Jimmy Deenihan (Kerry North, Fine Gael)

Ireland is having a deeper recession than any other eurozone country. The economy shrank by about 2.5% in 2008 and may contract by another 6.5% this year. Unemployment has jumped from 5% to 10.4% which is a faster rise than in America. Ireland's banks are still in a state of turmoil and there has not been the expected major restructuring of the banks when the House issued the guarantee before last Christmas. As is the case with Anglo Irish Bank, the same people are running the banks as were doing so before. The major restructuring did not take place and, as has been mentioned by previous speakers, the revenue flow has not been made available to small and medium business. This is a significant issue because no matter what the banks say, it is not business as usual. The rising unemployment figure which could definitely go to 400,000 by the end of the year — I hope it will not — affects communities across the country. We will be facing the major issue of the public finances on 7 April when the Government will introduce an emergency budget. This is the fourth attempt in the past year to deal with the issue of the public finances.

It may be helpful to take an overview of what has happened in the past 20 years. Between 1990 and 2007, the economy grew by an annual average of 6.5%. Ireland's expansion had two phases with the first being led by exports and powered by foreign direct investment and which ended in 2002. This phase was also powered by EU Structural Funds as a significant contribution from 1994 to 1999. This pump-primed the economy and led to major infrastructural projects for which the EU has never been given full recognition because politicians were not too forthcoming in acknowledging that this money came from EU funds.

In that period, mainly American foreign companies such as Intel, Hewlett Packard, Apple and others, provided considerable capital and know-how. They provided the well-paid jobs that contributed so much revenue to the economy. At one stage, Dell was contributing approximately 10% of our tax revenue. During that time, there was a sale of State assets and tax amnesties were made available and which yielded a lot of money into the State coffers. The economy was going well but we were not setting down conditions when we had the opportunity to do so and which may have been able to help us now in this hour of crisis. I acknowledge the international crisis has had an effect on our economy but the Government has been in power for 12 years and it cannot escape responsibility for what has happened.

Among the reasons we attracted foreign capital investment was our young, educated, English-speaking, low cost workforce. Our State grants were very generous with a corporate tax of 10% and we were also the only English-speaking country in the eurozone. All these factors came together to make Ireland a very competitive and attractive country in which to invest.

I visited Silicon Valley in America in 1991 when I was promoting County Kerry. I explained that it cost approximately £6 an hour to employ a worker in Ireland. This was a far more competitive rate than the American rate at the time. I was in Silicon Valley last year and last March it cost $28 an hour to hire a worker in Ireland, $6 an hour in Poland and $26 in Silicon Valley. It was more expensive to employ someone here than in Silicon Valley. America is currently about 20% more competitive in employment rates than Ireland and this is posing major problems.

The other aspect of the Irish economy from 2002 onwards has been the building boom. This was fuelled by lower interest rates due to our membership of the eurozone. This is one of the advantages of being in Europe but on the other hand, it fuelled a building boom. Capital gains tax was reduced from 40% to 20%. At the time I suggested it should have been reduced from 40% to 30%, which would have been accepted by everyone. This fuelled speculation because people were making small amounts of money and moving property very fast. They were buying off the plans and before the house or apartment was built it could have changed ownership two or three times. People were making their margins. Every house built yielded about €100,000 to the Revenue and in one year a total of 90,000 units was built which equated to a total of €9 billion. This year the total might not reach 15,000 or 20,000 units so this will leave a gap of €7 billion. When the rainbow coalition left Government in 1997 there was a budget surplus but a decade later we have a deficit, which is not acceptable.

In that period under the captaincy of Charlie McCreevy who was Minister for Finance from 1997 to 2004, the size of the public service was increased. The Minister always said that when he had money he would spend it and when he did not have it he would not spend. This was his philosophy and there was a laissez-faire attitude to the economy at that time. The notion that fiscal policy should lean against the business cycle was scorned by the then Minister. Those actions in the past are not a help today. Good people applied for jobs in the public service and it is unfair that they are being attacked and targeted. It is not their fault they applied for jobs by means of public competition. However, at the same time a bureaucracy was being constructed without any hint of reform.

People are questioning our ability to dig ourselves out of our financial hole. The yield of 6% on ten-year Government bonds is way above the rates in Germany, where it is 3.2%. Both countries borrow in euro so the gap between the two is a rough guide to how Ireland is viewed by investors.

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