Michael McGrath (Cork South Central, Fianna Fail)

I very much welcome the opportunity to contribute to the debate on Second Stage of the Finance Bill 2009, one of the most important and difficult Finance Bills any Minister for Finance has had to introduce in the House in modern times. The key tasks facing the Government in terms of the economy and the public finances are restoring stability to the public finances as a matter of priority; dealing with the serious issues affecting the banking system through the establishment of the National Asset Management Agency to rid the system of the property-related loans clogging it at present; revaluing our cost base to ensure that, when we emerge from the recession, it will be more competitive and position the country in such a way that it can benefit in a very positive way from the economic upturn when it arrives, and taking whatever steps are necessary to support enterprise and those in employment and to support every initiative that creates further employment.

The backdrop to the Finance Bill is formed by what is probably the most adverse set of global economic conditions in modern times. In this regard, one should consider the statistics on GDP contraction among some of our main trading partners in 2009. In Germany the figure is to be in excess of 5%; France, 3.3%; Italy, 4.3%; the United Kingdom, almost 4%, and the United States, 4%. World trade is expected to contract in 2009 by in excess of 13%, according to a recent OECD publication. This highlights the difficulties the economy is facing. The economic contraction is placing unprecedented pressure on Ireland's public finances. The International Monetary Fund has predicted that advanced global economies will contract by 3.75% in 2009. The performance of the Irish economy, a very small, open economy, is linked directly to the performance of global trade. One might ask why Ireland is to expect a contraction of 8% in 2009 when some of our main trading partners are to expect contractions of 3%, 4% or 5%. The fact is that global trade will decrease by an expected 13%. We have a particularly small, open economy with a very limited domestic market. We have an export-led economy and the growth we experienced in the Celtic tiger years was driven by exports and a boom in the property sector. Those exports are now under severe pressure. It is inevitable that we will be hit harder than many of our trading partners because of the small and open nature of our economy. We are expected to experience a contraction of approximately 8% this year which, by any measure, is very sharp. This and the measures the Government must introduce as a consequence will have very serious implications for every family and the public finances, as we have seen.

It is clear that the way to achieve economic recovery in Ireland is by putting the public finances back on a stable footing. The measures in the Finance Bill are fundamental to creating the necessary conditions. We must get the public finances in order and simply cannot expect to build a base for economic recovery on a deficit of €20 billion. The deficit will grow a lot more in the years ahead if the Government does not take the corrective action it is proposing in the Bill. That is why in January the Government made a very detailed submission to the European Commission setting out a programme which will take us through to 2013 to return the public finances to the requirement stipulated in the Stability and Growth Pact, namely, a 3% deficit within the next four years. This is a very difficult challenge and will require significant shifts in fiscal policy, a broadening of the tax base and cuts in expenditure. The Government has taken very serious steps towards achieving this goal. It is heartening to note some of the comments made by the European Commission that have endorsed the Government's plans and commended it on taking what are extremely unpopular, unpalatable and difficult decisions. These decisions affect everyone in the country but are essential in the long-term interests of the economy. We have no choice but to make them in the longer term.

While people are to have less money in their pockets arising from the decisions taken in the Finance Bill, it is worth noting that prices are falling. The consumer price index is expected to fall by almost 4% in 2009. The purchasing power people will have, albeit with less money in their pockets, should be maintained in real terms vis-À-vis the prices that prevailed until now and the new prices that have emerged. I very much welcome the recent announcement by Tesco to reduce the prices of grocery products significantly right across the board. This must be replicated throughout the economy in order that families who experience the pain of extra levies and taxes will still be able to afford essential goods and services such that they can continue to run their homes.

It is important to say the economic cycle will take its course and the wheel will turn once again. The economy must be ready and well positioned to capitalise on the upturn when it arrives. It is important that we do not allow a spiral of negativity to take a stranglehold on the economy. I was heartened to hear on 9 April an interview on "Morning Ireland" with Mr. Peter Sutherland who I am sure everyone in the House will agree knows a thing or two about economics. The transcript of the interview is worth reading by all. Mr. Sutherland highlighted a number of strengths of the economy. He essentially said we needed to be more positive and focus on our strengths and make the decisions required to work our way through the crisis. He stated, for example, that if 100 was to be taken as the average GDP per capita in the European Union, the average for Ireland, following an expected decline of 8% in 2009, would be approximately 135. The averages for the United Kingdom and Germany would be between 114 and 117, while that for Japan would be 107. He said that, in 2009, Ireland's exports were expected to decrease by approximately 5.9%. Other countries with which we trade significantly are to experience greater decreases. The exports of Germany, for example, are to decrease by 16.5%, while those of Italy are expected to decrease by 15.9% and the United Kingdom by just under 10%. These are important comparisons that we need to bear in mind. While it is true Ireland is in a very grave position, so too are all of our main trading partners throughout the world. Many are suffering to an even greater extent in terms of their exports. The necessary recovery from the recession will be export-led. Mr. Sutherland also states we must stop talking ourselves down excessively, while recognising the pain of the remedies everybody is facing which will bring a great deal of negative comment. We need to bear in mind what he said because he has had tremendous economic experience in very large companies throughout the world.

Many have money to spend and invest but are not doing so because of the negativity and lack of confidence in the economy and the constant downplaying of our strengths and highlighting of our weaknesses. Tax increases are unavoidable and must play a role in helping the country work its way out of the recession by putting the public finances back in order. To suggest to the people that there is another way out of the recession and that there is a way of making the €20 billion deficit disappear in 2009 would be to mislead them. There is no easy or cost-free option that will result in the regrowth of the economy. It will not do so as long as the public finances are in decline. We must arrest that decline and put the public finances on the path to recovery.

I listened with interest in recent weeks to some of the comments of Deputy Bruton following the budget. He stated people on the average industrial wage would be paying tax at a rate of 51%. Yes, it is true they will be paying tax at 51% on a small part of their income, if one adds up income tax, levies, PRSI and so forth, but the real measure of the amount of tax a person pays is the total of all of the elements expressed as a percentage of his or her total income. This gives the effective tax rate.

I will give a few examples if the Acting Chairman will allow me. Under the measures in the supplementary budget, a person on €40,000, which is just over the average industrial wage, will have an effective rate of tax of 22.1%. In 1997, when Fianna Fáil came into power, that person was paying 40.6% tax. Thus, the rate of tax he or she is paying on that income has effectively halved in that time. Deputy Burton stated on the Order of Business that we have taxation levels akin to those of the 1980s.

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