Noel Dempsey (Meath West, Fianna Fail)

My script will be available for circulation to Members. Challenging decisions lie ahead and the immediate task facing Government and consistent with our plan is to address difficulties in the public finances, as they continue to emerge, while positioning the economy to benefit as the global economy improves. We are all well aware that both the domestic and international economic environments have deteriorated dramatically over a short period of time. Ireland, along with almost every other country in the world, is now confronting major challenges. We need to remain flexible and respond swiftly to these challenges as they emerge. Global economic activity will contract by between 0.5% and 1% this year, according to the IMF. This would be the first decline in activity in 60 years. For advanced countries — which constitute a large part of our export market — the situation is even worse; GDP is projected to decline by more than 3% in these countries this year.

The effects on world economic activity as a result of the deterioration in global financial market conditions have proven to be worse than anticipated and in many regions the economic data which have become available in recent weeks have been overwhelmingly negative. Clearly, Ireland cannot be immune from these developments. At the same time, the changing global environment has been also associated with major exchange rate re-alignments, the most notable from our perspective being the very significant depreciation of sterling, which has exacerbated the deterioration of our cost competitiveness. On the domestic front, the ongoing correction in the house building sector continues to spread to the rest of the economy. Unemployment has risen sharply, tax receipts have continued to decline and confidence has plummeted. Last week's retail sales figures relating to January were extremely disappointing and give an illustration — if one were needed — of the scale of the uncertainty currently prevailing.

The current indications are that activity in Ireland could contract around 6.5% this year. This contraction in GDP is having a very significant impact on our resources and on what we can afford to do. It is worth reminding ourselves of the strengths which have underpinned Ireland's recent economic performance — several of which remain supportive and will help position us to take advantage of the global recovery as it emerges. Our economy remains flexible and resilient which will help facilitate a more rapid adjustment than would otherwise be the case, and we are already seeing wage cuts in many sectors.

We are also in the fortunate position of having a low public debt burden. This will inevitably change in current circumstances but the low level to which we brought the debt in the past two decades is very helpful and gives us additional flexibility. In addition, our labour force continues to be highly skilled and we are continuing to invest in education at all levels to ensure we have the skills demanded by our increasingly knowledge-intensive economy.

As a small trading economy, sustainable improvements in Irish living standards can be achieved only by supplying goods and services to the wider global economy. The Government's over-riding objective is to position the economy in order to be able to exploit that global recovery when it emerges. This is the reason we are taking action to put the public finances on a more sustainable path, to get credit flowing, and to improve competitiveness. This is the precise plan we have been following. We must also bear in mind that when one considers the scale of fiscal, and perhaps more important, monetary stimulus that is being implemented in many key regions, global recovery could potentially arise more rapidly than currently foreseen. We must have our house in order in order that we can suitably benefit should this be the case.

The open nature of our economy has meant that international attention is now concentrated on Ireland. The markets, on which we are dependent for borrowing, need to have confidence that we can address our own difficulties. To build this confidence, we now need to take the appropriate budgetary measures to restore the public finances to a sustainable footing. Our debt servicing costs have been low as a share of tax revenue and while they will rise over the next few years reflecting the increased debt needed and market conditions, we do not want to return to the bad old days where more and more of our tax revenue went in simply servicing our debts.

We cannot look outward for solutions; the primary source of our recovery must be found within. This Government is determined to find the solutions necessary to renew and revitalise the Irish economy. Restoring our domestic cost competitiveness is key to positioning ourselves for the future. We will ensure the proper policies are in place. All options have to be examined in that context and everything must be on the table for review. Action has been already taken and it is worth recalling that the scale and severity of the international downturn has meant that many Governments are continually adapting and revising their responses as the recession deepens.

Last July the Government acted by announcing spending cuts of €400 million effective for 2008 and €1billion in 2009. This was followed by the introduction in the budget in October 2008 of additional revenue raising measures of close to €2 billion. We set a vision for the future with our document, Building Ireland's Smart Economy, in December 2008. In early January 2009, the Government set a five year framework to restore order to the public finances. This plan was accepted and welcomed by the European Commission and supported by the President of the European Central Bank when he visited Ireland recently. In February 2009, in line with the framework, a series of measures to secure further savings of up to €2 billion on a full year basis were put in place.

We are steadfastly committed to sustainable public finances. The decisive actions taken to date underline that commitment as well as demonstrating the very difficult trading situation we are currently in, with the position changing on an almost daily basis. Last month's Exchequer returns show that tax revenues for the first two months of the year are one quarter less than what was collected in the same period last year. Taxes are down right across the board. Expenditure pressures are also arising and higher numbers out of work are adding to the cost of the live register. A deterioration of this magnitude cannot go unanswered and the Government will announce further necessary measures on 7 April next, involving the introduction of additional taxation and expenditure measures in 2009 to ensure the general Government deficit this year is managed. In doing so, the Government has looked to find cross-party support for our efforts to address the difficulties in the public finances. The Minister for Finance has engaged in an open way with the Opposition by arranging for officials to brief the main Opposition spokespersons on the latest available figures and on the emerging position. The social partners have been also included in this process. The Opposition has been also asked to submit any proposals they may have to the Department of Finance for costing by officials.

The fiscal strategy to be adopted now will underpin the future recovery of the Irish economy. All sides of the House have a role to play in supporting the efforts of the Government in dealing with this unprecedented downturn. Future decisions will continue to be informed by the Government's framework for sustainable economic renewal, published in December, which provides a blueprint to best position the economy to benefit when the international environment begins to improve. Innovation, research and development, environmental and energy-related product and services development, critical infrastructure investment, employment-intensive supports and public sector reform are all key strategies contained within the framework to achieve this objective.

On the issue of banking, we have acted resolutely but must face the reality that the reputation of the sector and our economy has been damaged by the actions of some of our bankers and clear regulatory failures. In line with the fifth point of our plan, which is, to restore Ireland's international reputation, we have acted decisively and the Minister will shortly announce the details of radical reform of the system and methods of financial supervision and regulation in this country. It is imperative that our international standing and reputation in the global financial services community is restored. We are determined to ensure that the regulatory framework for financial services in Ireland meets the Government's triple objectives of maintaining a stable and sound financial system, having effective and efficient supervision of the financial sector, and safeguarding the interests of consumers. The Government's approach has been structured and considered. It has been informed throughout by advice from and in consultation with the Central Bank and the Financial Services Authority of Ireland, the National Treasury Management Agency and legal and financial advisers. In addition, the Government will continue to have regard to discussions with the EU and to agreed principles at EU level. Our approach to the banking crisis has been based on three broad principles, namely, protecting depositors and creditors and overall financial stability by protecting systemically important financial institutions; ensuring the flow of credit to the real economy; and any State involvement in financial institutions will protect taxpayers' interests.

The Government will introduce new structures for banking regulation and provide for the integration of Central Bank responsibilities with the regulatory and supervisory functions, new standards of corporate governance and a new approach to enhance consumer protection. These changes will restore our reputation and be consistent with the emerging international agenda for reform in the financial services sector. Structural changes and a substantial increase in regulatory capacity will lead to a more effective and efficient financial services regulatory system which will be aligned to best international standards.

For the supplementary budget the Government has a number of key messages to deliver demonstrating a coherent and effective strategy to achieve the full revitalisation and renewal of the economy: Government action on the public finances is being taken in response to the continued deterioration of economic conditions; the supplementary budget will contain measures to control public spending and increase tax revenues; it will reaffirm the commitment to bring the current budget to surplus by 2013; Government borrowing will be increased but will remain at a manageable level; our regulatory and supervisory structures will be reformed, thereby restoring the reputation of the Irish financial services sector; and, through the actions to be taken in the budget, the Government will demonstrate its firm intention to address the difficulties both in the public finances and in the Irish financial services regulatory system.

The restoration of the public finances to a stable and sustainable footing and the revitalisation of the economy are challenges the Government will address successfully. The exact details of the Government's plan for the necessary fiscal adjustments will be unveiled on 7 April. Above all else, the decisions will be taken in a fair and equitable manner, while protecting the most vulnerable in society. The measures to be taken will require us to act firmly in the national interest. Those who can bear the greatest burden will be asked to do so. In this manner the measures taken will address our cost base, improve our competitiveness, reorientate the economy towards innovation and export-led growth in a fair and equitable manner. The Government will set out a clear and successful strategy to deal with the public finances, the economy and address the difficulties that have emerged in the public finances.

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