Dick Roche (Wicklow, Fianna Fail)

Ireland's economic wellbeing, indeed our economic future will be built on four pillars: a public expenditure system that is sustainable; a tax system suited to our present needs; a banking system that is functional, focused and properly regulated; and a social support system that is just and equitable. The upcoming budget must be a statement not just to the people of this country but to those who examine our economic performance, that we are serious about addressing the challenges and that we have a programme which we will put in place over the coming years to address each of these issues. Public expenditure is an area that requires special attention. Ireland's current rate of public expenditure is not sustainable. A state like any household or business cannot spend that which it does not have. It is wrong for politicians, commentators or interest group leaders to suggest that Ireland uniquely can come through the current economic maelstrom without some pain.

It is a disservice to the people who elect us to this House and who expect us to show leadership to suggest that somehow or other there is a magic formula that can be applied to our current condition. There is not and we all know that to be the case. In the context of our discussion on public expenditure, I was particularly pleased to read this morning that the Irish Congress of Trade Unions has agreed to look positively at the Taoiseach's invitation to take part in talks. At a time when our economy is faltering, I could not understand the logic of closing down the country for a day of inaction. I say this as one who has been a lifelong supporter of the trade union movement. While I fully appreciate the pressures that exist on trade union leaders, I believe that unions and Government sitting around the table with other social partners is the best way to find an appropriate way forward.

The editorial in The Irish Times yesterday said it all. It stated that the extent of the economic downturn has been so violent and dramatic that this was not a time to retreat to traditional attitudes. On the question of public expenditure there are two elements in the current deficit and this should be recognised as we discuss the extent of the gulf that has to be bridged. The first is the cyclical element and that arises when people lose their jobs or when economic activity drops, taxation revenue ceases to flow and social support costs increase. There is little that can be done in the short term to address the cyclical element of the public expenditure problem and that should be recognised.

There is, however, a second element to the deficit, namely, the structural element. The structures of our public expenditure and of our taxation system both require urgent attention. It is clear that we have entered into a new economic landscape and structural adjustments in public expenditure must be made to reflect this. Equally, we need to make structural adjustments in our taxation system. Addressing expenditure by making it clear that we have a coherent programme to address its structural deficiencies over the period ahead will send out a powerful message to our trading partners and to the international markets that we are serious about resolving the problems we currently face. Such a clear message will benefit everybody in this country. It is clear, also, that we need to make fundamental alterations in our taxation system — the tax structure that served us well in the boom times is no longer appropriate to the new conditions in which we live.

Contrary to popular myth, Ireland's current taxation system on individuals is remarkably progressive. The top earners pay most of the personal tax take and an enormous proportion of income earners are outside the tax net. These arrangements worked during the boom years, but now we are operating in an entirely different environment, and they have to be examined. Our taxation structure needs to reflect our current position and our immediate prospects. Changes will have to be made. Everybody will have to carry some of the burden but the heaviest imposition must obviously fall on those who have the greatest capacity to pay. New tax impositions must be fair. Nobody wants to pay more tax but the public will accept change if they believe the burden is being fairly distributed.

Turning away from personal taxation, it is clear that our tax system needs to be broadened. If we are to aspire to public services such as those offered in other advanced European nations, we must also look at the funding arrangements that apply there. If we are to remain the master of our own affairs in this country, we have to take the decisions that will steer our economy through the worldwide recession. That will require us taking both timely and politically difficult decisions about taxation and expenditure cuts. That is the reality that we face. It is a reality that we cannot dodge and neither should we try. As in the case of public expenditure, firm decisions on restructuring our taxation system would send out a clear signal to markets and to our international partners. As with public expenditure, the changes cannot all be achieved in the upcoming budget, but a start should be made there.

The third element I mentioned was a functioning banking system, and we should be in no doubt that the one we have is malfunctioning. We need to re-establish in the shortest possible time a functioning, credible and working banking system. In recent years leaders within our banking system have behaved shamefully. Greed has replaced logic. Basic banking rules that stood the test of time right back to the Medici family were simply torn up for a "quick buck". This was not, of course, unique to Ireland, and the global recession was triggered by the collapse of the US and other international financial sectors. The report by the French central banker, Jacques de Larosière, provides an excellent analysis of the cause of the banking and financial crisis and identifies the key issues that now need to be addressed on the supervisory front. The recommendations made in the de Larosière report need to be given careful consideration, particularly in this country and throughout the eurozone.

The report, highlights one key fact, namely, that those who argued, and some are still about, that we needed lighter regulation in the financial services industry were wrong. Regulation needs to be tightened at national level — we have to accept that there have been some appalling failures in the Irish financial regulatory system — at regional level within the European Union and at world level. In a highly globalised industry such as financial services, common regulatory systems and fundamentally sound rules must be applied universally. This again highlights the importance to Ireland of staying at the heart of the European Union and within the eurozone.

At a domestic level, we were given a very interesting insight into practices in Irish banking yesterday at an Oireachtas committee. This was the second occasion when an internal auditor from Allied Irish Bank had the courage to go on record and portray what was happening behind closed doors within the group. In considering a new regulatory regime for banking, consideration needs to be given to protecting whistleblowers from within the system. It was appalling to read yesterday that the internal auditor as part of his severance arrangements was required to sign a confidentiality agreement. Enforced silence in the face of wrongdoing is not in the public interest. Whistleblowers should be protected where their actions serve the public interest and this is particularly the case in the banking sector.

The social support system in this country is just inequitable and it must stay that way. Over the period of the boom years we have invested very heavily, and prudently, in developing public services. We now have an advanced social support system in which we can take real pride. In the case of the elderly, for example, Ireland, has better supports than those available in many other countries. This is as it should be and that is something that we should seek to protect. The very best way to protect core services is to reign in expenditure in areas which, although desirable, play a less central role. In controlling public expenditure, cuts must be targeted.

A second element is the challenge of protecting jobs. A challenge we face is to protect as many jobs as possible and to restore competitiveness in order to protect jobs into the future. Caution is, therefore, necessary when we turn to the area of capital expenditure programmes. A balance must be struck between taking money out and protecting jobs and investing in the future. On the capital side, any savings that are to be made must, therefore, be measured against the overall effect of the reduction on the economy as a whole.

If we look at the four areas I mentioned at the outset, there are two principles which, above all, must inform our actions, namely, firmness and fairness. We need to be firm in our resolve to reign in and contain the problems we have with our public expenditure. There is no other way to ensure our economic recovery and there is no other way to ensure the future both of those in jobs at present and those who will be seeking jobs in the period ahead. We simply cannot continue on the existing public expenditure path.

The second principle is fairness. Everybody will need to be part of the battle to restore Ireland's economic stability. Everybody will have to play their part. Our taxation system needs to change but it must change in a way that ensures that those who can bear the challenge carry their fair share. Our tax system needs to fit to our new circumstances in a way which is based on the ability of people to pay.

The period ahead will not be an easy one. The true extent of the challenge is, in all probability, yet to be fully measured. One thing, however, is certain. If we pull together, we can weather this storm and if we make the changes that are necessary in terms of our tax structure and our public expenditure structure, Ireland will be in a good position to benefit from the recovery which will come in due course.

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