Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to make a contribution to this pre-budget debate in advance of what must be one of the most important statements of fiscal strategy by any Government in this country, which we will see on 7 April. It is important for a number of reasons. In my view, the budget, which will be introduced in less than two weeks' time, must achieve a number of objectives. We must restore Ireland's credibility on the international market and among investors and we must show that we are in control of our public finances. We must set out a clear, coherent and achievable plan for the next three years if we are to bring order to the public finances. We must also rebuild confidence among consumers and the business community in Ireland that we have an economic future. We must take the correct decisions now to allow us to once again return to economic prosperity. We must be set out a clear and understandable strategy that people can buy into. We, in this House, share a collective responsibility to ensure that the steps taken on 7 April are sufficient to put Ireland on the road to economic recovery, thus benefiting everyone in the country.

The current crisis is often characterised in this House and in the media as an Irish problem. That is not the case. Global trade will contract in 2009 for the first time in 60 years. That is a fact. Economies such as China, Singapore, Dubai and so on, once the shining lights of the world, are also suffering. Let us for a moment consider the profile of the Irish economy. We are a small open economy, heavily reliant on exports and international trade with a limited domestic market and a population of in excess of 4 million people. When one considers that profile, one quickly realises we are very much at the mercy of the global economic environment. It is true that we had a particular reliance on the construction sector during the boom, a boom which ended abruptly. However, we are at the mercy of international conditions and must work within that template. We cannot revert to the old model of protectionism. We must remain fully involved in international trade because the model of opening up the country, attracting inward investment and encouraging indigenous investment is what worked for us.

As public representatives, we all know that the recession in Ireland has manifested itself in a number of stark ways, including the dramatic increase in the number of people on the live register, which last month stood at 354,000. We have all seen in our constituency offices the human price being paid during this recession. There will be a sharp contraction in our economy this year, namely, in excess of 6%, with a further contraction likely in 2010. Our public finances have deteriorated rapidly, with a deficit of €20 billion or more in 2009 if corrective action is not taken immediately. As stated by Deputy Lynch, confidence has been drained. Even those who have money are not spending it because they are afraid of what is around the corner. For this reason, it is essential the strategy put forward on 7 April is credible and restores confidence among people that there is a road map to economic recovery.

We must face up to the stark reality of Ireland in 2009. As policymakers, we in Government must, as we have been doing to date, rise to the challenge on 7 April, which is a critically important day for this country. The reality is that the gap between current expenditure and tax revenue needs to be bridged. Addressing this €18 billion to €20 billion gap which is staring us in the face is too large a task to tackle in one, two or even three years. This is the reason the Government set out in its submission to the European Commission a five-year plan to return us by 2013 to the 3% deficit under the Stability and Growth Pact. In setting out that strategy, we are trying to restore credibility among the international markets and investors. The facility to borrow internationally is not one we can take for granted. We are competing with almost every other developed country in the world and do not want to be charged punitive interest rates in the bond markets because we have not demonstrated a capacity to get on top of our own affairs.

There have been some positive signs. Members may have read in today's The Irish Times that the National Treasury Management Agency raised a further €1 billion yesterday on the bond markets bringing the total raised to date to €11 billion. The Government will probably have to borrow approximately €25 billion this year. The key issue is what will be the cost of that debt. It is true that we have been paying a premium for our borrowings because of the state of our public finances. For example, the gap between the Irish and German ten year bonds widened last week to 284 basis points, its widest level in ten years. However, yesterday this returned to 249 basis points. I make that point simply to highlight the fact that there is an added cost in respect of our borrowings owing to the state of our finances, which we must get to grips with on 7 April.

We have to show that we can take the tangible steps required to get our affairs in order; otherwise, the cost of borrowing will be even greater in the months ahead. In making the fiscal correction between expenditure and revenue, we will have to strike a balance between taking the steps required and ensuring that we do not take too much out of the economy in one year, thus sending it into a complete cycle of depression which could result in the recession lasting longer than it otherwise might. We must get that balance right. A question arises as to over what period of time the deficit should be addressed. I welcome that the EU Commission has approved the Government's submission in regard to the 9.5% deficit which it hopes to achieve in 2009 and to restoring the 3% deficit by 2013.

It is important to point out that other significant players in the European Union, including Britain, France, Spain and Greece, have also been given additional time by the European Commission to correct their growing budget deficits. While general government debt in Ireland stood at 41% at the end of last year, it remains well below the 60% EU average. However, we will probably breach that percentage in the next 12 months because of the scale of deterioration in our public finances. We must borrow sensibly and we must ensure that we are not borrowing in the long term to fund current expenditure as that is simply not sustainable. There is a need for stimulus measures in the budget. We do not have the facility available to the Obama Administration of being able to print an extra trillion dollars. However, there are measures we can devise, including enterprise supports. The Acting Chairman, Deputy O'Flynn, made some positive suggestions in regard to keeping people at work. We must embrace some of those ideas. We must think outside the box if we are to get through the current difficulties.

I watched with interest George Lee's programme "How we blew the boom", which was shown on RTE during the week. While the title was provocative and created an impression of what the programme would be about, those who watched it will know it was a sensible and responsible programme. We need to put on the record how the fruits of the boom were utilised. For example, the national debt was reduced to historically low levels; we invested significantly in the National Pensions Reserve Fund, which will now be used for other purposes; we created enormous levels of employment and had 2 million at work; we invested in capital infrastructure; and we improved social welfare payments to a level not imaginable a few years ago. That is what we did during the boom. However, we are in a completely different environment now and must respond accordingly.

It is essential we remain at the heart of the European Union. The support we receive from the European Central Bank is critical to our strategy to restore our public finances and to achieve economic prosperity. For this reason, I hope people will when voting for the second time on the Lisbon treaty ensure Ireland remains at the heart of Europe, economically and politically. We must take the opportunity — it is an opportunity — presented by this recession to restore our competitiveness. We must aggressively drive down costs right across the board. If we are taking more money out of people's pockets and are reducing their disposable income, then we must, if there is not to be a relative deterioration in our quality of life, reduce the cost of living. We simply must achieve this and must emerge from this recession more competitive and in a better position to take advantage of the global upturn when it comes.

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