Eamon Ryan (Dublin South, Green Party)

There is no doubt that we are at an unprecedented point of crisis. I would like to draw attention to various aspects of the crisis, with specific reference to the useful work done by National Economic and Social Council. I am aware that a number of Deputies referred to the council's report, which was published recently, in their contributions. The approach advocated by the council in its timely report involves an integrated national response to this crisis. People are looking for simple reassurance from this Parliament. They want to know that Members on all sides, as leaders of the people, have a plan to get us through this unprecedented crisis. I believe we have such a plan and we will get through this crisis. An integrated approach is needed if we are to tackle the banking crisis, the crisis in the public finances, our crisis of economic competitiveness, our social crisis and our reputational crisis, as set out in the National Economic and Social Council's report. I would like to address each of those five areas in the ten minutes available to me.

I mentioned the banking crisis first because we are, first and foremost, in the middle of an unprecedented global financial crisis that has developed in the past 30 years. The roots of this crisis go back to changes in the political system 30 years ago that allowed for a change in the economic and banking system with the emergence of a market-based philosophy, a belief that markets would self-correct and would manage themselves, that they required light regulation, that the new financial system could overcome any economic difficulties that would be encountered and would provide a sound basis for future economic growth. That model is shattered. It is seen now to have completely failed. Those markets were not able to self-regulate and the normal human instinct to lose the run of oneself, to increase the level of credit beyond that which was in any way sustainable, has occurred across the globe and will, regardless of what we do, require us to manage a remarkable contraction. Inevitable and unavoidably, that credit which was spectacularly beyond the measure of what would be proper, that expansion in money supply, must contract on a global basis and we, as an open economy dependent on a buoyant international global economy, must manage that contraction carefully.

We have a particular problem in that regard. While we did not get caught up in purchasing some of the worst type of toxic debt, such as the internationally-traded securities that had no real value, we made a fundamental error in our banking system, only in the past three or four years and particularly from 2004 to 2006, I would argue, when the property bubble or price increases here went beyond what had been caused by supply-demand imbalance to where people were merely chasing out of either fear or greed. It may have been fear that they had to buy property because the market would continue to rise and they would not be able to afford it at any point, or else greed on the basis that it would forever rise and people wanted to get into that market to profit from it. It is that greed, and particularly that lack of foresight in our banking system which lent ridiculous amounts of money for commercial and residential property speculation, which is our particular difficulty that we must manage.

We can manage it. It is largely within our own shores, unlike the tulip bubble or the South Sea bubble of the past. It is in south Dublin and in the towns and villages of Ireland where there are land banks and properties that we now must manage, and we can do that over a proper timeframe. That is why the Government's approach, in commissioning Dr. Peter Bacon to look at a range of options in terms of how we can manage these assets on the back of the guarantee that has been introduced, will allow us to manage our finances through this period. This is particularly the case because we are backed up by a European currency which gives us the strength and stability in what would otherwise be an impossible situation to manage, while recognising that the euro and access to cheap money at a time when we had such fast growth was actually the cause of the problem in the first place. It was that access to cheap money which did not involve a currency risk. We were able to get money in from Germany and there spectacular growth. According to the National Economic and Social Council's report, this expanded in the short period of between 2004 and 2006 beyond what was in any way sustainable. That is the mistake or fundamental problem we must manage. It is of a large scale but it is manageable by ourselves over time.

The second issue we must manage, which is a consequence of that, is the contraction in our public finances. The simple fundamental flaw in the taxation system was that it became too dependent on revenues based on the construction industry and house-selling, be it from stamp duty, VAT from the construction industry, or the employment or other taxes that came out of it. That structural imbalance is what we must address today, next autumn when we produce a further budget and in the following two or three years.

The majority of the response must be a widening of the tax base, and I believe it should be a widening away from a concentration on taxation on income as the response to this but towards taxation on resources which give us long-term benefits in terms of how we develop as a society. We need, as the report states, short-term solutions that have a long-term logic and broadening our tax base to bring it closer to what exists in other northern European countries to which, in truth, we are closer as an economy must be the outcome of the next three to four years planning by the politicians in this House. In the interim, we will have to address the short-term deficit with further taxation and cuts in expenditure in the next two weeks. That is what the Government is doing, sitting down and trying to establish what is the best way to make that first short-term response.

There will be criticisms outside that there has been a series of events, such as the public service pension levy. Perhaps people in the public service felt that was unfair because they were the only ones suffering. However, last October people felt the withdrawal of the medical cards — subsequently reintroduced — was unfair because they were the ones bearing the unnecessary burden. The way those measures were introduced is a difficulty, but it was a response based on the need to react to an evolving situation, and it is still not easy to do that. It will never be easy for us to withdraw services that have been introduced or to introduce new taxes, but that is what must be done.

An example of how difficult that is, and why it takes a series of changes rather than being able to do it in one fell swoop last July when we first had to start making adjustments, was highlighted in the House this morning when we had two completely different and, it can be argued, equally valid approaches. One from Fine Gael, to paraphrase Deputy Kenny if I can, stated that we should be going in hard, that we need to make greater cuts at this time, as was stated at the time of the October budget. The Labour Party held an equally valid alternative position, stating that one should not deflate the economy too much and one should not make cuts. They are valid arguments.

The Government, in the extensive Cabinet meetings that are taking place this week and as it did earlier this year and in October and July last year, is trying to work through what is the best balanced approach to take that will not further increase unemployment or further deflate an economy that is deflating because of the contraction in the construction industry, the problems in the global capital markets and the global economy, but at the same time consider what changes we can make that will give confidence that we are bringing our public finances onto a path that leads us back to a 3% Government deficit in 2013.

The key is for politics is to lead now with new economics. Perhaps for the past 30 years we have allowed economic market philosophy to determine politics. It is the opposite now. We need a new politics which determines the economics. It is an economics or business model which is not the fast-buck model where one can make a 20% return in a year or experience 20% growth, as the banks were looking at over the past five years. It is one that will not repeat the mistakes in the banks of such massive pay differentials. It is remarkable that those individuals, particularly in the banks and building societies — mutual societies — have so little shame about the model they adopted of self-aggrandisement rather than the proper practice in banking of prudence, security and strength.

We need a new business model that is not based on such wide pay differentials. We need one that is green because we must trade our way out of this and sell to the rest of the world; that is what the world will need and we can do it. In providing that economic and business model, we can provide what the report calls for, a sense of common purpose for our people that in solving this problem we have a task in which we can all take part, that in a collective response we will succeed and get out of it, and we will be better people for it.

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