Brian Lenihan Jnr (Dublin West, Fianna Fail)

The economy went into reverse for three reasons: first, a steady loss of competitiveness during a prolonged boom; second, the bursting of the property bubble; and, third, an international banking crisis which triggered a worldwide recession. In the past 18 months we have put in place a range of far-reaching measures to stabilise the banking system. We took those measures not for the sake of the banks but for the sake of our economy.

We have gone through a severe and painful correction in the property market. I know this has dealt a heavy blow to individual homeowners, many of whom are now in negative equity and some of whom are experiencing difficulties meeting their mortgage repayments. However, the collapse of the property bubble has also impacted on our public finances by greatly reducing the tax take and increasing the demand for welfare payments. In the two most recent budgets, I sought to address this shortfall by introducing a highly progressive income levy and various other taxation measures. A key feature and focus of today's budget is regaining our international competitiveness.

RESTORING OUR COMPETITIVE EDGE

Unless we regain our competitive edge, we will be unable to return to the tried and tested strategy of export-led growth that ushered in the boom in the early 1990s. We must be able to compete and win again in the international marketplace.

In the recent referendum on the Lisbon treaty, the people reaffirmed Ireland's place at the heart of Europe. This was the right decision for our economy, for our future and for our children. The single currency has provided huge protection and support to Ireland in the current crisis. It has prevented speculative attacks on our currency and provided funding to the banking system. However, membership of monetary union also means devaluation is not an option. Therefore, the adjustment process must be made by way of reductions in wages, prices, profits and rents.

Some progress has already been made. Consumer prices in Ireland are now declining at the fastest rate in the entire euro area and the European Commission has forecast that - uniquely in the euro area - our unit labour costs will fall this year. However, our prices are still among the highest in Europe. During the past decade wages have gone up 70%, well above the euro area average. Put simply, we have priced ourselves out of the market. We will not be able to stem the haemorrhage of jobs until our prices and the costs of doing business here move down in line with those of our main trading partners.

WHY BORROWING MORE IS NOT THE ANSWER

Some have argued we should continue to borrow and wait for the economy to grow again before tackling the budget deficit. There are three reasons this is not a viable proposition. First, we know from the 1980s how large deficits, left unchecked, can lead to a dangerous spiral of mounting debt and ever increasing interest payments. Never again should we return to a position where all of our income taxes go to pay interest on the national debt. Second, international debt markets have become more crowded and more fragile. If lenders were to lose faith in our ability to restore order to the public finances, the consequences for our economic well-being would be profound. Third, only decisive action will restore confidence. Consumers will only start to spend and business owners will only invest and create jobs if they believe we are tackling our deficit problem now.

In our everyday lives we do not borrow to pay our household bills. We cut back and seek to live within our means. The same strictures apply at national level. Borrowing hundreds of millions of euro a week to pay for day-to-day spending is just not on. Stabilising the deficit is the next key milestone in our plan to deliver economic recovery for this country.

WHY WE CANNOT TAX OUR WAY OUT OF THIS

Others have argued for increases in taxes as a means of stabilising the deficit. However, those who demand higher taxes fail to recognise what I have already done. The tax increases contained in the two most recent budgets have placed the heaviest burden on those best able to pay. For example: a single person earning €25,000 now pays €500 more in tax and levies than in 2008; a single person on €100,000 pays around €5,500 more, or 11 times more than the person on €25,000; and at €250,000, the additional taxes and levies amount to almost €17,000 or 33 times the contribution of the person on €25,000. The progressivity of these changes is beyond doubt, but we have reached the limit. We will not create jobs by increasing the penalty on work and investment.

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