more quangos that are funded by the taxpayer. Instead of embracing and driving reform he opted to return to old fashioned tax and spend economics, borrowing €4.9 billion to plug the hole in the public finances. This old fashioned socialist solution did not work in the late 1970s under then Taoiseach, Jack Lynch or under Charles Haughey as Taoiseach, and it certainly will not work now. It will become very clear to everyone by the end of the year that the deficit will be even larger than the Tánaiste has projected. When we meet again this time next year he will not be able to afford to do the tax and spend Houdini trick all over again.

In examining some of the key points of the budget, one must comment on the 8.2% increase in day to day spending. That is not an investment in capital infrastructure but rather an 8.2% increase in day to day spending, equivalent to €4 billion in tax. Yet everyone knows there will not be any real improvement in the public services with that money. In any other country, if the Government was going to increase spending by 8.2%, people would expect and get major increases in public services. If spending is to be increased by more than the growth rate, or more than inflation, one should be able to deliver real benchmarkable improvements in public services. Yet, in his budget speech, the Minister did not set out what those improvements would be and conveniently, he cannot be benchmarked against them. Most people will probably be worse off by this time next year as a consequence of this budget. According to the Minister's figures income tax changes will give an extra €2 to €22 per week to every taxpayer. It is pretty clear, however, that these increases will be wiped out, initially by inflation. I note the inflation target has been revised upwards by the Minister as a consequence of the budget. Motor taxes will increase by 10% and there are increases in hospital and accident and emergency charges. There will be increases in the excise duty on cheques and in the cost of medicines through raising the thresholds of the drug payments scheme, DPS. Some 750,000 people will be paying the higher rate of income tax of 41%. That is more than the one fifth of income earners suggested by the Taoiseach this morning. In fact someone who earns €13 more than the average industrial wage will be paying the higher rate of income tax. Anyone with a sense of justice can see how unfair it is for people on relatively modest incomes — families on €65,000, single people on €35,000 — to be faced with paying the higher 41% rate of income tax.

It is obvious that any attempt to drive public sector reform is missing from the budget. Take for example the 7% to 8% increase offered in the case of the HSE. The HSE could not deliver the same level of service this year as it did last year with 11% and 12% increases. How will it manage on a 7% to 8% increase without insisting on real reform? Something fundamental is missing in the budget too, namely the provision for the inflation rate in public sector pay rises that will happen as a result of social partnership. Also, where is the provision for the benchmarking increases? Many people such as SIPTU president, Mr. Jack O'Connor and other union leaders expect their members will do very well out of benchmarking, and yet according to the budget secondary school teachers' salaries will only rise by 5%. Given that a new secondary school is being built in my area and a number are under construction around the country, I do not see how the Minister, with a 5% provision, can deliver the benchmarking pay increases he promised — and should not deliver, by the way — and also provide for new teachers. The same argument applies to the Defence Forces, with 6%, the HSE with 4% and the Minister's Department, with 4%. Either people will have to take a pay cut in real terms or alternatively, these figures are not real at all. In the event, we will see Supplementary Estimates and overruns later in the year as the Government is forced to pay out and increase the public sector pay bill yet again.

A few areas where spending did not need to be increased deserve to be commented on. For example, in the enterprise and employment area, there is an 11% increase for the Competition Authority. I support and am enthusiastic about the work of the Competition Authority, but what is the point in giving a body such as that an 11% increase in the budget if the Government ignores all its reports? Either it takes the Competition Authority seriously and increases its budget, or if not, its budget should not be increased. The same argument applies to FÁS, where €800 million is being spent. There is very little evidence that many of its initiatives are training schemes at all. There is little evidence that many of the training schemes actually move people into employment. Why was there not a full audit of how FÁS spends its money before agreeing to an increase?

As regards welfare, everyone welcomes the increases in pensions and I acknowledge what the Government has done in this regard in particular. However, there are large numbers of people in the State who do not need to be on welfare. If one takes the example of the Nordic countries, Norway, Finland and Denmark in particular, labour force participation excluding women in the home — I appreciate that in Nordic countries more women are in paid work — is much higher than in Ireland, because they do not have large numbers of people on invalidity and long-term unemployment benefit. In many cases people are on those benefits quite dubiously as it is decided they have a certain illness and they are effectively just written off because of social partnership and Government policy. They are just given €200 a week or whatever and forgotten about. Instead, we should be assisting people who can work by giving them the skills they need, using a carrot and stick approach, admittedly, to lift them out of poverty and welfare, giving the opportunity — and requirement — if they can work, to properly enter the workforce. In this way we can save money, create wealth and expand the labour force. Why do we accept that a country as wealthy as ours and an economy so strong should have so many people living on welfare? Certainly, there are people who need to be on welfare, but there are many who do not. It is not that people in Denmark or Norway are somehow sicker or more disabled than Irish people. There is a serious problem with our welfare system and there is no attempt to reform it.

Obviously we welcome the changes in stamp duty, although they are somewhat late. I have a real concern, however, as regards the Tánaiste's ability to become a Taoiseach. One needs a strong person as Taoiseach in this State, someone who will stick by his or her principles and not fall over when coming under pressure from the Opposition, the Sunday Independent and the builders. Deputy Cowen has not taken many stands in his political career, but stamp duty was one of them. Yet, when he came under pressure he showed that he could buckle and that is not an encouraging sign for a potential Taoiseach who must face much more difficult challenges than those we have seen in the last ten years.

I want to mention some of the things Fine Gael would do differently, and that is crucial in this debate. Had we been in power up to now, we should have kept public spending under control and not allowed it to rise by 11% and 12% in the last few years. We did that when we were in power on the last occasion. Our tax reductions would have been much more restrained than Deputy Cowen's and as a result we would have built a much larger surplus, one that would now be used to stimulate the economy, instead of what the Minister is doing, namely, borrowing enormous amounts of money to provide such economic stimulus.

We would bring about real public sector reform, setting a 2% efficiency target similar to the UK, where efficiencies were squeezed and the numbers in administrative positions were reduced by 15%. As a result real improvements were delivered at the frontline in terms of nurses, teachers and policemen. We would change the way the budget works. Currently, each agency calculates how much it spent last year, works out how much it needs for next year and then gets an increase. One should start with zero. We would defer the pay hikes to the high earners in the public sector until they agreed efficiency targets and only give extra funds to Ministers who say what they will deliver with the money. They would not get any more money if they did not deliver. We would have a root and branch reform of quangos. A total of 450 quangos now exist, all of which have chief executives and press offices, and many of their reports are unnecessary. We would also involve the private sector in delivering some of the capital investment on a design, build and operate basis. This is the divergence in economic policy between the two parties in this House. The time has come for reform and we need a reforming Minister for Finance, not somebody who takes the easy options as the Minister did.

See this speech in context