Martin Mansergh (Tipperary South, Fianna Fail)

I thank the House for this timely debate, and would like to add to it by commenting on competitiveness and inflation, and discussing developments in public service reform.

There is no point in denying that the economy's competitive position has disimproved in recent years and that this deterioration has been driven by a combination of factors. These include a strong euro, wage increases in excess of productivity, and a relatively high inflation rate. While here has been much talk of falling prices and negative inflation, the level of prices here stand at more than 20% above the euro area average.

Improving national competitiveness is essential if we are to successfully rebalance the economy towards sustainable, export-led growth and to maintain our attractiveness as a location for inward investment. The weakness in the international climate means that improving our export performance and repositioning ourselves further up the value chain will be a difficult task, making it all the more necessary to regain lost competitiveness. While external factors such as exchange rates have an impact on domestic costs, these are beyond our control. We must seek to control those factors which we can influence, principally wages and prices. We must also take steps to improve productivity.

In support of these objectives, and notwithstanding the need to underpin the sustainability of the public finances, the Government has and will continue to take steps to support competitiveness. These include maintaining a low burden of taxation on capital and labour. In the recent budget, the Minister for Finance reaffirmed the Government's commitment to the 12.5% rate of corporation tax, to maintaining and enhancing our pro-business tax policies, and to ensuring that Irish workers continue to face a lower tax burden than workers in other EU and OECD countries. The 12.5% rate of corporation tax has been a key component in our industrial development over the past decade. Our economic prospects are dependent on a vibrant and modern business base, and our low rate of corporation tax is essential to this. As a country, we attach a great deal of importance to tax sovereignty and tax competition. Naturally, it can cut both ways, and where to lay the emphasis in the distribution of taxation is a choice that is made differently between countries. There is likely to be a revenue flow in both directions at land borders. The decisions that individuals, families and businesses make in the light of different market signals depends on their judgment of where their best interests lie.

The Finance Bill 2008 includes a number of significant changes to the research and development tax credit scheme. These include measures to improve the delivery of the benefits of the tax credit, which removes any uncertainty about its availability to businesses. These changes should encourage further research and development activity here. The Government is also continuing to prioritise productivity enhancing investment under the national development plan. The Department of Transport will invest more than €2.8 billion of Exchequer money next year in enhancing our national road network and developing our public transport system. Yesterday, I had the pleasure of attending the opening by the Minister for Transport of the Cashel to Cullahill motorway, completing a 60 km stretch between Cullahill and Mitchelstown, which follows the opening of the Cahir to Mitchelstown motorway in July. Progress continues to be made, even in difficult times.

The Department of the Environment, Heritage and Local Government will spend €2.1 billion of Exchequer money in providing social and affordable housing, improving our water services infrastructure and other projects at local and community level. The Department of Education and Science will spend its increased capital allocation of €889 million on building schools at both primary and secondary level and on supporting the development of higher education. Furthermore, these capital projects will continue to support economic activity and will be a welcome benefit to overall investment. These measures, along with those outlined earlier by the Tánaiste for the Department of Enterprise, Trade and Employment, will equip the Irish economy with the skills, infrastructure and operating environment needed, so that we can take full advantage of the global pick-up when it emerges. They represent the stimulus that we need at the moment.

Ireland's national reform programme for 2008 to 2010 brings together a broad range of structural policies and initiatives which aim to support economic growth and employment over the medium term. The measures put forward in the programme will enhance competition in product markets and flexibility in the labour market, as well as promoting social inclusion. The highly uncertain domestic and international climate we face underpins the importance of undertaking such reforms. I am confident that the measures set out in the national reform programme will make a major contribution to the implementation of the Lisbon Agenda in Ireland, and will deliver significant benefits to the people.

National competitiveness is not solely a matter of Government policy. It is a shared responsibility of all in society and of social partnership. The Government, employers and unions must work together to secure long-term gains. Regaining our competitive position — which as a small open economy is critical to our economic success — will require each of us to play our part and work together to this end. A key aspect of this is to ensure sensible wage developments over the coming years. The willingness of the various parties to adopt a realistic approach to wage developments is needed to ensure that we address the changed economic circumstances which we now face.

A further aspect will be to ensure that where there are improvements in external factors, such as falling oil prices, interest rate cuts and a strong euro, that these are passed on promptly to consumers and business alike. The National Consumer Agency is currently carrying out a price survey on fuel costs. The agency will issue a report to the Tánaiste, which will contain the results of an examination of the wholesale costs of fuel and oil and the retail prices charged in the forecourts. The decision by the Commission for Energy Regulation — following a public consultation process — not to increase the price of electricity or gas next January is also very welcome. Working together along these lines will help to improve Ireland's competitive position in the years ahead. The current and prospective easing of inflation will also be of benefit, especially to consumers.

Ireland's inflation rate has now been below the euro area average for five consecutive months. As measured by the CPI, inflation has fallen from an annual average of 5% in June to 4% in October 2008. The recent falls in the price of oil on global markets are a welcome development from both an inflation and competitiveness perspective. Oil is currently trading at under $45 per barrel, down from almost $150 during the summer. While the timing and coverage of surveys differ, it is clear that these lower oil prices are now being reflected in prices at the pump. The latest CPI data shows that in October alone, a sizeable price decrease of 5.2% was recorded for diesel, 5% for petrol and 11% for home heating oil. Further declines are expected in the coming months.

A further significant easing in the average rate of inflation in 2009 is anticipated, due to a combination of moderating commodity prices, favourable base effects, such as the fallout of the large increases in food and oil prices that occurred in 2008, and an easing in economic activity. The recent ECB interest rate cuts will underpin an easing in the rate of CPI inflation, and provide timely support to the economy. Some commentators are now suggesting that CPI inflation could even temporarily turn negative over the course of next year. Inflation in the year to date has been driven mostly by external factors, namely, the global rise in oil and food prices and increases in mortgage interest rates. Given this, it is misleading to suggest that Government charges are significantly increasing the rate of inflation. The Government is committed to achieving a moderate rate of inflation. In light of this, when developing public policy be it at budget time or during the year due consideration is given to any potential inflationary impacts. At the current juncture, such impacts must also be balanced against the need to underpin the sustainability of the public finances.

The Government is currently in the process of looking at the public service with a view to reducing our cost base and enabling Government business to be carried out more efficiently. As part of this process, the Minister for Finance announced the establishment of a special group on public service numbers and expenditure programmes in his recent budget. This group will review the scope for reducing or refocusing the existing range of expenditure programmes. It will critically consider the number of public servants employed across all areas, in order to assess the scope for transferring staff to priority areas and for reducing total numbers, and to identify surplus staff. The overall efficiency of the public service will be examined, including ways of doing business that are out of line with the needs of a modern, responsive public service. The group will also make recommendations for the further rationalisation of State agencies beyond the measures announced in the budget, on which the Government will make the decisions.

Major savings have been achieved on public expenditure during the course of this year and projected savings have been integrated into the Estimates for 2009. More work is to be done in this regard, as in every area of public service reform. A new operations unit in the Office of Public Works designed to improve the performance of public procurement will be operational by mid-2009. Its immediate focus will be to improve value for money in public procurement, to reduce the cost of procurement to the Exchequer, as well as to seek to establish a better procurement capacity. It will aim to encourage appropriate cross-Border co-operation and in this regard, I thank the Northern Ireland Finance Minister for making one of his experts available to us at my request. A workshop with experts is scheduled to take place tomorrow. It is intended that significant benefits will accrue from the enhanced use of best practice procurement techniques, including electronic procurement and the employment of e-auctions where appropriate. This approach is already in existence to some degree.

Similar to most of the world's advanced economies, we are facing significant economic and fiscal challenges in the immediate future. In the case of a small open economy like Ireland, it is all the more important that we improve our competitive position in the difficult period ahead. If we do so, we will help to lay the foundations for recovery and future economic success. It will not be easy or pain-free to regain national competitiveness. We will all need to work together to this end. The Government has and will continue to take steps to support competitiveness and the wider economy. We are doing this while underpinning the sustainability of the public finances.

While Fine Gael is demanding more stringent borrowing levels, in general, it is also seeking a reversal of almost all unpopular Government decisions, which would further widen the gap that, in theory, it wishes to see narrowed. While I do not question the credibility of esteemed individual Deputies on the Fine Gael Front Bench, I see no evidence of an attempt to create a coherent response at local and national level to the country's difficulties. I have not seen anything that would help voters to predict what Fine Gael would do in government if it had the chance.

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