Joan Burton (Dublin West, Labour)

Why does the Minister not consider an equity stake by the State in the banks? This would provide the basis for a job retention strategy, but would more importantly provide the capacity to get credit flowing to small, medium and large businesses around the country.

Does the Finance Bill 2008 help or hinder the economy? As the Labour Party finance spokesperson, I want a budget that helps to stimulate the economy, stems job losses and gets people who have already lost their jobs back to work. I want to see Irish businesses, big and small, regaining confidence that their bank will be open for business and that the Government will be an agent of positive help as we face perilous economic conditions. Governments around the world are reflating their economies and reforming their banks to give fresh hope to their people, but our Government is confirming a deflationary strategy in this Bill which will cost jobs and destroy confidence.

In today's Bill, the Minister is proposing to increase VAT by 0.5% to an astronomical 21.5%. This is one of the highest rates in Europe, and only Poland at 22% and Sweden at 25% have higher rates. VAT will now be 6.5% above the new rate of 15% in the North and across the Irish Sea. No town north of a line from Dublin to Galway is less than 90 minutes drive to a shopping centre in the North. People go from Donegal to Derry, or from the Naul and Garristown in north County Dublin to Newry in 55 minutes. Irish retailers are hanging on by their finger nails for Christmas business and the new year sales. Many of them make most of their profit in the pre-Christmas and post-Christmas sales. This is an enormous problem for them.

The budget imposes an income levy on all income above €18,304, without any marginal relief. When the Minister considers amendments to the Bill, he should consider introducing marginal relief for older persons. The relief only applies to couples earning more than €40,000. If they earn €10 over €40,000, they will pay 1% on everything. Many older couples on age relief may have an occupational pension that would lead to an income of more than €40,000. If they earn €39,900, they will completely escape the 1% levy.

In terms of tax structuring and design, not having marginal relief is crazy. If a person earns €18,304, he or she will not have to pay the 1% levy. However, if that person's employer asks him or her to do some overtime, bringing his or her earnings up to €18,350, then he or she will be liable for the full 1% levy. We must bear in mind that we are referring here to people who are barely earning above the minimum wage. If they are asked to work on a Sunday or a bank holiday for example, their earnings will go over the limit and they will have to pay 1% on their income. This is what is known as an "employment trap", whereby workers refuse extra hours of employment because their tax position is such that their overall net position would be worsened by doing additional work. The Minister must examine this again.

I am also concerned that the budget fails to address the poverty trap for those who are in need of mortgage interest assistance. There are lots of young couples in the country paying mortgages of €1,400 to €1,600 per month. Let us take the example of such a couple, with the man working in the construction sector. If that man loses his job, he will not get any assistance with paying the mortgage from a community welfare officer. In the early years of any mortgage, most of the monthly payment is interest. In order to get assistance with that payment, his wife will also have to go on the dole. If both partners go on the dole, they will qualify for the mortgage interest subsidy after about 12 or 13 weeks, if the man in question is a self-employed construction worker. Such a couple will be forced to take up life on the dole.

This is a crazy economic strategy. The Minister must take on the banks. He must ask them what is the point of foreclosing on the homes of such couples, who are only late with their mortgage payments temporarily because of a job loss. Such couples were a good credit risk when they took out their mortgage. I am not referring here to sub-prime borrowers but to people who were viable mortgage risks a year ago but who, through no fault of their own, have now lost their jobs. It indicates an appalling lack of ideas on the part of those who drafted this budget that such situations were not even imagined. We will have banks foreclosing on houses all over the country. Who will buy those houses? Most likely, the banks will rent them back to their former occupants, who will have to stay on the dole in order to qualify for rent subsidy. This is a poverty trap that is being consciously established by the Government at present.

In this 204 page Bill, there are 21 pages dealing with one issue, which is not getting people back to work, preventing foreclosures or the like but urban parking charges. I suggest that writing those 21 pages probably cost as much as the urban parking charges will yield. We have only two pages devoted to bicycles, but apparently we will have very detailed regulations at a future date. On what planet are the Minister and his officials living? While these are worthy objectives they do not need to take up so many pages and sections of the budget at a time when the economy is in mortal peril, when tens of thousands of people have already lost their jobs and tens of thousands more are at risk of so doing. Is this the Minister's definition of change? Does he believe that this is the kind of issue upon which the Finance Bill should concentrate?

To return to the issue of VAT, it is unbelievable that when the British Chancellor, Mr. Darling is slashing UK VAT rates, our Minister for Finance is increasing the Irish rate, which is already one of the highest in Europe. The Minister should take the opportunity provided by the Finance Bill to drop his decision to increase the VAT rate by 0.5%. I found it very difficult to understand the Minister's logic on this on budget day. Does the Minister realise the extent of the administrative burden placed on businesses by a change in the rate of VAT? If a company has, for example, 100 product lines, it must make hundreds of changes for the sake of 0.5%. At a time when businesses are trying to stay afloat, not to mention the competition element vis-À-vis Northern Ireland, it does not make very much sense.

In February of this year I spoke on the last Finance Bill. I said that the time for action had come to stem rising job losses and that the Government could not afford to wait six months until unemployment was more than 5%. Ten months later, unemployment is now almost 7% but the Government forecast for the unemployment rate next year is only 7.3%. That forecast is already hopelessly out of date, with the ESRI indicating that unemployment will reach 8% relatively early next year.

The risks posed by our economic situation go far beyond statistics and percentages. The social cost of sustained economic decline will be immense. An entire generation of young people could find themselves locked out of the jobs market. The young people graduating from third level colleges at the moment, in whom we have invested so much and who have really high-quality qualifications, cannot find work here. It is back to the future and back to the 1980s, when people spoke about where in the wider world they would go for work.

Tens of thousands of people around the country are losing their jobs from building sites and factory floors. While some of those jobs will return when the economy rebounds, many will not. We must urgently put in place pathways back to employment for those who lose their jobs. We need a major programme of training and upskilling to help people acquire the transferable skills needed for 21st century jobs. If the builders of today who are losing their jobs go back into education, they can be the technicians and engineers of tomorrow. They will be able to find work in the IT sector, for example, which is experiencing shortages in certain types of skilled workers. The scourge of long-term unemployment must be public enemy number one.

The Social Welfare Bill introduced by the Minister for Social and Family Affairs, Deputy Mary Hanafin, which is a sister to this Finance Bill, withdrew child benefit for 18 year olds in full-time education, including third level. Many women in this country are parenting teenage children on their own, with the hope of sending them on to third level. I hope the Minister has given some thought to the blow that the cut in child benefit will mean to the family budget of, for example, a woman in her forties with teenage children who receives limited support from her former partner. Not only will she lose her child benefit payment, but the registration fee for third level institutions will also increase next year by €600. The woman in my example is in the PAYE sector and may well be working in the Minister's Department or some other Government agency. As the Minister knows, PAYE workers cannot qualify for grants to put their children through third level unless their income is extremely low. The parent of an 18 year child stands to lose just under €1,000 in 2009 and just under €2,000 in 2010 due to the changes to child benefit.

There are 100,000 more people on the live register now than one year ago and in one of the meanest budgets in a quarter of a century, qualifying conditions for jobseeker's benefit have been made much more difficult. The effect will be a reduction of €2,600 per year in income for those who become unemployed. I must query the logic of this, particularly in terms of reflating the economy and getting people back to work. Where is the pathway in this? We can see the punitive element clearly but how will taking €2,600 away from people help them to find another job?

Mr. Joseph Stiglitz, the Nobel Laureate for economics wrote recently:

The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.

He also went on to say — and this is why the budget and the strategy of the Government are so lacking in any dimension of hope — that if we address our economic challenges in the right way, "it will help limit global warming and may even force the realization that a truly high standard of living might entail more leisure, not just more material goods". This is the kind of revolutionary positive thinking that we need at this time. It is time to lay down a framework for a sustainable future built on economic competitiveness, environmental responsibility and social solidarity.

Investing in public transport, promoting green-tech enterprise and shifting to eco-friendly energy will stimulate the economy while providing the foundation for long-term sustainable growth. Developing the green economy now is not just smart in terms of the environment; it is good for the economy. If we invest in Government action now we can put ourselves on a path to smart green growth. Limited initiatives such as the bicycle grant scheme, the car parking scheme and the small home insulation grants are fine as small pieces in the jigsaw. They are like the taster menu one gets in a fancy restaurant. They are amuse-bouches. That is what they amount to. They are a little tasteen; they are not meant to be really serious. Protecting our environment is not an externality or an added extra. It should be our number one priority.

I welcome the Minister's decision to remove the Cinderella rule, as I dubbed it some years ago, for non-resident tax exiles. Up to now, the midnight rule, whereby non-resident tax exiles could spend a day in the State provided they left by midnight in their jet or helicopter, was a blatant opportunity for abuse. They could come back ten minutes after midnight and the day started again. This move is certainly welcome, but it really is tax justice for slow learners. Plenty of loopholes and tax shelters remain in the tax code. The Minister replied to a question only two weeks ago that the cost in 2006 of the 15 most popular tax breaks in the construction area was €464 million. He did not close the €260 million loophole that allowed developers to escape paying stamp duty. I know he has placed some restrictions in the Bill in this regard. These are welcome and we will ask him to spell them out on Committee Stage. However, our tax code needs real, meaningful reform to make sure everyone pays his or her fair share. The Minister will tell us that the Commission on Taxation will deal with the issues of reform. However, I do not hold out much hope, for two reasons. Tax justice — particularly for the PAYE sector — is not part of the commission's terms of reference; in addition, the commission is stuffed with practitioners of the dark art of tax avoidance.

The Bill contains significant measures to increase and broaden tax reliefs on research and development expenditure, including with regard to qualifying buildings. Moves in the area of research and development are welcome, particularly if we are serious about winning jobs in emerging high-tech sectors and attracting laboratory jobs to replace those being lost on factory floors. Our Nordic neighbours are streets ahead of us here, dedicating vastly greater resources to delivering a knowledge economy. The Minister promised to produce a cost-benefit analysis when introducing further tax breaks, and he should do so with regard to these and other tax break measures — for example, the exemption of companies from corporation tax for the first three years of their operation if their liabilities are below €40,000. It would be interesting to know whether the research and development measures were motivated by lobbying on behalf of a particular company. Much of it seems tailor-made for something, particularly the section dealing with buildings. Perhaps he will expand on this on Committee Stage. I support the high-tech measures but they are still not enough to get the country moving again.

Sounding a note of optimism is difficult when every day is a bad news day for the economy. Looking to the future with confidence is not easy when one has lost confidence in the Ministers running the country. I assure the Minister that people have lost confidence in his Government. It turns out that when the Minister announced the 2009 budget on 14 October, much of it was just kite flying. After a succession of own goals, he announced a series of retreats and climbdowns. I called it the boomerang budget. When the Government was asked to step up to the plate with a programme for economic recovery, it struck out.

Before the Finance Bill has even been debated, we are being told an economic plan is on the way. This is an amazing admission of the inadequacy of the Finance Bill. The Finance Bill is meant, broadly, to be the economic plan of inflows and outflows for the year. This Finance Bill will not do anything to get our economy back on track. The Government is now going back to the drawing board again in the hope that it will be third time lucky. At the very time when our economy needs a fiscal stimulus, the Government is hamstrung by its past profligacy. The forecast for a 2009 budget deficit of 6.5% of GDP already looks hopelessly optimistic, before we even reach December. All the news is that the inflow of receipts from the self-employed and similar this month appears to be less than expected. Every Minister for Finance in the Minister's seat has relied on this for a pre-budget boost.

There is a growing consensus that the Irish economy could decline by up to 4% next year, rather than the 1% forecast by the Minister on budget day. This could send the budget deficit into double figures. According to the old orthodoxies of fiscal conservatism, there is now little room for manoeuvre. Borrowing to boost the economy in the short term by investing in education and infrastructure will see us better placed to help the economy to grow over the medium term and balance the books over the long term. What we need at this point is to put money into the economy rather than taking it out. It should happen as part of a coherent, co-ordinated economic strategy. Unfortunately, the rocketing budget deficit is not part of a strategy. It is the result of economic mismanagement on an epic scale.

The UK Government is now trying to meet the challenge head-on by betting the house on a fiscal stimulus package. Does this Government have any strategy to stimulate the economy and replace some of the demand wiped out by the credit crunch? Even the small matter of the 0.5% rise in VAT will make Christmas much more difficult for our retailers. We have many jobs in the retail sector, whose business will simply go north of the Border. The Labour Party has set out the framework of a billion-euro stimulus package, the main elements of which are as follows: a significant primary and secondary school building scheme, which would put construction workers to work building new schools, refurbishing old schools and improving educational opportunities for future generations; a meaningful and comprehensive insulation scheme to retro-fit houses and schools across the country — the Minister may have heard the President-elect of the United States, Barack Obama, refer to this as winterising; and a significant investment in public transport, which would improve quality of life and increase the competitiveness and attractiveness of our city regions — key magnets for inward foreign investment — as places to invest and create jobs by ensuring our infrastructure is good enough to attract the very best international business to the country. Moreover, the €1.2 billion in development levies currently held by local authorities should be allocated for immediate use under its designated headings. Again, this would put construction workers to work building much needed community infrastructure around the country.

We must utilise new small and medium enterprise-centred credit lines from the European Investment Bank which are available. I asked the Minister a parliamentary question last week. The Tánaiste is talking to somebody. The Irish banks will not use this facility. One bank is now making inquiries, as it were. I understand the margin may not be big enough. Our enterprises are small and medium businesses. If there is a fund which 22 European countries are using to draw down a significant flow of funds, why is the Minister not proactively selling it? If the existing banks will not provide credit to businesses then we should find another mechanism by which to supply it to them.

A 4% decline in the economy next year would see it fall by more than 10% in real terms over just two years. This is the technical definition of an economic depression and would put us on the precipice of a deflationary spiral. Much as in an aeroplane, the steeper the descent, the more difficult it is to get back on an even keel.

Fianna Fáil has now been in government for eleven years. In his last two budgets as Minister for Finance, Deputy Cowen was particularly remiss in continuing to boost the construction sector and to boost the bubble in land and construction speculation. Now that this bubble has burst, unfortunately, our economic difficulties are even worse. I note that both Deputy Bertie Ahern and Charlie McCreevy and the Minister, Deputy Brian Lenihan appeared on the RTE programme about the history of Bertie. Charlie McCreevy declared that he had boosted everything and that it was wonderful. I say, good for him; he is over in Brussels. Deputy Bertie Ahern has gone and the Minister might have some justification in feeling that he has the honour of picking up the pieces but I acknowledge it is a challenging job.

We need to rebuild the economy and this includes an important role for public services. The continual devaluing of public servants could not be regarded as an economic strategy. People look for scapegoats in time of war and currently many people are of the view that the public service might be an attractive scapegoat. There are serious problems in the public service and there has been a proliferation of agencies.

There are three areas in the public service which the Minister should address immediately. The first is the bonus culture. Why should every senior public servant above a certain level automatically get a bonus? In each Department, one or two people do not get the bonus. What does this bonus culture achieve? We have seen in the case of FÁS some truly reprehensible practices, yet all the people involved continue to collect their bonus. There has been a decrease in accountability in the public service. Good public servants cannot bring the light on the quality work they do and poor public servants are not being held to account for what they do wrong or where they waste taxpayers' money. Fianna Fáil has been in government for 11 years. There is a very significant element in some Departments of public service expenditure which is essentially patronage expenditure for Fianna Fáil. FÁS is not immune from this aspect. A Minister launches a programme, a Minister commissions a study, the Minister pops up for photographs to announce the launch or to announce the programme. The report is done and the Minister pops back again for the launch of the report along with photos in the newspapers. The Minister travels up and down the west coast to give out cheques with the purpose of generating massive political patronage. This kind of political patronage seriously worries many decent public servants who have no option but to follow whatever their master, the Minister, decides. How the Minister deals with this in his own party will be a measure of how courageous he is.

The Minister plans to announce public service reform but unless we hear tomorrow about an end to the bonus culture, the patronage culture and some serious accountability by public servants, I do not anticipate much outcome from tomorrow's announcement.

See this speech in context