Brian Lenihan Jnr (Dublin West, Fianna Fail)

There is no doubt that 2009 is a very challenging year for the global economy. Ireland is very much a part of the global economy and we are experiencing an international recession of unrivalled severity, prompted in turn by the worst crisis in international financial markets in living memory. Domestic processes in the Irish economy, in particular, the ongoing contraction in the construction sector and its effect on the wider economy, compound the deterioration in international economic conditions. Consequently, GNP is forecast to decline by 4.5% this year. Unfortunately, overall employment levels will decline considerably and, as a result, unemployment, which has increased significantly in recent months, will continue to rise this year.

The deterioration in economic conditions has had a significant effect on the public finances. Due to the unprecedented pace of developments in the global and domestic economic environment, the forecasts contained in the October budget were revised in light of the end-year data. Consequently, in early January revised forecasts for 2009 and the following years to 2013 were set out in the addendum to Ireland's stability programme update, which was submitted to the European Commission on 9 January 2009.

I am happy to report that the relevant recommendation for a Council opinion was published by the Commission this morning. An inaccurate version appeared in a leading Irish newspaper this morning which is not in accordance with the terms of the opinion. The Commission has made it clear in the opinion recommended to the Council that the measures adopted by the Government in response to the downturn can be regarded as welcome and adequate, given the high deficit and sharply increasing debt position, and in line with the European economic recovery plan.

In terms of tax receipts assumed for this year, my Department expects that tax revenue of just under €37 billion will be collected in 2009. This means that revenue is expected to contract by 9.25%, thus representing a decline of about 20% from the taxes collected in 2007. Current expenditure now exceeds revenue and in simple terms this is not sustainable.

In overall terms, an Exchequer borrowing requirement of almost €20 billion is expected in 2009 not just to finance capital spending, but also to pay for current expenditure as well as the associated costs from the bank recapitalisation programme. However, it must be acknowledged that we have a low debt ratio relative to many other EU countries. At the end of 2008, general Government debt stood at 41% of GDP, well below the 60% average of our EU partners. This measure does not take account of the significant value of the National Pensions Reserve Fund — which was accumulated in better times — or the substantial cash balances held by the National Treasury Management Agency. When account is taken of these, our net debt at end-2008 was close to 20% of GDP. While this will increase in the coming years, our low level of debt has provided us with the leeway to target a restoration of balance to the public finances over a number of years. In this way, we can avoid placing too great a shock upon the system as we restore order to the public finances and re-position our economy.

Consequently, the Government has been clear in its strategy to address the difficulties in the public finances over the medium term and is strongly resolved to do so. Given the scale of the problem, we have set out a five-year framework for the consideration of the Commission on the restoration of order to the public finances. In this year's budget, I brought forward various tax measures to secure a substantial amount of additional Exchequer revenue for this year. On 3 February, the Government announced a series of measures to secure the targeted savings of up to €2 billion on a full year basis that are needed to help restore fiscal balance. The larger part of these savings is in the area of public sector pay and pension contributions, yielding savings of €1.4 billion in a full year.

These measures are focused not just on short term needs, but on the vital need to prepare the ground for economic recovery. By increasing welfare payments this year in the budget, at a time of easing inflationary pressures, we have sought to protect those less well off and those bearing the brunt of the poorer labour market conditions.

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We have also sought to maintain capital spending in real terms and redirected some of it to areas that can protect jobs. More needs to be done in a planned way in 2010, 2011 and beyond. The Government's Framework for Sustainable Economic Renewal, published before Christmas, provides the guiding light to show the way. What is now clear is that further controls on expenditure, ensuring greater value for money and additional taxation will all be required as we work our way through the five-year plan for restoring fiscal sustainability. In this regard, further budgetary decisions will be informed by the important work being conducted by the special group on public service numbers and expenditure programmes and the commission on taxation.

The budgetary strategy the Government has set out is challenging and will require that we all put our shoulders to the wheel in the national effort to deal with this unprecedented economic downturn. The fiscal position we take, especially this year and next year, is of fundamental importance to the future of the country. The stabilisation and sustainability of the public finances is an essential prerequisite to the renewal of the economy and it is for this reason that it is the primary focus of our budgetary strategy.

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