Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to speak in support of the Government motion on the national development plan and the economy. The sharp deterioration in the public finances during recent months was crystalised last week by the publication of the mid-year Exchequer returns. It is clear the expected shortfall of €3 billion in tax revenue poses significant challenges for the public finances and these challenges are being faced in a decisive fashion by Government. The announcement yesterday, with further details today, is intended to achieve savings in public expenditure of €1.44 billion to the end of 2009. These savings are necessary to ensure the public finances are managed on a sustainable basis.

Comparisons were made between the position we are in now and that of 1987. There is no valid comparison. The Ireland of today, by any objective measure, is unrecognisable from the country of more than 20 years ago and we will not go back to the failed approach of managing the public finances in an irresponsible fashion, thereby causing long-term damage to the economy. The steps being taken by the Taoiseach, the Minister for Finance and the Government are necessary and appropriate. International conditions will improve during the next 18 months and we must be ready to take full advantage when they materialise.

The credit crunch in the US triggered a period of sustained turbulence in international financial markets with consequences for every open economy in the world. The unprecedented surge in oil prices and the weakness of the dollar and sterling further impacted negatively on trading conditions. The sharp downturn in residential construction after years of remarkable boom has directly reduced our GDP output by several percentage points.

Against this backdrop, it is testimony to the resilience of our economy that economic output this year will be on a par with last year, give or take less than 1% in either direction, depending on what economic forecast one believes. This is in the context of our economy having doubled over the past ten years. It is vital that we keep public finances under tight control, spend wisely and target priority areas which will maintain the standard of essential public services and help restore confidence in the economy.

The 3% reduction in public sector pay by the end of 2009 which the Minister of State, Deputy Kelleher, alluded to is achievable. Managers in Departments and State agencies must step up to the plate, make difficult decisions and identify areas for efficiency improvements without affecting front-line services. It is right and proper that health and education are protected as part of this process.

Controlling public expenditure will not in itself reposition the economy for future growth. It is now clear the next budget is an important opportunity to continue with tight fiscal management and include measures to stimulate economic activity and restore confidence in the economy. The issue of confidence is a critical intangible and is having a negative impact on the economy at present. Every Deputy knows people in business, buying their first home or moving up the property ladder who are waiting for the downturn to bottom out. They have the money but they are waiting because the confidence is not there to invest at this time.

It is essential that we rebuild confidence among consumers and in the economy generally. Every initiative we take should be focussed on generating more economic activity. In making public expenditure decisions, focus should be on projects and programmes that would make a practical contribution to the economy. We must encourage investment and reward risk takers. I am disappointed to see some suggestions by commentators that we increase taxes. This would be the wrong road to go down. The burden of small and medium-sized businesses in terms of administration, regulation and costs must be addressed. We cannot have over-reliance on multinationals.

Many fundamental positives still prevail in the Irish economy, such as low levels of public debt, the low burden of direct taxation, improving infrastructure, a skilled workforce and more than 2 million people working. We must take the necessary steps to ensure that when the upturn takes place, we are well positioned to avail of it and return to a period of growth.

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