Michael Noonan (Limerick East, Fine Gael)

This is a rough budget. It is rough on the vulnerable, the poor, children, their parents and teachers. It is particularly rough on the elderly where many of the supports they had come to rely on are being removed without notice. It is also rough in its construction, showing all the signs of a hastily produced document. Many Ministers, even those with a certain competence in economic matters, were not able to explain details of the budget in either last night's or today's debates on the financial resolutions. There have been four different explanations as to how nursing home fees will be treated for tax purposes in the future, with no satisfactory explanation yet. In the late afternoon, the Minister for Health and Children, Deputy Mary Harney, was forced to back down on the 2% health levy which would now apply to the over 70s who are no longer exempt because they possess a medical card. It is a rough budget in every respect.

One reason it is rough is that its date was conceived as a public relations stunt. There is very little in it which will come into effect until 1 January 2009. There was no reason, therefore, for bringing the date forward. We could easily be debating this budget in the first week in December and it would make no difference to the fiscal position. However, after a period of inactivity since the Taoiseach was elected and throughout the summer, the Government needed to show it was in charge, in command, busy about the nation's business. So we had this public relations stroke to bring the budget forward. The stroke went sour because the budget date more or less coincided with both the domestic and international financial and banking crises. That must have put enormous pressure on the key officials, particularly those in the Department of Finance, and the key Ministers. As a consequence, we have had a roughly hewn document which was not subjected to the normal proofing and scrutiny that would apply if the budget was delivered at the normal time.

Another problem with the budget, which is based on a fallacy, is the suggestion that somehow or other the crisis is connected to the banking and financial crisis, which it is not. If the banks were as sound as the Bank of Ireland used to be in the olden days and if there was no problem in any international bank and no liquidity or credit problems anywhere in the world, Ireland would still have a major fiscal problem because revenue receipts no longer match expenditure and the gap is widening. It is a separate matter, yet Ministers have tried to wrap both issues together. They have tried to excuse their incompetence over the years by pretending that this budget and the problems it deems to address were a by-product of a wider financial crisis. They are not. This is a stand-alone crisis.

Another fallacy is that nobody saw this coming and that suddenly, in July, the ground opened under Ministers' feet and they had to introduce emergency measures before the summer recess, cutting expenditure by €400 million to balance the books for 2008. There was another cataclysm after the summer when they saw things were going wrong for 2009 so they had to advance the budget date. That is all bogus, however, because this situation was well flagged. It was flagged in this House and by economists. The then Minister for Finance, who is now the Taoiseach, did not take action because he had a political agenda within the Fianna Fáil Party. He did not want to be the Minister for Finance who had to deal with these issues, but the issue was there over 12 months ago. When the former Minister for Finance came into this House on 27 June 2007 and introduced the Finance (No. 2) Bill 2007, we told him there was an emerging deficit that needed to be bridged. The Bill contained the paltry measures he took on stamp duty after the election. I stood here on that day and saw the Minister for Defence, Deputy O'Dea, sitting beside the then Minister for Finance. I told him that the figures from the Cental Statistics Office were out and that housing starts for each month from the start of the year were down dramatically. As night follows day, if housing starts are down in 2007, housing completions will be down in 2008. I told him, and he knew, the rule of thumb was that for every 10,000 fewer housing completions, €1 billion less comes into the Exchequer. The figure was falling from 90,000 houses and was heading down to approximately 45,000. It is heading down to 25,000 for 2009. The Minister of State can do the calculations for himself.

I asked the former Minister for Finance to introduce a White Paper in the autumn to show how he would bridge the emerging fiscal deficit. In his reply, he dismissed me in the way he always treats intellectual inferiors. Of course, that would not upset anyone because in the Taoiseach's world everybody from the Fastnet to the Cliffs of Moher and up to the Giant's Causeway is an intellectual inferior so we were part of a fairly large group. The Taoiseach knew, however. He is shrewd and understands finances. He knew what I and other Deputies were talking about, but he chose not to deal with it because he was running a different political agenda.

Like all Ministers for Finance, the current Minister had three choices to bridge the gap between receipts and expenditure. He could tax, borrow or cut expenditure, and they are all connected. In my view and that of many people outside this House, he is borrowing and taxing too much, while not cutting enough. It is as simple as that. One may ask where the Minister could make more cuts, but what he is doing now is unsustainable because he is driving the country further into recession. There is no chance that we can tax, cut and borrow our way out of this problem. The only way out of this problem is to grow our way out of it. As the country goes back on a growth path, the revenue will be yielded once more that will match the expenditure we desire to make. That is the only way out of this. It was the only way out of it in the 1980s and it is the lesson of the 1990s. Unless we get the country back on that growth path again we will have no chance. Instead of going back on that growth path, however, the Minister is making things worse. In simple economic terms, if one takes €2 billion of spending power, which is the tax imposition of this budget, out of consumers' pockets and transfers it to the Government, there is a problem. That money will not be spent by consumers, which will deepen the recession. That is the difficulty the Minister is facing.

We had two phases of the Celtic tiger. The first phase was the genuine Irish fairy story, the real success story, whereby the model was based on a competitive society. Labour costs were low, there was great output and productivity by Irish workers and the cost of utilities and other facilities was competitive. We had export-led growth and were successful in manufacturing industry and internationally traded services. Our employment rate increased from about 1.1 million to over 2 million.

We then had the false model whereby we became uncompetitive and the Government drove the country by over-stimulating the building industry. That bubble has now burst so we must get back to the path of growth, which yielded results in revenue, employment and living standards which we all enjoyed. Without a strategy for growth, however, we will go nowhere. There is no such strategy in this budget, apart from one item, an increase in the provision for research and development in industry, whereby the tax credit goes from 20% to 25%. That is welcome but it stands out like a lighthouse in a bog as the single item to encourage industry back to the path of the 1990s when we had a really competitive economy based on internationally traded goods and services. That is where we have to get back to, but we are not going there with this budget. Far too much — €2 billion — is being raised in taxes and there is far too much borrowing. The borrowing levels are frightening. Over 16 months the position has deteriorated by about €20 billion, which is scary. Just because the Minister receives a standing ovation for introducing a budget, it does not mean the trajectory is stopping.

The trend is downwards, while borrowing is rising, but the budget will not stop it. It collects €2 billion extra and gives the Minister permission to borrow, but he will be borrowing about €12.5 billion in 2009. This is crazy stuff. The GDP-debt ratio was approximately 25% this year and it will be 43% next year, which is some jump. The year after it will get worse. Anybody on the Fianna Fáil backbenches who thinks this is a once-off story should think again. For reference, they might examine the Taoiseach's speech this morning in which he stated that he wants to:

establish a long-term sustainable path, whereby day-to-day expenditure corresponds to tax receipts. As tax revenues are 10% less than expected for this year, with little improvement in that position assumed for next year, that can only be done progressively over time.

The Taoiseach wants to bring the budget back into balance and suggests he will do so by taxing, making up the 10% gap by further taxes. It is in his speech that we will not have this big gap forever, but that is for the lads in Europe.

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