Brian Lenihan Jnr (Dublin West, Fianna Fail)

Capital investment, in particular, provides a significant fiscal stimulus while at the same time boosting the productive capacity of the economy and thereby providing the basis for future gains in living standards. We are also continuing to invest heavily in education, skills and training.

Productive investment in infrastructure and in the skills of the population will help us to restructure the economy to target the next wave of economic growth. The Framework for Economic Renewal launched by the Taoiseach last December sets out our agenda over the next few years of how we will re-orientate and re-prioritise the business of Government to achieve the goal of building a smart economy which will help underpin our economic future. The Government is working to reposition the economy to be able to achieve sustainable, export-led growth when the global economic climate improves.

On a more positive note, the recent interest rate reductions by the ECB — 2.25% since October — will provide some timely support to the economy. In addition, weak global demand has resulted in a sharp fall in commodity prices. Oil prices, for example, have recently fallen below $50 per barrel from their peak of nearly $150 per barrel in July last.

These and other developments have resulted in an easing of inflationary pressures. This is to be welcomed as it supports the real income of consumers. Most analysts expect inflation to turn negative in the first quarter of this year, and for the year as a whole CPI inflation will decline by approximately 1.75%. In the short term, declining prices are for the most part a positive development, although it would not be desirable to see the emergence of a position where declining prices began to feed into expectations of further price reductions.

Turning now to the issue of competitiveness, many of the contributions focused on the need for improvement in this regard. The Government is well aware of the importance of competitiveness for our economic well-being and our goal must be to maintain our position as an attractive destination for inward investment and to position the economy to be able to take advantage of the global recovery when this emerges. We must be cognisant that national competitiveness is a shared responsibility, not only of Government but of all society and the social partners. Becoming more competitive will require each of us to play our part and work together to this end.

Notwithstanding the need to underpin the sustainability of the public finances, the Government will continue to take steps to support competitiveness. In addition, the Government is prioritising productivity enhancing investment under the national development plan. Capital investment spending is being maintained at 5% of national income, which is very high by international standards. That is the real stimulus package that was maintained in the budget last year and it will assist the economy in a difficult year. Investment in education, skills and training is also being maintained at high levels in line with the Government's strategy of re-positioning the economy further along the value-added chain.

A well functioning financial system is a fundamental element for any economy and the Government has provided decisive action in this regard. The guarantee scheme, which the Government put in place on 30 September last year, continues for a period of two years. The scheme was put in place to remove any uncertainty on the part of counterparties and customers of the systemically important credit institutions. Our objective was to maintain financial stability for the benefit of depositors and businesses and in the best interests of the Irish economy.

It is generally accepted that international capital market expectations on capital levels in the banking sector have altered. Though Irish banks are capitalised above minimum European regulatory requirements, high loan provisions or write-offs, whether already acknowledged or expected in the next few years, mean that the markets expect banks to have a higher level of quality capital. This expectation was reinforced when the UK carried out its recapitalisation scheme, targeting this higher level. Other European countries have followed suit.

Significant falls in the share prices of Irish banks pointed to the belief by the capital markets that the Irish banks were undercapitalised. The Government's plan to recapitalise is intended to stabilise the Irish financial system and secure its funding base. The recapitalisation of Allied Irish Bank and Bank of Ireland announced in December last included a credit package under which the banks committed to, inter alia, providing at least an additional 10% capacity for lending to small to medium enterprises in 2009, an additional 30% capacity for lending to first-time buyers in 2009, assist householders who are in arrears on their mortgages, and introduce a €100 million fund to support environment-friendly investments in terms of reducing energy usage facilitating switching to renewable energies with a view to reducing Ireland's carbon footprint. Discussions are ongoing with the two banks on the recapitalisation, the details of which remain to be finalised. Discussions are also continuing on the capital requirements of our other financial institutions.

Everybody in this House is aware of the nationalisation of Anglo Irish Bank and the reasons for this, and I do not need to elaborate on them today. Suffice it to say that the immediate impact of the legislation, which was signed into law on Wednesday last, is to provide certainty to all of the bank's depositors and other customers, across all of its operations in Ireland and internationally, that the bank is secure and stable and will continue to conduct its business on normal terms. The day-to-day running of Anglo Irish Bank will continue as normal and all employees remain employed by the company. All borrowers from the bank remain subject to the same terms and the new board of Anglo Irish Bank will place a particular focus on ensuring that all debts are fully pursued by the bank in a commercial way, as any other bank would. The Government is committed to providing a platform for a well regulated, profitable banking industry of high repute in Ireland that operates in a national and international financial services environment.

We are in the midst of a sharp global recession the likes of which has not been seen for a very long time. The turmoil internationally has been exacerbated by a correction in the construction sector and we have seen an increase in joblessness as a result. All of this has placed significant strains on the public finances but it is also important to remember that notwithstanding current difficulties, our medium-term economic prospects remain positive and our economy has the capacity to grow once the current difficulties are overcome.

To overcome these difficulties will require a collective act of will on the part of all of us to tackle certain fundamental matters. First, we must — I pledge myself to — continue to redouble efforts to stabilise our banking and financial system in the great world financial turmoil in which it now operates. It is fundamental that we stabilise the banking system and that we ensure that it is restored as a system that provides credit to consumers and small and medium sized businesses throughout the economy.

Second, it is essential we improve our competitiveness and, as part of that, we must address the question of the public finances, the shortfall in revenue and the need to economise to ensure that Ireland can pay its way and that we as a State do not live beyond our means — that is fundamental.

While the plan submitted to the European Commission in Brussels envisages a five-year timescale, the reality is that the decisive action must be taken now, this year and in 2010 so that a credible signal is given to the international community that Ireland will sort out its problems. Ireland can sort out its problems and as a Government, we are determined that we will do so.

The announcement that will be made next week is simply an initial announcement, a clear demonstration of intent on our part. It will be followed up by the work of the expenditure control board who will advise me, and in consultation with the social partners and the Government decisions will be taken.

The Government will take firm decisions on further controls on public expenditure in the balance of this calendar year. They will lead to a better opening position on next year's Estimates. It will be essential to review both day-to-day and capital spending in that context.

When we receive the report of the Commission on Taxation, the Government and, I hope, the public generally will reflect on the nature of our tax system, note its highly progressive character and understand that the burden must be fairly shared by all——

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