Enda Kenny (Mayo, Fine Gael)

The speech just given by the Taoiseach belies the reality, which is that the clear Government strategy to which he referred does not exist. Departments are not working together. The Department of Social and Family Affairs does not even collate statistics on the numbers of people looking for mortgages. The reply the Taoiseach gave to the Chairman of the Joint Committee on Climate Change and Energy Security a few minutes ago is further evidence of the fact that there is no drive on the part of the Government to deal with the possibilities of renewable energy. The Taoiseach was unable to give the House details of the current status of a Bill dealing with renewable energy and foreshore licences. Such a Bill is needed to maximise this country's potential to become a centre for the development of technology in this sector, with the ultimate aim of exporting energy from Ireland within ten years.

We are facing an economic crisis of frightening proportions. I am worried that officials in the Department of Finance, the banks, the National Treasury Management Agency and the regulatory authorities have never before faced a crisis of this scale. The Government is not leading any co-ordination between the various sectors of the Irish financial sector. That is frightening people who are losing their jobs, whose businesses are in distress or who see a bleak future for themselves. It is no exaggeration, unfortunately, to say that the bubble economy created under Fianna Fáil is imploding before our eyes. People across the country are frightened out of their wits about their prospects and those of their children. Irish retailers have endured the greatest collapse in sales since 1984. Thousands of small businesses are failing as banks pull back their credit lines. Every Deputy in this House is aware of businesses, including some that had been in operation for 30 or 40 years, that have closed in their local towns, cities and villages over recent months. Perhaps some of the newer businesses that have closed were not going to make it anyway. The scale of closure is incredible. Many closures have resulted from contracts that were signed for exceptionally high rents, or transport, energy or communications costs that were driven by Government decisions.

We are losing thousands of jobs every week. It has been estimated as being the equivalent of five Dells every month. It has been suggested that 400,000 people may be unemployed by the end of this year. Over 100,000 young families are now finding that their mortgages exceed the value of their homes. They are trapped in the negative equity trap. Hundreds, if not thousands, of people will lose their homes in 2009. I was glad to hear the Taoiseach say he is aware, at least, that people are in distress. When I addressed my party in Wexford last November, I called for banks to be instructed not to foreclose on the mortgages of people who are in distress. I suggested that arrangements like those agreed in the 1980s, when mortgages were split in two and people were encouraged to pay off half if they could, be put in place again at this time. It is exceptionally difficult for people who are out of a job, working a three-day week or facing redundancy to be in a position to pay their mortgages. I hope the Taoiseach reminds the banks that looking after such people is a priority. We do not want thousands of homes to be taken over. Private sector wages are falling for the first time in the history of the State, even though Ireland continues to be the most expensive country in Europe. Everybody has evidence of wage cuts of 10%, 15%, 20% or, in some cases, 50%, along with redundancies and the imposition of a three-day week.

The European Commission estimates that the Irish economy will decrease by 5% this year. Others have suggested that the real pace of decline is twice that. The Government's estimates were off target by €2 billion, or €500 million a week, in a four-week period coming up to Christmas. Are we sure that the scale of the crisis under discussion will not be greater than that currently projected by the Government? The Government is continuing to peddle the delusion that the scale of the problem in Ireland is replicated throughout the world. I would like the Minister for Finance to contribute to this debate by telling us where else in the world unemployment is about to double in the space of a year. Where else are living standards declining so dramatically? What other country is hiking up taxes while slashing investment in infrastructure because its public finances are in such a mess? Is the national debt of any other country about to double in the space of two years? It seems to be escalating out of control in this country, with potentially ruinous consequences for the next generation.

The frightening aspect of this problem is that the Government does not seem to have the capacity to get from the back of the curve to the front of the curve and beyond, by dealing with the scale of the problem we now face. While all countries are facing economic difficulties, few if any are facing an economic reversal on the scale of this country. Under the leadership of the Taoiseach, Ireland has been relegated from the premiership of world economies to the third division. Under the Taoiseach's economic leadership, Fianna Fáil turned the Celtic tiger into a bubble economy. It destroyed the basis of our economic and social progress. When he was in charge of the Department of Finance, we had the biggest property boom of any EU country, the highest level of personal debt, the biggest loss of national competitiveness and the biggest reliance on the construction sector to provide jobs.

The economic principles that delivered the prosperity of the Celtic tiger in the 1990s were control of costs, high productivity, export-led growth, tight budgeting and prudent regulation of the financial sector and the housing market. All these economic strengths were hard won by the people of Ireland under the leadership of previous Governments but were swiftly abandoned under the Taoiseach's leadership. Government indecision and incompetence are making the crisis even worse, and we are now in a situation where the State must borrow €55 million per day.

Last December, the Government published a strategy for economic renewal, entitled Building Ireland's Smart Economy. While it contains little that is objectionable, neither is there anything novel, visionary or coherent. Of the 125 action points in the document, only one can be counted as new, the rest being recycled promises from previous unimplemented strategies. The cut and paste mechanism worked exceptionally well. The problem is that one cannot build a smart economy with dumb decisions. The strategy does not reverse any of the major policy mistakes made by the Government in recent months which threaten to turn the current recession into a deep and sustained depression.

Among these mistakes was the 18-month delay since the Taoiseach's party was returned to government in its acknowledgement of the scale of the crisis and the failure to take any action to rein in the unsustainable growth in spending, making the adjustment now required all the more painful and severe. Another mistake was the decision last September, taken wilfully by the Government, to promise €2 billion in pay increases in 2008 and 2010 to an unreformed public service when it was already clear that this would require extra borrowing and more cuts in front line services. The Government paid out that money in the knowledge of the crisis coming down the track.

The 17 new taxes and tax increases introduced in the budget and Finance Bill will cost the average family more than €3,000 in 2009, just as consumers are already losing confidence and cutting back on spending. These tax increases will raise at total of €2 billion for the State. The hike in VAT to 21.5% since 1 December, just as the United Kingdom, including Northern Ireland, reduced its rate of VAT from 17.5% to 15% turned a steady trickle of cross-Border Christmas shoppers into a flood, with devastating consequences for Irish retailers within a broad swathe of what used to be known as the Border area.

Another mistake the Government has made is to reduce spending on infrastructure by €1 billion in 2009, just when the construction industry needs a boost because of the collapse in house-building. The former Minister of State, Mr. Tom Parlon, said yesterday that money must be provided for State investment in infrastructure so that tradesmen and crafts people can go back to work. Where is the response to the requirement for a regeneration of Limerick city? As Deputy Noonan pointed out, an investment of some €3 billion is projected, which would create thousands of job. Representatives of the construction industry say it can provide those workers in the morning.

There has been ongoing prevarication and indecision in addressing the banking crisis. It is four months since the crisis began and no actions have yet been taken to kick-start lending to credit-starved businesses. It is because of these types of decisions that domestic and international confidence in the competence of Ireland's economic management is at rock bottom, making the crisis much worse than it need be. International bond markets look at this country in the same way they look at our banks, and they have confidence in neither. The actions and inactions of the Government have done precious little to reverse that impression.

The truth is that the implosion of the bubble economy has exposed the fallacy of the Government's claims to economic management skills. This Government is the worst in 40 years and must now deal with the worst economic crisis the country has ever faced. While the Government sought all the credit for the Celtic tiger, it is now casting around to blame everybody but itself for the part it has played in this economic crisis. The Government blamed the Opposition parties for talking the economy down. To mention economic difficulties was to be guilty of national sabotage. Journalists were blamed for the bank crisis. Those who rejected the referendum on the Lisbon treaty were blamed for the loss of confidence. That treaty rejection is now playing a crucial part in the attitude of Europe towards the State. The Minister for Finance, Deputy Brian Lenihan, blamed the Irish people for the housing boom when he said:

You know, we have to be honest about this as a people. We decided as a people collectively to have this housing boom.

Now he tells us we have a thriving economy. The Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Coughlan, even sought to blame struggling families when she suggested that families seeking lower prices north of the Border were being unpatriotic.

It is clear that we cannot solve the mess in the economy and public finances created by Fianna Fáil through higher taxes on work and enterprise, stealth charges and cuts in front line services and capital spending. This is only further damaging confidence and competitiveness. I believe it was Churchill who said that any country that intends to tax itself into prosperity is like a man standing in a bucket trying to lift himself by the handle. However, I also recognise that we cannot massively borrow our way out of recession by spending on unreformed public services. Borrowing is already spiralling out of control. The news every day is critical given the cost of money and the difficulty the State will have in borrowing in the current circumstances.

On the current path, even excluding the currently unknown cost of rescuing the banks, Government borrowing will triple to at least €140 billion by 2013, up from just over €46 billion in 2007. The greatest problem is that we do not know the scale of what we have got ourselves into in regard to the banking crisis. We have not been told the assessment of liability for Anglo Irish Bank. While we strongly support the two major banks, we do not know the extent of any so-called toxic debt they may have. That is why I said during Leaders' Questions that we must separate out the banks' commercial, residential and other loans so that there will be a clear picture which will allow us to devise the clear strategy to which the Taoiseach referred. At the current level of borrowing, annual interest costs will rise to some €8 billion per annum, which is equivalent to the hospitals budget, from €1.8 billion in 2007. This assumes international markets are willing to lend us this amount of money, which is by no means clear.

The Government has set out a target of €2 billion in current spending cuts this year. Failure to achieve this target would signal to the world that this Administration does not have the political vision or strength to do what it takes to fix the public finances and the economy. This is why Fine Gael took the difficult decision of publicly recognising, in a manner the Government remains unable to do, that cutting the cost of running the public service must play a key part in a credible economic recovery package. This was outlined in detail by our spokesperson on finance, Deputy Bruton, on many occasions.

Last November, I called for a complete public sector pay freeze, including increments, to help recover competitiveness and to free up resources for investments in infrastructure which position the economy for an export-driven recovery. We will not escape this crisis unless we can trade our way out to the scale of export percentage we had in previous years. Public sector pay increases are simply wrong at a time when front line services are being cut, borrowing is spiralling out of control and wages are falling across much of the private sector. I understand that public sector workers might feel angry on hearing this message. They are not responsible for this economic crisis, the Government is. I have listened carefully to the arguments from trade unions that public sector payroll cuts would be deflationary and would make the crisis worse. On balance, however, I am of the view that a significant cut in the public sector pay bill is a vital element of protecting jobs across the economy because of the impact it would have on competitiveness, on the resources available for capital spending and on international confidence in the long-term stability of the Irish economy.

I have set out our view in terms of the public sector. Six years ago I pointed out that the then Government had a brilliant opportunity to begin a real process of public sector and public service reform with the benchmarking process, which is now costing €2 billion per year. Everybody in the country knows the extent of waste through Departments and across a whole range of sectors. This has never been examined properly by the Government. If the Taoiseach expects that it is so easy to put his focus on the public sector, the workers in that sector are the first who would recognise that they can contribute towards moving our country forward. However, the Taoiseach must point out before they do so that if they are to take pain in the same way as all others, he must have a tough but fair strategy and he must be able to point out how he intends to reform the business of the economics of running the country and the public sector in providing services for the taxpayer. He has not done that, nor has he made any reference to it. He has not faced the big decisions that need to be taken in terms of reducing public payroll costs.

Cutting the public sector pay bill is necessary but not enough. What is also needed is a credible medium-term plan to cut Government, control prices and eliminate the bureaucracy, waste and extravagance that still plagues public spending and diverts scarce resources to the wrong places. That is why Fine Gael called for radical public sector reforms to deliver 3% annual efficiency improvements in each Department, as has been achieved in Northern Ireland.

Hospitals should only be paid for what they do this year, not what they spent last year. Why should it not be the case that hospitals get more money if they treat more patients, rather than closing wards and cancelling operations when they run short of cash?

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