Eamon Gilmore (Dún Laoghaire, Labour)

I wish to share time with Deputy Penrose.

The Labour Party amendment reads:

To delete all words after "Dáil Éireann" and substitute the following:

"mindful of the deteriorating position of the Irish economy, caused primarily by the collapse in the house-building industry;

concerned in particular at the alarming increase in the number of persons on the live register;

notes that the Government's austerity package contains no measures to deal with the worsening employment crisis, and will, if anything, worsen the employment position;

calls on the Government to:

bring forward a medium-term fiscal strategy that will restore order to the public finances on a phased basis, and renew confidence in the Irish economy;

maintain investment in key economic and social areas;

bring forward proposals to offer educational and re-skilling opportunities to those losing their jobs;

maintain and enhance investment in education as the core ingredient in a knowledge economy;

ensure that necessary efficiencies are achieved without impacting on frontline services."

Yesterday, the Government announced a package of public expenditure cuts — no more and no less. Like the famous Conan Doyle story, the vital element of yesterday's announcement was the dog that did not bark. That bit was missing. What the country needs is an economic plan, what we got was a half-baked book-keeping exercise. What the country needs is a recovery package, what we got was a package of cuts. What the Government is proposing will not create a single job in the private sector. All it will do is cut jobs and services in the public sector. This is not the forward-looking strategic approach that will restore confidence in the economy, reignite growth or lay down the basis for necessary future employment. It is a crude and conservative knee-jerk reaction, part of an emerging conservative consensus that views cuts in the public sector as the solution to a recession firmly rooted in the private sector. It will do nothing for the 54,000 people who have lost their jobs in the past 12 months or those who are living in fear that they will be next.

Rather than taking decisive action to restore confidence to the economy, we have a Taoiseach and a Minister for Finance who are muddled and confused. The package they produced yesterday was long on tough talk and short on specifics. Where are the figures? Some of them were outlined by the Taoiseach, but they do not add up to the €440 million to be cut in 2008 or the €1.44 billion to be cut by the end of 2009. If the Government is going to go down the road of cutting public spending, it could at least supply the House with a set of costed proposals. Yesterday, the Taoiseach stated that the proposed 3% cut in the public pay bill would save €250 million over 18 months. From where will the other €1.19 billion come?

We are told that health and education are excluded on the one hand and that the "parameters of this exception for the health and education sector are to be agreed by the Departments concerned with the Department of Finance" on the other. Will someone please translate that? I cannot find a translation of the dialect of "official-speak" to English. It sounds as though the Government will lay off nurses and teachers, but that it is not being honest about it. If that is not the case, from where will the other €1.19 billion come? Is it to come from stealth taxes and charges? In recent weeks, we have been told that there will be no cuts, only savings and adjustments. Perhaps there will not be any charges, only negative expenditures or appropriations-in-aid. When will we see them and who will they hit?

There are proposals in yesterday's statement that are welcome, such as the curtailment in public relations spending or the reform of public procurement, although the €50 million figure attached to that measure is purely speculative. What is not speculative is the disgraceful €45 million cut in overseas aid. Has the Government no shame? Is it honestly saying that our economy is in such dire straits that we must cut aid to the poorest people in the world? Have we been reduced to that? The Government made a solemn vow to meet the 0.7% of GNP target by 2007. It broke that promise. Subsequently, it promised to meet the target by 2012, but there are now to be further cuts. When the economy was doing well, the Government stated that GNP was rising too quickly to meet the target. Now the economy is growing more slowly and there are cuts. Which is it?

On 2 December 2004, an article in The Irish Times stated:

The Minister for Finance, Brian Cowen described as "a fair effort" the €535 million ear-marked for Overseas Development Aid (ODA) next year. The Government recently admitted it would not achieve its stated target of providing 0.7 per cent of the GNP to ODA.

"The problem here is we are a victim of our own success. The growth in GNP is accelerating — thankfully — and obviously that makes it all the more difficult to reach the targets that were set."

He said by 2007 the State will be contributing some €695 million to ODA, a "significant fund by any stretch of the imagination".

"We are seventh in the world per capita in ODA funding. I do not think anyone should question the commitment of Ireland as a country through this ODA mechanism.""I am sorry we didn't make 0.7 per cent . . . had we been in recession we would have made it," he quipped.

When the Government makes promises on overseas aid, it speaks not on its own behalf, but on behalf of the Irish people to the poorest people of the world. The Government may not care about breaking its word, but it is breaking the word of the Irish people, who care.

I am not interested in engaging in a political point-scoring exercise on the economy. Several times, I have made it clear why I believe the recession is the direct result of the Government's mismanagement. However, I want to discuss how we can begin a process of recovery from our present position. To do that, we must start with an honest analysis of the problem, but the Government is refusing to do so. It insists that this situation is due to international factors. That assertion is simply untrue. When the Government does not tell the truth about the problem, it cannot get near a solution.

What is occurring in the economy? The main factor precipitating the recession is the collapse in house building and the problems besetting the broader construction sector. While international conditions are contributing to the problem and inhibiting export growth, the recession is primarily the result of the mismanagement of the property sector by the Government. This explains the mismatch between the short-term outlook for 2008 and 2009 and the medium-term outlook for 2010 and beyond. For example, the ESRI medium-term review predicted an average growth rate of 3.8% in the period 2010 to 2015. This positive long-term picture is based on the opinion that there are strong underlying fundamentals that will drive growth, particularly via services exports.

As of now, it is reasonable to consider the situation as a once-off shock that is reducing activity and employment in one sector, albeit one on which both the labour market and the Exchequer have been heavily reliant. This will reduce employment and income from that sector and will have an effect on the broader economy, primarily by dampening consumption growth.

There are other risks, such as the credit crunch, higher interest rates in response to higher international commodity prices and the competitiveness of the euro in its rise against the dollar. These are significant, but the balance of probabilities continues to be that Ireland will benefit from the resumption of growth in the international economy in 2009 or 2010. In the meantime, we can anticipate serious difficulties for the Exchequer and the labour market in 2008 and 2009. While growth is expected to resume in 2009, the worst effects in terms of unemployment and the Exchequer finances are likely to be felt in that year, with the ESRI expecting unemployment of 7% and a GGB deficit of 3.9% of GDP.

How should the Government respond? The policy emphasis should be on dealing with the jobs crisis and the real economy, not bookkeeping exercises in respect of public finances. The Government must have a strategy for the public finances, but it must also address consumer confidence, the labour market and medium-term growth. While it is important that the public finances are restored to a sustainable path, that can be done quickly or slowly. A rapid adjustment runs the risk of making the problem worse by deepening the recession. Given that Ireland's debt to income ratio is low, a more gradual restoration of the public finances is both possible and preferable. What the Government should do as a matter of urgency is propose a new set of budgetary tables showing how the public finances can be restored over approximately a three-year period.

I agree with the ESRI that the 3% deficit limit in the Stability and Growth Pact should not be treated as the Holy Grail. On the basis of the best available analysis of Ireland's medium-term prospects and given the once-off nature of the collapse in construction activity, a deficit that exceeds 3% would not necessarily be regarded as excessive. Under the terms of the revised Stability and Growth Pact, as amended in 2005, a breach of the 3% reference value need not be regarded as excessive where it is temporary and exceptional. The latter explicitly includes situations where a country experiences negative growth, as is forecast by the ESRI. In assessing whether an excessive deficit exists, the pact also has regard to a range of other factors to do with the quality of public finances. That Ireland's borrowing is entirely focused on infrastructure investment and our debt to income ratio is low qualifies us under this heading.

Yesterday, the Minister for Finance raised the shadowy spectre of people in some quarters calling for large-scale borrowing. I have heard no such proposal. The ESRI predicted a general Government deficit of 3.9% of GDP. This is hardly the end of the world, given the scale of Ireland's infrastructure needs. It is certain that with negative growth and a deficit of this order, the debt to income ratio will rise, but Ireland has no official target for its debt to income ratio.

If the Government were to come forward with a three year programme that provided for orderly adjustment of the finances, it could address any such concerns. Such an approach would make a far greater contribution to the restoration of economic competence and confidence, than the present package. All that yesterday's announcement will do is paper over the cracks and send the signal to consumers that a panicky Government is expecting much worse to come. If the Government has confidence in the economy, let it say so, and let it put forward a set of budgetary tables that show how an orderly transition can be achieved.

The Government stated yesterday there would be a review and re-focusing of capital spending. Frankly, it is amazing it cannot tell us at this point what that will mean. Certainly, there is scope for such an exercise, as there is scope for better project management in capital spending. Depending on the projects that are delayed or axed, however, this review has the potential to cause real and lasting damage. Infrastructure deficits remain a serious problem and cuts imposed now could have a substantial negative impact on future jobs and incomes. The most recent example of this was in 2002 and 2003, where capital spending was severely curtailed, particularly when adjusted for the rise in tender prices in civil engineering. This led to severe delays in the national roads programme that are still being made up.

I have made the point in the House on many occasions that this presents a significant opportunity for the Government. We all know the country needs more school accommodation, including new schools and extensions. Now is not the time to bring down the shutters on school building; now is the time to press ahead with school building programmes, providing employment to people who have lost their jobs and building the schools that Ireland will need for decades to come.

The Government announcement yesterday states, in another masterpiece of nonsense, that "further expenditure for the acquisition of accommodation for decentralisation will await detailed consideration of reports from the Decentralisation Implementation Group". If decentralisation is now part of the solution, is the Minister unable to admit it was part of the problem in the first place? Instead of more waffle, will the Minister be honest and admit the Government's decentralisation plan is now finished? It was an unachievable scheme dreamed up and presented without prior consultation by the former Minister for Finance, Charlie McCreevy. It has caused untold trouble and expense. It has disrupted the operation of the public service and it has misled local communities and towns throughout the country into believing there was some kind of economic salvation to their area at the end of a decentralised agency.

The main priority of Government should be to deal with the jobs crisis. It is simply not doing so. There are serious grounds for concern about the build-up, once again, of a problem of long-term unemployment, unless action is taken. Over the period 2001-06, employment in the construction sector increased by 100,000. This included a significant number of men with limited educational qualifications. The collapse in house building is leading to a major decline in construction employment and more can be expected to follow as the commercial property sector goes into decline next year. Any reductions in the NDP will also have an impact. Although construction will eventually come back, we should not sit around and wait for people to slip into long-term unemployment. A determined and largescale programme of upskilling is therefore required.

The Government announcement yesterday was a conservative knee-jerk reaction. It seeks to solve a recession that started in the private sector with an attack on the public sector. The implications this year will be limited. What remains unclear is what the Government means by its proposed 3% reduction in the public payroll and how that will be achieved. If it means anything, it means job losses, which is a pretty strange way to address the jobs crisis. It will have a particular impact on women, since public administration and public services have been a key driver of employment growth for women in recent years.

Labour is proposing a different approach, one that is not based on the conservative consensus. We agree the public finances must be returned to a sustainable path, within the terms of the Stability and Growth Pact, but this can be achieved over a number of years. A breach of the 3% limit this year, for example, would not necessarily be regarded as an excessive deficit, given the speed of the economic downturn, and the otherwise strong position of the public finances. The Government, therefore, should bring forward a new set of budgetary figures providing for an orderly and not a panicked adjustment. This would contribute to the restoration of confidence, both among consumers and investors.

Second, we must maintain a clear focus on future jobs and incomes by bringing forward a revised capital programme. What is needed now is a real determination to address deficits in economic and social infrastructure, delivering projects on time and on budget. What is needed is not panic, but priorities. We need to set out which projects are most urgent, based on solid assessment of costs and benefits. This cost-benefit analysis should include a strong weighting for carbon emissions. It should not be forgotten that Ireland has international obligations to reduce its carbon footprint and that there is a cash cost for not doing so. Maintaining investment in transport infrastructure is a vital element in any coherent strategy for carbon reduction in Ireland.

Third, rather than make cuts in education, Ireland should enhance investment in that area on a planned basis. Education is a major driver, both of the knowledge economy and of a more equal society. There are major deficits in Ireland's educational system, from literacy, to early school leaving, to the level of achievement in science and maths. They cannot afford to wait for the Government to act. Failure to deal with these issues now will cause problems for decades to come and as I have said, now is an ideal time to start and to continue building school accommodation.

Fourth, it is essential that measures are put in place to avoid the emergence of a new group of long-term unemployed. This requires a substantial programme of investment in skills and qualifications. Re-training options at a range of levels should be put in place, with the institutes of technology and the further education sector having a key role to play.

Fifth, the Government should move, as a matter of urgency, to conclude a pay deal with both public and private sectors to restore certainty in this regard and to provide the basis for coherent fiscal planning. There is no need for the talks process to drag on for months, undermining confidence further. Let us have a deal quickly.

Those five measures would go some way to restoring confidence in the economy and to laying down the basis for economic and social progress. While no-one denies there is scope for greater efficiency in public spending, what is on offer from the Government is a knee-jerk reaction that will damage public services and do nothing to create jobs in the private sector. It is crude and it is conservative. What the country needs now is not a cuts package; what it needs is a jobs and stability package and that is what Labour is proposing.

See this speech in context