Willie Penrose (Longford-Westmeath, Labour)

I congratulate Deputy English and the Fine Gael Party on tabling this timely motion. We have had numerous debates in the House on the matter. We are speaking during the worst economic crisis since the Great Depression and the worst banking crisis in a century. We recognise this is a global crisis and requires a global solution. We in Ireland are fortunate to be participants in the eurozone. If we were not in the EU we would now be like Iceland, which is totally bankrupt, reliant on a bailout from the International Monetary Fund and with people getting extremely angry.

Over the past decade the Government has reduced taxes and increased public spending as if it believed the boom would last forever. When Labour was last in office and Deputy Quinn was Minister for Finance, growth in public spending was 7.25% and inflation was 2%, slightly below inflation in the rest of the EU. Between 1998 and 2001 public spending increased by 80%. This increase occurred as we were approaching full employment which led to our inflation rate rising to 4.2%, twice the rate of our EU partners in that period. The motion zones in upon this important point. Price inflation inevitably led to wage inflation which in turn eroded our competitiveness. Between 2002 and 2007 the volume of world trade increased by 50% while the volume of Irish exports of goods rose by only 10%. Our earnings from exports of goods have stagnated since 2002 and were it not for exports of services and an inflow of investment income we might have a balance of trade deficit.

I disagree with the Minister of State, Deputy McGuinness, on this point. The level to which public spending was increased was not the problem as there was a desperate need for most of the increases in spending. The problem was that the increase occurred so rapidly, with little assessment of value for money in many cases and that the spending was not funded by sustainable tax revenue. Now that the economy is in recession there is a panic-stricken attempt to suggest that we have a huge and inefficient public sector that we cannot afford. As several reports have shown, Ireland's public sector is small compared with other EU countries and is not as inefficient as it is being portrayed. I fully accept there is some waste and inefficiency in some areas but even a hyper-efficient system cannot deliver services similar to those in the most developed EU countries from spending what is a much smaller share of GDP.

We need a reasoned debate on the public sector, what we expect from it and what we are willing to pay for it. We must accept that we cannot have European-style social services and a US-style tax system. Deputy Costello will speak about the accident and emergency unit charges and the impact they have. I congratulate him on his long-running campaign on the Mater Hospital in which he has been to the forefront in trying to ensure people get a decent and sustainable service. That is where public service money should be spent to ensure people have equity of access and treatment in the health system. The Labour Party is focused on getting good value for the money spent on public services.

The recent budget was a very ham-fisted attempt to reduce spending while the tax increases are unlikely to bring in enough revenue to significantly reduce the deficit. A recent TNS/MRBI poll showed that those hit hardest by the budget were those on lower incomes with more than 70% of working-class and working respondents saying the budget was too tough while only 51% of middle-class families had this view.

Export-led growth, which is the only sustainable growth for an open economy like ours, has slowed to a trickle since 2001. Most people did not notice the end of this growth because it was replaced by the property boom. An increase in population led to increased demand for housing which fuelled a construction boom which required more immigrant workers who needed more houses to live in. That was a cycle which any economist not in the pay of the building industry or the banks could have predicted would end in a drastic slump. The continuation and expansion of tax incentives for the building industry long after it was clear they were no longer necessary led to building and construction growing to 13% of GDP when the average for the rest of the EU was 5%.

The survival of viable and potentially viable small and medium businesses is now threatened by the unwillingness of banks to lend, not because the businesses are at risk of failure but because the banks are desperately trying to attract deposits rather than give loans.

What needs to be done to get the economy out of this crisis? The first thing to be done is to recall Einstein's famous observation that we cannot use the thinking that created the problem to solve it. As the present Government and its predecessors have squandered so much of the fruits of the boom the options available are limited and some of the measures announced recently may make matters worse rather than better. The Government has increased VAT just as the UK has reduced it, giving shoppers an even greater incentive to shop in Northern Ireland. We then have nauseating appeals to "patriotism" in consumers by a Government which has allowed the cost of living for lower income families to rise through the various charges Deputy Costello will outline while setting up a tax regime over the years that enabled many of the super wealthy to pay no tax at all.

Several local authorities are increasing commercial rates at a time when many small and medium businesses are struggling to survive. The Government has left many local authorities short of income with local authority workers being laid off. I note that Westmeath County Council is facing a reduction of €13 million and the council will struggle to maintain those in permanent employment. Commercial businesses face enough threats without commercial rates being added. Many people will be at their wits' end trying to pay the existing service charges. I call on the Government to increase the allocation to local authorities to ensure they will not be levying such rates on small businesses.

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