Brian Cowen (Laois-Offaly, Fianna Fail)

Let me say with respect to the public pay situation that the Government indicated in the budget the need for savings of 4% in payroll costs in all Departments. That is Government policy. The public pay deal contains an 11 month pay pause. In respect of a payment to be made in October of next year of 3.5%, annualised that is about a 1.1% pay increase next year. Regarding the social partnership process, taking into account all expenditure programmes and all Government expenditure to see how we can deal with the deteriorating public finance position is a matter in which the social partners will be involved in the coming weeks. I have refused to isolate the pay issue from all other issues. All expenditure must be examined in that context. We have already made provision through proposed expenditure savings of 4% in respect of pay costs for 2009 as part of the budgetary strategy. There is no change in that position and the Minister for Health and Children's comments in no way change that position.

I refer to the question on the recapitalisation of the banks. The capital adequacy ratios are set by regulators and by reference to international practice. The issue which has arisen for financial institutions is the need to examine recapitalisation not as a means of providing more working capital, but more capital for banks. That is the perception of the markets. Therefore, in an effort to assist the Irish banking system and maintain its stability, we have specifically indicated how we see recapitalisation taking place. It will be on the basis of further engagement between the Minister for Finance and the covered institutions. The response of the markets to this was helpful in that it indicated the direction in which the Government was thinking and this will continue to be its position in the coming weeks.

Part of Deputy Kenny's question related to the present state of the Irish economy, which, being one of the most open economies in the world, is affected by what is going on globally. A global recovery will be needed to effect an Irish recovery. Having listened to the European Union Heads of State and Government, all have seen a serious deterioration in their public finance positions. Ireland's has been particularly acute because an international recession has concurred with a downturn in the construction sector and other sectors of the economy to the point where it is in recession. While Ireland is not unique in this regard, we have a particular situation to resolve.

As for the question in respect of what Deputy Kenny considers to be the additional resources that came about on foot of the increased employment and activity arising from construction, between two thirds and 70% of that money went towards the reduction of the national debt. Consequently, the idea it was all used for day-to-day expenditure is incorrect. Some of it certainly was used to improve services, in improved capital expenditure and towards improving some of our day-to-day services. Why would the Government not do so? Was this not required given an historic under-investment in a range of such areas?

The level and speed of deterioration in our present position is such that we will be obliged to seek to address all those issues on the basis of a social partnership engagement that now will take place. If one seeks the emergence of a successful strategy, it is important to do so. It is not a question of the Government outsourcing its responsibilities but of the Government working with stakeholders in this society to find the necessary solutions to close the gap that has emerged because of the fall in Ireland's tax revenues in 2008 of up to 15%. This is the position. The level of reduction in tax revenues and the impact it is having on public finances is not unique to Ireland. We have particular issues and must deal with our own problems. While we do not take solace from the problems of others, it is up to us to deal with our problems in our own way through the established processes. I believe social partnership is a problem-solving, not a problem avoidance, process. This has proven to be the case in the past and I believe in it. I believe it is the way to do the job.

As for the recapitalisation of the banks, that is a policy issue with which the Government has continued to deal in a consistent manner since it brought forward the guarantee scheme. Suggestions were made from the Opposition side of the House immediately thereafter to the effect that such a measure would enhance working capital. However, it does not as it simply increases capital adequacy in the bank. When one puts more capital into a bank, it does not come out the other side in the following weeks as working capital to Irish businesses, although that contention appears to have been made. The Government must address the market perception that capital adequacy ratios in banks must be sufficient in present circumstances, which is the reason for the decision it brought forward on Sunday.

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