Dáil debates

Thursday, 5 February 2009

Stabilisation of the Public Finances: Motion (Resumed)

 

12:00 pm

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)

Deputy Bruton posed a vast range of questions to which I will attempt to provide answers.

It must be borne in mind that Tuesday's announcement by the Taoiseach related to a Government decision regarding financial stability in the State. This is the first decisive step towards securing our financial stability, but it builds on two earlier steps taken in October's budget and in the initial announcement last July. I appreciate that there has been much criticism of the fact that these latter steps were superseded by events because the deterioration in the public financial position was so serious. The fact remains that those earlier decisions were of great assistance.

The move in July of last year to target public expenditure and bring in the various Accounting Officers and Ministers in order that a Government decision might be made in respect of reductions began the process of financial stabilisation. That process would have been far more difficult if an initial decision of that nature had not been taken last July. It was important that this decision was taken and that a number of areas of waste and inefficiency in the public service were immediately identified. The savings envisaged in the context of that initial decision were realised last year and will continue to be realised this year. The work of the group chaired by the Minister of State, Deputy Mansergh, forms part of the process in this regard.

The budget was criticised when it was introduced. However, the Government made a number of extremely difficult decisions in respect of public expenditure which does not relate to the payroll side in the budget. Those decisions were important and essential in the context of ensuring that the various programmes delivered by the Government could be cut as much as possible and that expenditure in respect of them would be kept to the absolute minimum. As a result of these decisions, substantial savings have already been factored into the figures for public expenditure for 2009.

With the further deterioration in financial circumstances last year, the Government decided to examine and evaluate the position in January. The priority was to ensure financial stability by the taking of a decisive step in respect of payroll costs. The balance of the savings to be made as a result of the measures announced by the Government on Tuesday last relates to such costs.

The essential purpose of the most recent decision taken by the Government is to stabilise the public finances this year. This is a vital first step. As a result of the deterioration in the public finances, there has been a major escalation in our borrowing requirement for 2009. The National Treasury Management Agency, NTMA, has sufficient funds to service the needs of the State this year and there is no immediate difficulty. However, it would be unsustainable to allow the current position to obtain, year on year, after 2009. It is essential to send out a strong signal that we intend to get our borrowing under control. That is why I briefed the European Commission on the matter at a recent bilateral meeting.

Given the scale of the problem, the Government has set a five-year framework to address it. The reality, however, is that economic prophesy for 2011, 2012 and 2013 is an extraordinarily hazardous science in present circumstances. What Ireland needs to do this year is show we can get our public expenditure under control in a decisive manner and effect a major reduction in the borrowing requirement for 2010. The decision announced by the Government on Tuesday is the first step in that direction.

On Deputy Bruton's question on small and medium size enterprises, while this is an important issue which the Government is addressing, it is not one we addressed in our decision last Tuesday because the vital decision that had to be made on Tuesday was to take decisive action to reduce the overheads of the public service. That decisive macro-economic action was needed to give Ireland credibility in the world outside and at home. I welcome the widespread welcome financial commentators have given to the announcement. It is a clear sign that everyone understands that the Government is moving in the right direction.

In regard to how we build on that in macro-economic terms, the next clear step is the work of the expenditure control group. Deputy Bruton stated the Government had outsourced decisions on expenditure control. That is far from the case. The chairman of the group is an integral part of my Department where he assists my officials and me in our work. The purpose of the expenditure control group is to strengthen the capacity of the Department of Finance in the whole business of expenditure control. The decision to invite the group to assist the Department was made so as the Estimates process for next year can begin now. This process, which, as Deputies are aware, normally beings in the middle of the year, is now beginning for next year. This will give us more time to identify the savings and adjustments which can be made as early as possible in order that current expenditure for next year is reduced to an absolute minimum.

The Deputy also asked whether it was envisaged that further savings would be made this year. If, in the course of the work of my Department and the expenditure control group, areas can be identified where immediate savings can be made, this will be done. The Government took care, in arriving at this particular decision, to ensure the sums which were indicated as savings this year were cast iron in terms of their capacity to generate savings. Clearly, if further savings emerge during the year, they will be addressed.

In stabilising the public finances it is essential that we also review our capital commitments for next year. This review process will be conducted by my officials and me in the course of the year. If capital issues arise in the course of the expenditure control group's work, they will be taken up by myself and my officials and analysed carefully. I look forward to the publication, early in the autumn, of the report of the Commission on Taxation. I hope this report will inform a public debate about how we can broaden our tax base and ensure everyone bears, in a fair manner, the adjustment which must take place. This is very important work and will be built upon in this year's budget and in terms of the taxation arrangements we put in place for 2010. There is, therefore, a determined plan of action to effect a substantial reduction in our borrowing requirement in the course of this year and leave Ireland in a much healthier position in 2010 than in 2009.

On the Deputy's specific question on credit, I explained that decisions on credit must in any event be made by the Government. As we are all aware, a worldwide credit squeeze is under way and is affecting small and medium size businesses in Ireland as much as in any other part of the world. When the capitalisation programme was announced in December the Government negotiated with the relevant financial institutions certain arrangements in regard to the advance of credit by these institutions to small and medium size businesses for agreeing mortgages and home purchase. This has not been put into operation because the capitalisation has not yet taken place. One of the reasons for this is that the markets have deteriorated since the original announcement and the banks are not in a position to raise the €1 billion they indicated they would raise by way of private investment. The banks are now engaged in intensive negotiations with the Government to finalise the capitalisation programme.

I have heard much criticism inside and outside the House about bail-outs of financial institutions. The incontestable fact is that not a solitary cent or euro of taxpayers' money has been expended to date in investment in the banking sector. The decision to nationalise Anglo Irish Bank meant that an immediate investment of €1.5 billion in that institution was averted. I am pleased to report that to date the taxpayer has not had to provide working capital for Anglo Irish Bank.

Discussions on capitalisation for Bank of Ireland and Allied Irish Banks are ongoing. I have seen criticism that these discussions have taken too much time. We have seen in other countries how capitalisation discussions have led to decisions which have had to be reversed, amended or changed with the passage of time.

For the past few weeks, I have heard a cry in the public press that some form of risk insurance should be provided for financial institutions, whereby in return for an up-front payment the Exchequer would expose itself to absorbing the losses of these institutions in future. I read this morning that the authors of the proposal, which originated in the United Kingdom, have decided not to proceed with it.

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