Brian Cowen (Laois-Offaly, Fianna Fail)

Yesterday, the Minister for Finance delivered the supplementary budget. We are all aware of what it contains. This is one of the most critical budgets in the lifetime of this State. It is a budget that sets the country on a five year road to economic renewal. I regret that the budget will cause difficulties for some people, but it had to be tough. As a country, we are providing 2009 public services on the basis of a national income that is more akin to 2004. People know it is unsustainable for us to spend much more than we earn in revenue. No household could afford to do it and neither can the State. We have sought to introduce a fair budget in difficult economic circumstances. Everybody will contribute to it according to their means. Most importantly, this budget will give confidence that we have a plan and that there is a bright future ahead. This budget will provide firm foundations for returning the economy to a positive growth rate when the global recovery begins.

The budget that was presented yesterday had six key goals: to stabilise our public finances by taking a big step to bring our income and expenditure into line with each other; to support and stimulate confidence and give greater certainty to consumers and businesses; to restore our damaged banking system and ensure credit flows to businesses and consumers; to restore our international reputation and give confidence to the international investment community; to support measures to improve our competitiveness so that our export sector can be sustained and thrive in the future; and to maintain as many jobs as possible and look after those who lose their jobs. We have been spending far more money on public services than we have been taking in as taxes. It means we are borrowing large amounts of money to pay for services. The Exchequer requirement this year is just over €20 billion. We cannot afford to continue to borrow to the extent that we are currently borrowing, which has an immediate and large cost and will affect future generations. We must not unnecessarily mortgage our children's futures. We must begin to work towards living within our means.

The world has suffered an unprecedented economic and financial shock. As people throughout the world have less income, there is less demand for our goods and services. That Ireland has one of the most open economies in the world is placing severe pressure on businesses, jobs, the economy and tax returns. These problems are exacerbated by the decline in the value of sterling and the dollar, which is making our exports seem more expensive in those markets. The good news is that the world economy moves in cycles. The effects of the global slowdown on our economy and our tax revenues will be reversed in time. We cannot control the international cycle. We cannot continue to chase the moving target that is known as the cyclical deficit. As we do our utmost to improve competitiveness, it is reasonable and appropriate for us to borrow to smooth the path through the global downturn. When the upturn comes, we will be able to pay off this debt as Ireland returns to a positive growth rate. We must make adjustments for what is in our control and will not be corrected automatically when the global upturn comes.

In recent years, we have been able to finance significant improvements in infrastructure, public services and social welfare, in part from the large tax take from the property market. We were able to pay for such improvements without having to resort to borrowing. We reduced our national debt and ran budget surpluses. We became over-reliant on property as a tax source, however. It has now diminished. We must reduce spending and expand the tax base. Our expenditure patterns and tax systems must be fit for purpose. To ensure they are sustainable in good and bad times, we must fix them in a way that minimises further damage as we make the corrections that are necessary. By doing so, we are providing a stronger foundation for the long term. That is why our multi-year fiscal plan involves reducing the deficit, ensuring that Ireland's public finances are sustainable in the long term and providing a strong platform for future economic growth. That is what we have started this year and will continue up to 2013. At that point, if we stick to the plan, we will have eliminated or be close to eliminating the structural deficit and we will have an expenditure pattern and tax system that is fit for purpose.

In making these spending and taxation adjustments, we have done our utmost to be as fair and balanced as possible. Everyone is being asked to contribute according to their means. A person on the minimum wage is being asked to pay 2% of his or her income, a person earning €50,000 must pay 4% of his or her income and a person earning €300,000 must pay 9% of his or her income. The changes to the levy are progressive. Those with higher incomes will pay the most. The burden on lower earners will remain low. Approximately 30% of income earners, or 670,000 people, remain exempt from the levy, as do medical card holders whose earnings are above the ceiling. The Government has ensured that more than 1 million income earners - those with income under €26,000, medical card holders and people over the age of 70 - will remain exempt from the health levy. The top 1% of income earners - those earning more than €175,000 - will contribute 24% of the total yield from the income levy. National income is expected to decline by approximately 15% between 2008 and 2010. The need to fix what is in our control necessitates a drop in our living standards, to those that applied in 2003-04, which is a significant sacrifice for people to make. By making this adjustment now, we will reduce the risk of a further decline in living standards. As they consider the present situation, I ask people to think of those who are suffering most in these difficult times. I refer in particular to those who have lost jobs since the onset of the global downturn and are now facing considerable hardship. We must stabilise the economy so that Ireland can reposition itself for a return to growth and job creation over the next three years and beyond.

There is a fine line to be walked between taking too much money out of the economy, which would curtail consumer spending, undermine confidence and lead to further job losses, and not taking enough out of the economy, which would prevent the international markets from lending us the money we need to provide essential services. I believe this budget gets the balance right. It will restore confidence in the international markets and provide a firm foundation for recovery. It may be suggested that we should have achieved more through spending cuts than through tax rises. When all of the initiatives being taken are considered, it is clear that expenditure will decrease by €4.8 billion in 2009. Most of the net €3.1 billion increase in expenditure is accounted for by additional unemployment-related expenditure. We are trying to minimise the impact of cuts on frontline services. We feel we have struck a reasonable, albeit difficult, balance. Under our multi-annual expenditure plan, further savings of €2.2 billion in 2010 and €2.5 billion in 2011 will be secured.

While we have made some cuts in capital spending, we will continue to spend 5% of GNP, or twice the European average, on important infrastructure. This is a key investment if we are to improve our competitiveness. As we expect to see savings of between 10% and 20% in the cost of projects, particularly from 2010, we do not envisage a significant reduction in output. Discussions are advancing with the pensions industry regarding a new infrastructure fund to support projects in schools, higher education, hospitals, roads and public transport. The tax increases in this budget are regrettable but necessary. Those on the Opposition benches who suggest that the Irish economy can be secured without raising taxes are fooling themselves or trying to fool the people. Following these readjustments, we will retain one of the most favourable tax regimes in the OECD. As we face a difficult road to renewal, we need to have confidence in our capacity as a people to overcome present challenges. We need confidence to spend, to lend and to take risks. We need to be confident enough to spend in the knowledge that things will get better because a plan is in place. Banks need to be confident if they are to lend. The world markets need to have confidence in us if we are to be allowed to access the funds we need to tide us through these difficult times.

The banks provide the lifeblood of the economic system. If banks do not lend to households, individuals and small and large businesses, the economy will contract even further. As long as the banks have a large overhang of underperforming loans to developers, they cannot perform this essential function for the economy. The Government needs to step in to isolate this problem and stop it from contaminating the entire economy. That is why we are taking decisive action. The Government will pay an economic price for certain assets and ensure that developers and banks take a significant loss in cases of assets that were originally purchased at very inflated prices. The proposed national asset management agency, NAMA, will realise such assets over time in a way that protects the taxpayer. The objective of NAMA will be to provide the banks with a clean bill of health and strengthen their balance sheets. It will considerably reduce uncertainty over bad debts and consequently ensure that credit flows on a commercial basis to individuals and businesses in the real economy. It will protect and increase employment while maximising and protecting the interest of taxpayers.

NAMA will be established on a statutory basis, under the aegis of the National Treasury Management Agency. It will have a commercial remit. It is not a rescue vehicle for developers or other borrowers. NAMA will expect to be repaid in exactly the same way as a bank. The potential maximum book value of the loans that will be transferred to NAMA is estimated at between €80 billion and €90 billion. The amount of money paid by NAMA will be considerably less, to take account of the banks' losses on their loan books. Significant further work on the loan books will be needed to ensure the appropriate loans are transferred. NAMA will purchase assets through the issue to the banks of Government bonds. The amount paid by NAMA will be significantly less than the book value to take account of NAMA's estimate of the worth of the loans and compensate the State for taking on these risks. The banks will have to take the associated losses. If losses are incurred by NAMA over a period of ten or 15 years, the Government will apply a levy to recoup any shortfall. This is not a question of saving developers from going to the wall. It is a matter of supporting the capacity of the financial institutions to increase lending in support of the recovery of the real economy. The losses absorbed by borrowers and banks will significantly reduce the risk taken by the State when it takes the assets under its control. All borrowers will be required to meet their legal obligations for repayment, as at present.

In line with a previous commitment, the Government intends to put in place a State guarantee for the future issue of debt securities with a maturity of up to five years. Access to longer-term funding in line with the mainstream approach in the EU, consistent with State aid rules, will contribute significantly to supporting the funding needs of the banks and securing their continued stability. We need banks to lend to solid businesses and get them back to growth. This is the only way to secure existing jobs and to support the creation of new jobs. Businesses that need cash to keep them going will be able to borrow to get them through this recession. The innovative company that needs investment to develop new technology and to provide the products and services of the future will be able to access investment funds. The company that wants to buy a new technology to make its business more competitive will be able to do so. The businesswoman who has a good idea will have the confidence to borrow and invest in that idea, creating jobs and wealth.

Irish business is strong. We have strong companies with strong products and strong markets. Those businesses will be the backbone of our recovery and we must do everything we can to get them the cash they need to invest and to grow.

Ireland has suffered a blow to her reputation abroad. This must and will be fixed. Much of what is said about us is untrue and a worse picture has been painted than exists. Nonetheless, this damages our image with the obvious consequence that investors might shy away. We have taken the right steps at the right times. We guaranteed savings, we nationalised Anglo Irish Bank and we recapitalised the two main banks. Now we have a plan to deal with the impaired assets of the banks.

With a solid plan for our public finances and a comprehensive plan to restore our banking system, we must ensure that we communicate these to the international markets. We will be sending teams abroad, including to London, Frankfurt and New York, to demonstrate to international markets that we are taking the right measures to correct our public finances and our banking system. This will restore confidence and get investment flowing.

Securing the ratification of the Lisbon treaty later this year would further reinforce international confidence in Ireland. Our position in the European Union has greatly assisted us during this crisis and has made clear yet again the value of our position at the heart of the Union. Ratification of the Lisbon treaty this autumn is an important part of the Government's overall recovery strategy.

In this budget, we are taking steps to maximise short-term economic activity and jobs. Our actions are consistent with our vision for economic renewal based on the concept of a smart economy. This requires a return to export-led growth based on improved cost competitiveness relative to our trading partners, productive investment and energy efficiency. We are establishing an enterprise stabilisation fund of €100 million over two years to support vulnerable internationally-traded companies in adjusting to the current crisis, including those affected by the fall in the value of sterling. Bord Bia will undertake enhanced marketing measures to assist food companies particularly affected by currency pressures. We are acting to stabilise the banking system, thereby restoring the crucial flow of credit to the enterprise sector. This is the most crucial contribution we can make to helping business. Funding of €350 million from the European Investment Bank has already been made available to small businesses. We will act further, if necessary, following the review of credit availability and trade finance currently under way as part of the bank recapitalisation programme.

Energy costs remain a real concern for business, particularly for large industrial users. Double digit reductions in the cost of electricity and gas have already been announced for 1 May. It is hoped that it will be possible to achieve further adjustments as the year proceeds.

We have already introduced a range of measures to improve cashflow to business by prompt payment from Departments, to streamline how local authorities deal with businesses and to invest in labour intensive investments such as energy efficiency. Despite the severe budgetary pressures, we also are maintaining a high level of investment in research and tax incentives for start-up businesses and venture capital. Many of the businesses and jobs of the future will come from this area.

I assure the House that the Government will continue to prioritise this competitiveness recovery agenda. We will build on the steps taken so far and bring forward further measures to help businesses compete internationally by reducing costs and red tape, investing in productive infrastructure, supporting start-up enterprises and improving the availability of credit and investment capital. There is no alternative but to restore our competitive position by reducing costs and increasing productivity. We will act to ensure that we regain that competitiveness, so that we can start growing our exports and creating new jobs again.

While everyone faces a downward adjustment in living standards as a result of the current crisis, the greatest burden is borne by those who lose their jobs. We are seeking to maximise the number of people in employment by sustaining a high level of investment in labour intensive infrastructure. We have announced measures to support transactions in the housing market and the motor trade. Unfortunately, because of the severity of the recession, more people will lose their jobs before this crisis is over. The Government seeks to maximise the opportunities available to these people for re-training, education or work experience. In this way, we will help support people through a difficult time and help them prepare for new opportunities which will arise in the future.

Earlier this year we provided new training places under the FÁS training initiatives strategy and introduced measures to help redundant apprentices. In this budget we are providing for another 23,500 education and training places on new and existing programmes. As part of this package we are introducing a work experience scheme which will see 2,000 people, including graduates, placed in jobs. Changes to the back to work enterprise allowance and the back to education allowance schemes will also facilitate more claims for support from people who have lost their jobs. This is an integrated package of measures reflecting co-operation between Departments and agencies and will help thousands of people through a difficult period of their lives.

By securing the public finances, this budget lays the foundations for future growth and jobs. In these difficult times, we must not lose sight of just how much Ireland has transformed itself over the past 20 years. Many of the key factors that fed into that transformation and many of the results of the process of change will serve us well now as we rise to new challenges. Almost 1,000 overseas companies have chosen to invest in Ireland as their European base and are involved in a wide range of activities in sectors as diverse as engineering, information communications technologies, pharmaceuticals, medical technologies, greentech, and financial and international services. We have hundreds of thriving research and development intensive indigenous companies.

In December, we published a blueprint for economic development, Building Ireland's Smart Economy. Such an economy will support a thriving enterprise culture, ensure the highest quality standards, reward entrepreneurship and ultimately secure our energy supplies. In the last budget and the Finance Bill, to support this vision, we retained and enhanced our pro-enterprise tax policies, namely, we apply a corporation tax rate of just 12.5% which is unchanged; we increased the research and development tax credit available to companies from 20% to 25%, putting it to the forefront of research and development regimes globally; we provided an exemption from corporation tax and capital gains tax for the first three years of a new start-up business, and other measures to help people who want to start enterprises and create jobs; we introduced a new and highly-favourable tax treatment of carried interest which will encourage so-called smart capital to work effectively to stimulate start-up enterprises; and we introduced a tax abatement scheme for people who own shares in start-up research and development companies to help such businesses attract and retain employees.

In this supplementary budget we added to this suite of incentives by committing to introducing a scheme of tax reliefs for the acquisition of intangible assets, including intellectual property. This will provide a significant impetus to the development of the smart economy and the provision of quality and well-paid jobs in the future.

I identified reform of the public service as a core personal priority because I believe passionately in the public service ethos, in the values which animate our public service tradition, and in the motivation and competence of our dedicated public servants. That is why I set up a task force to produce an implementation plan for a root and branch renewal of our public service; why I published a comprehensive policy for public service reform based on that task force's report, and why I have established and chair a Cabinet committee on transforming public services to drive the process of change.

There is much that is good and positive and world class about the Irish public service as was evidenced in the report of the OECD published last year. Equally, however, there are aspects of how we organise and deliver public services which fall well short of the best practice of which our own system is capable, regardless of international standards. We do not have the full flexibilities associated with a modern, high-productivity, technologically-enabled service economy. All too often we see examples of traditional work practices, staffing levels and management systems which fail to meet the diverse needs of our citizens and which frustrate the creativity and innovative capacity of our public servants. In many cases, this is a failure of organisational capacity, on both the part of management and of the trade unions and other employee representative structures. A gradual approach to reform and renewal can be effective, in the public service as elsewhere.

However, when we are faced with a full-blown national crisis, where the business as usual model is no longer affordable or sustainable, then we must adopt a different approach. It need not be based on a top-down approach which ignores the views of staff and their practical experience. Still less, need it be based on conflict between the Government and public service unions. On the contrary, the reality of the crisis which we face as a society is particularly evident to public servants who are dealing at first hand with the consequences - personal, social and economic - of our current difficulties. I know they resent deeply the unfair criticisms and occasional ideological bias which is expressed against them. I know that they, and their trade union representatives, realise that the best way of protecting the interests of public servants is to demonstrate that we are up to this challenge; that we can do more with less; that we must distinguish between change and flexibility which benefits the citizen without prejudicing the legitimate interests of staff, and change which is an unwarranted attack on decent standards of employment and practice.

The Government wants to work in a collaborative and partnership way with our own staff across the whole of the public service. We have listened carefully to what they have had to say, for example, about the operation of the public service pension levy. Yesterday, the Minister for Finance announced a significant adjustment to lessen the burden on those on low and modest incomes in the public service, while retaining a levy which is entirely appropriate given the relative benefits of public service pension terms at this time. Reform can accelerate in periods of crisis, when issues that could previously be ignored have to be faced. We are in such a time. We are not in a position to continue to pay for the public service to operate in an unchanged manner with an unchanged division of labour across an unchanged labour force.

The measures announced yesterday to facilitate the early retirement or temporary departure of public servants are designed to facilitate part of this necessary adjustment on an agreed and equitable basis. However, in combination with the moratorium on recruitment and promotion announced earlier by the Minister for Finance, it represents a determination on the part of the Government to reduce the numbers employed in delivering public services in line with our reduced capacity to pay. This inevitably requires greater flexibility and mobility so that resources are deployed where they are most needed. It also requires flexibility in the way that work is carried out, in line with good practice. It is only on this basis that we will be able to sustain the approach which has been long enjoyed in the public service in terms of security of tenure, high quality conditions of employment and attractive pay and pension terms. These are issues which will be discussed with the necessary degree of urgency with the public service unions over coming weeks. These issues will be discussed with the necessary degree of urgency with the public service unions in the coming weeks.

In this context, I would like to repeat my firm conviction about the value of the overall social partnership process. I believe the shared analysis and structured engagement which the partnership process requires are entirely positive in helping to bring about greater understanding of our situation and the challenges we face, and greater consistency in the way we respond to them whether in the public or the private sector. I welcome the decision of the social partners to continue to engage with the Government to see if it will be possible to agree a shared approach to the many dimensions of our current crisis for that reason.

In facing up to this challenge, we have the benefit of the excellent analysis produced by the National Economic and Social Council, on which the social partners and Departments are represented. It sets out clearly the reasons an integrated national response, which carries the support of broad sections of the community, could be extremely effective in steering our way through these difficult times. Now, more than ever, we need the coherence domestically and the signal of confidence internationally that a social partnership agreement would represent. The supplementary budget announced yesterday, difficult though many of its elements are, and the broad strategy that accompanied it in the statement of the Minister, are consistent with the framework we agreed with the social partners at the end of January. This provides the basis to complete the negotiation of a national accord over coming weeks.

Everyone is facing problems. Business is down because the domestic and world markets are down. Cuts are having to be made and staff are worried. It is a tough environment. People in their homes are worried whether they can make ends meet or whether one of them will lose his or her job. People worry about what the future holds and I understand that.

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