Leo Varadkar (Dublin West, Fine Gael)

Over recent years, we have witnessed a classic example of "boom and bust". The Government pursued an economic policy the reverse of the one it should have pursued during the boom, which was caused by both domestic and international factors. Spending was increased and taxes were cut and the boom was fuelled at a time when a good Government would have taken the foot off the accelerator and pulled the reins a little. I accept that one or two steps were taken in this regard, for example, investment in the National Pensions Reserve Fund. However, this is the smaller picture; the bigger picture shows much more was injected into the economy in the past four budgets than was invested. I refer to the budgets of the Taoiseach, Deputy Cowen, which helped create the recession and certainly created the deficit. Spending increased at twice the rate at which the economy was growing.

Anyone who understands anything about budgeting, even household budgeting, will understand that when an economy is growing, one does not increase spending at twice the rate of economic growth. As some Members opposite stated, one or two prudent steps were taken but, in the main, the budgets of the past four years were imprudent. Had they been prudent and had spending been kept under control, increasing at a rate of no more than 5% or 6% per year, we would not have half the deficit we have today.

There are one or two good points in the budget that should be acknowledged. The increase for the schools building programme is worthy and I hope the Department will achieve better value for this money than it achieved in the past. There is a tax break for new businesses, which is welcome, and initial steps, albeit tiny, have been made towards reducing the number of State agencies and quangos. I hope these changes will be made and followed by a much greater cull.

By and large, the budget does everything it should not do. Pretty much every mistake is made in it and it is certain that it will deepen and prolong the recession and make recovery harder. They have increased taxes, which will take money from people's pockets, depress the economy further and damage consumer confidence. More than anything anyone might suggest, taking money directly from people's pockets will damage the economy, and taking it from the poor will damage it most. Instead of introducing the Lenihan levy, if the Government had increased the higher rate of income tax, it would have focused on money which would potentially have been spent on products such as foreign holidays, cars or luxuries. When money is taken from the pockets of the poor, which has happened to those on the minimum wage, pensioners and others, it applies to money which generally would have been spent in the domestic economy. This is why the tax increases in the budget make no sense.

In addition to the Lenihan levy are the VAT increases. We should cut VAT, not increase it, because this will have a damaging effect on business. I do not know whether black hair dye is included at the higher rate of VAT but even that seems to be going up in this budget. There is no increase in the tax credits, which again particularly hits those on middle to low incomes. It would have been better had the credits been increased and the bands widened if that was the choice that had to be made.

Deputy Noonan referred to the travel tax. This will do more damage to Shannon Airport than the abandonment of the Heathrow routes and will potentially kill the Ryanair operation at Shannon. If the Government had to introduce a travel tax, the better option would have been to apply it as a percentage of the airline ticket price. In this way, people flying to Hong Kong with a €300 ticket would pay more than those flying on short Ryanair flights from, for example, Shannon to Carcassonne. This was a big mistake.

We do not know how the car parking tax will work but I am sure it will increase every year if it comes in, and the same applies to the property tax. There are indications that more will follow next year, for example, that the PRSI ceiling will increase, the property tax will be expanded and the carbon levy will be introduced. All the mistakes of the 1980s are being repeated. It is sad that politicians never seem to learn from history.

The Government made a huge mistake in cutting the capital programme. It has cut back on transport and has cut back on broadband by 25%, which is a particularly bad mistake. If Ireland is to recover and if there are to be any benefits from the upturn, when it comes in five or six years, we will have to be ready to compete in the modern knowledge economy. This is why we should look to countries like South Korea, for example, where broadband speeds are 30 times faster than they are in Ireland.

If we want to make Ireland part of the new economy, where instead of being the bridge between Europe and America we become the attraction centre and the European centre of operations for Asian companies, we cannot be backward. We must invest in areas like transport and broadband. People who come here from Malaysia, South Korea or Taiwan are shocked when they arrive. Dublin Airport is a mess, there is no metro from the airport, they have to spend a fortune on taxis travelling through traffic-clogged streets and their 3G mobile phones do not work. From being a country that used to be ahead of the world ten years ago, we are falling behind at an alarming rate, which will damage prospects for future growth.

The failure to close the deficit is the worst aspect of the budget. Despite all the tax increases, cutbacks and pain, the Government is still planning to borrow more money next year than it did last year. The deficit will increase from 5.5% of GDP to 6.5% and the Government will borrow €1 billion more next year, based on its very optimistic projections that the economy will only shrink by 1% and that unemployment will only rise to 7.3%. The ESRI suggests that unemployment will rise to 8% and Davy Stockbrokers suggest the economy will shrink by3%. If the truth is halfway in between, the budget deficit next year will be €20 billion, more than the entire value of the National Pensions Reserve Fund. That is where we are heading. It would not surprise me if we are heading for a mini-budget before the summer. I will return to the issue of the deficit later.

The sad point about all the tax increases and cuts is that they did not have to be made. The Government could have followed the Fine Gael alternative budgetary proposals, among which were the scrapping of decentralisation. The Minister, Deputy Ó Cuív, stood in the House yesterday to praise himself and the fact decentralisation was continuing. I would invest in broadband and transport any day before I would invest in decentralisation. This could have been done. A windfall tax on the ESB and the other energy generators could have been introduced. The Government could have used the National Pensions Reserve Fund to invest in the economy and infrastructure.

There is no evidence yet that there is anything behind the talk. The Government talked about going after waste but there is no evidence it intends to do so. The proposed levy on the banks that will be introduced tomorrow is €500 million a year. The Minister, Deputy Brian Lenihan, in one of his many untruths, promised in the House last week that this would be charged at the commercial rate. At a conservative estimate, the commercial rate of that guarantee would be 0.5% on wholesale deposits and 0.25% on retail deposits, which would bring in €1.5 billion a year. This has not been done. If the banks could not pay €1.5 billion, that is fair enough — the Government could take equity in exchange. Instead, the Government will allow the banks to steal money from us by charging them so little for such a valuable guarantee.

The most important issue, which needs to be addressed, is that the Government failed to make decisions that had to be made in regard to public sector pay, which accounts for 60% to 70% of the current budget. Spending cannot be brought under control if the Government does not go after this. It could have done this by implementing a public sector pay freeze but it did not do so. Next year, not only will there be a 3.5% increase in August, when half a year's worth will have to be paid, all staff will also get their annual increments. For example, if I was not a Deputy — I point out I am taking the pay cut — I would still be a doctor in the HSE. I would get my annual increment in July, which is worth 2% or 3%, and I would get a pay increase in August of 3.5%. This would be on top my junior doctor's salary, which at that stage was approximately €65,000. Only in Ireland would people believe a 5.5% increase represents a pay pause. It does not. There is no public sector pay pause. It is totally phony. The Government could and should have done this. If it had, we would not need these tax increases and cutbacks.

The Government could also have stopped recruiting to the public service. I have learned that this year alone an extra 8,000 public servants have been taken on unnecessarily. If the Government had taken the hard decisions that need to be made in regard to public sector pay and the numbers in the public service, we would not have needed these tax increases and cuts. Instead of doing what was needed, the Government went after the old, the poor, the sick, the middle classes and those on the minimum wage.

The Government will not do what needs to be done, which is challenge the social partnership structure. I am not ideologically opposed or ideologically committed to social partnership. In the past, it may have been useful. In the late 1980s, certainly, unions, employers and Government came together to make decisions in the interests of the nation and to make patriotic decisions. Since then, social partnership has become something very different. It has become an industry of its own and a system by which the social partners meet on an almost annual basis to distribute the proceeds of the country's wealth among themselves. If social partnership is worth anything, it must be able to respond to the needs of the nation in times of crisis. That means the social partners agreeing to a pay freeze on this occasion.

Let us not forget who are the social partners. Social partnership is a nice term but it is a media or a PR term. The correct term for social partnership is of course corporatism or tripartitism, as it is called in Germany. The social partners are Fianna Fáil, the Government, the public sector unions and the employers, such as IBEC, the bankers, the builders and so on. Let us be honest about who the social partners are. What we demand from the builders, bankers, other employers, public service unions and Fianna Fáil is that they respond to the call to patriotism which the Minister, Deputy Brian Lenihan, made in his budget speech and agree to a pay freeze. We can then reverse these tax increases and cuts.

The deficit projections are optimistic. It is probable the deficit next year will be more than €13 billion and could be between €16 billion an €20 billion. It could be so big it will be a third of what we spend. Members opposite no longer come out with the nonsense about the fundamentals of the economy being sound. However, they liked to boast about the fact the national debt was reduced in recent years, which was correct and one of the good things done in recent years. The national debt is now 25% of our national wealth but the Government is now to reverse this trend, just as it reversed all the other gains that have been made in recent years, such as medical cards, employment and so on.

On the Government's figures, the national debt will rise to 43% of our national wealth this year but I believe it will be close to 50%. It is almost certain that by 2010 or 2011 the national debt will be a higher proportion of our GDP than when the Government came into office in 1997. Within a few months there will be more people on the live register than in 1997. Within a year the percentage of people unemployed will be higher than it was at that time. Already the stock market is lower than it was when the Government came to office in 1997. It is an appalling record that after ten years of gain the Government has managed to reverse it all in approximately two years. That would not surprise me. I have often heard Members opposite talking about Fine Gael doubling the national debt in the 1980s because it would not take the tough decisions that had to be made. It took former Taoiseach, Garrett FitzGerald, five years to double the national debt, and he was in coalition with the Labour Party. The Minister, Deputy Brian Lenihan, will do it in two years. What an appalling indictment of the Government's economic policy.

We have a budget but no plan. It is a bit of this and a bit of that, tax increases, the odd cut here and there but no overarching strategy as to how we will get the country out of the mess. What we need to is a four year plan showing how we will reduce the deficit, keep tax under control and restore competitiveness so that we can grow our way out of the recession. Thankfully for Ireland, an alternative exists. Fine Gael has an alternative set of policies and it will provide an alternative political leadership. I have no doubt the only solution, given the failure of the Members opposite will be for the public to turn to Fine Gael to fulfil our historical role, which is to clean up the mess the Government has made.

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