Brian Cowen (Laois-Offaly, Fianna Fail)

This country has to address probably the biggest challenge to its economic independence it has ever had to face, even though this is now in the context of our membership of the EU and the Eurozone. The budget will demonstrate to ourselves and to others that we are succeeding in mastering the challenge. It is no time for half-measures, evasion or long-fingering. While others can suggest and propose, or oppose, the Government has the responsibility with the support of the Dáil for taking the measures that the public interest requires at this time.

Even in these most difficult financial circumstances, we need to keep moving forward, and to provide a targeted stimulus to support and create employment. There are many projects and programmes under way or near completion that will improve our competitiveness and quality of life in the years ahead. We also need to open up new areas of enterprise and jobs in the smart economy.

Fairness is a key criterion of the corrective measures. The main burden of adjustment has to be borne by those who are in a better position to bear it, even if some contribution is sought from most sectors of society. Over a number of years now, particularly since 2004, the income tax system has been made steadily more progressive. Ireland can come through these testing times, strengthened for the future, having absorbed the lessons of the unexpected full-scale crisis, both domestic and global, that we have had to face. Realism and solidarity, qualities which exist in abundance among our people, will help us through the difficult times, and renew our confidence for the future.

The Irish economy has been particularly badly affected by the present crisis, and is going through an adjustment of a magnitude that has few modern international parallels among developed countries. We will have lost more than 10% of our national income in a two-year period. In a relatively short time, we have gone from a thriving economy with budget surpluses regarded as a model to a sharply contracting economy that has opened up unsustainable budget deficits. Even though we prudently put a lot of money into the National Pension Reserve Fund, and reduced the national debt to a low level, we did not have the safety margins we imagined. Competitiveness was eroded, and with the international loss of confidence resulting from the banking crisis and our vulnerability at the end of a construction boom, suddenly a huge gap opened up at frightening speed in 2008 and early 2009 between what we spend and what we borrow. Now for every €30 of income, we are spending more than €50. That has to stop. We have to stabilise it, we have to correct it, and we have no time to waste.

Our tax revenues have fallen back sharply to 2003 levels. This means that next year, if we did nothing, we would have a deficit in the region of €22 billion in our public finances. To bridge this gap, we are borrowing more than €400 million per week and that clearly cannot continue. The choice that confronted us in this budget is that, if we take the correct policy choices, we can emerge from recession, despite its breadth and severity. If we tried to duck the choices, to wait it out, or to postpone the pain, it would be worse in the long run. In any case, the loss of confidence in that approach might be such, that decisions would be rapidly taken out of our hands. Even if that did not happen, the pain would be prolonged, and it could be the 2020s, before Ireland saw any gain.

Our strategy over the coming years is to bring back expenditure to 2006-07 levels. As the world economy recovers and demand for our exports increases, there will be more people in jobs, and our tax revenues will rise. This combination of cutting expenditure and increasing revenue has the aim of restoring our deficit to a sustainable level by 2013. In order for this strategy to work, we must take resolute action to increase Ireland's international competitiveness. Since the crisis erupted 18 months ago, we had to make adjustments amounting to €8 billion. Inevitably, out of short-term necessity, at least half of them came from raising taxes and levies. Next year, 2010, we are making adjustments of €4 billion. In 2011, an improvement on our last April's forecasts, reductions of €3 billion will be required.

Acting decisively now will bolster confidence in our capacity to climb out of the crisis. Our actions in the budget are already improving international perceptions of Ireland, and will help us continue to attract the investment on which we depend. Equally important, it will help bring back domestic consumers' confidence that we are getting on top of the problem - increasing consumption and helping to create jobs again. Our recovery will be also underpinned by the recent enactment of the NAMA legislation. This Oireachtas debate was the most extensive and intense I have seen over a quarter of a century in national politics. We are now among the first countries in the world to address impaired assets systematically, and to make the banks face up to the scale of their problems.

This budget is one of the most crucial steps on our road map to recovery. It is not an ordinary budget in ordinary times. On the scales it is nothing less than our whole economic future. Confidence is the gold standard in today's global economy, as we can see, if we look about us. Whether we like it or not, we have to show the international markets that we are capable of getting our economy back on track, and our fiscal house in order. This budget is a defining moment for Ireland. However, it does involve decisions, which for obvious reasons will be unwelcome to many people around the country.

As the Minister stated yesterday, this budget has three key objectives: to stabilise the deficit in a fair way; to protect those worst hit by the recession; and to stimulate the sectors of the economy that will lead to additional and sustained employment. Reducing our deficit, curtailing expenditure and restoring balance to the public finances will not come easy. This budget is difficult for everyone but these steps must be taken, and taken now. It would certainly not be fair to saddle future generations, our children, with more debt burdens, even assuming the markets would grant us that latitude.

I am acutely aware of the difficulty and the pain cuts will cause people, but Government has had to take these decisions so that we can move forward again. We do this, not because we want to, but because we must. The Government's approach in framing this budget was guided by a number of questions, such as, is it necessary, is it fair, and will it assist recovery? The answer in each case is, yes.

I have seen with my own eyes what happens when a Government tries to put off necessary action. I entered Dáil Éireann in 1984, at a time when the public finances were under similar strain to that being experienced today. The Government of the day had initially planned to phase out the deficit in a four-year period, but soon backtracked. The result was that by the time that Government's term came to an end in early 1987 the budget deficit was as high as it had been four years previously. Delaying recovery is just spreading the pain over many more years. We did that in the 1980s and the short-term unemployed became long-term unemployed; there was a lost generation. To repeat that would be the most unfair policy of all.

Membership of the Eurozone limits our options for making the adjustment. We cannot devalue our currency, which would conveniently disguise a loss of real income. Instead, the logic of the single currency compels a country overtly to reduce its costs, including incomes, to restore competitiveness. As against that, the value and purchasing power of money will hold. The only difference between keeping the same nominal income in devalued money and income reduced by the same real amount in a strong currency is psychological. We have had many periods of falling incomes before, but we have yet to adjust to the more transparent way it is now happening. The Consumer Price Index, the cost of living, has fallen by 6.6% in the 12 months to October. There also has been a large fall in construction costs, which is reflected in lower tender prices under the capital programme and housing costs. The reductions in this budget are part of this general adjustment. Social welfare, public service pay, professional fees, public spending and capital allocations are being brought closer into line with the new level of prices.

It is tempting to claim that all our problems can be solved simply by increasing taxes on the wealthy, without the need for contributions from others, or expenditure cutbacks. It ignores the reality that taxes on higher earners have been increased very substantially over the past year. As my record as Minister for Finance will show, I am a strong supporter of a progressive system of taxation. It is estimated at present that the top 4% of earners pay some 48% of income tax, while half of income earners will pay no income tax, although they may pay the income levy. The top marginal tax rate is 52%. To raise, for example, an extra €1 billion from high earners would mean the marginal rate would have to rise to more than 65%, a level it last stood at in the mid-1980s. As experience has shown, such a move would be counterproductive. All of the available evidence suggests that high marginal tax rates will discourage high-skilled workers from remaining in Ireland, as well as discouraging high-skilled workers from locating here in the first place. It is not a good policy.

While we are committed to broadening the tax base, the Commission on Taxation has independently established that there is no pot of gold through the curtailment or abolition of tax reliefs and incentives. Nevertheless, we have raised the minimum threshold for the effective rates of income tax for top earners from 20% to 30%, on top of which come PRSI and levies, and this will yield an additional €55 million in 2010.

We have also decided on an annual domicile levy of €200,000 on non-resident Irish nationals with substantial worldwide income and valuable assets here to ensure they make a substantial non-discretionary contribution to the Exchequer, particularly at a time when everyone in the country is so hard-pressed. Past experience here and the international evidence are clear. Economies recover more quickly from a fiscal crisis by cutting expenditure rather than increasing taxes.

Three years ago, Ireland could boast full employment. The most recent live register figures show there are now more than 423,000 of our citizens without full-time jobs. We must do everything we can to stop this trend and reverse it. The Department of Enterprise, Trade and Employment will spend more than €900 million in 2010 protecting jobs and providing training and activation supports, and more than €200 million in enterprise supports through IDA, Enterprise Ireland and other agencies, making a total package of €1.1 billion.

We will directly and indirectly support approximately 80,000 jobs through the employment subsidy scheme. Through the social welfare system, we are helping more than 73,000 people to maintain part-time jobs or casual work, at a cost of well over €600 million. Altogether, this comprehensive package will enable 180,000 individuals to receive training or supports in 2010.

A key goal of this budget is to put Ireland firmly on the road to recovery. Within the financial constraints we face, we are providing for a stimulus which will create job opportunities and lay the foundations for developing the smart economy. This stimulus contains the following parts: a €40 billion investment over the next six years in infrastructure that will provide jobs and support economic growth - at 5% of GNP, this is twice the European average; a €6.4 billion spend next year to support more than 60,000 jobs; a national energy-efficiency retrofit programme and tax incentives for energy efficiency, creating 5,000 jobs next year; a car scrappage scheme and tax incentives for electric and hybrid vehicles which will support up to 2,000 jobs; reductions in excise duties on alcohol and lower VAT to assist hotels, catering and the retail sector; support for a marketing drive and investment in visitor attractions in the tourism sector; assisting agriculture and forestry; retaining a pro-enterprise tax policy; continuing to invest in research and development, science and technology; and measures to get credit flowing to support businesses and jobs.

The Government's framework for sustainable economic renewal has the objective of creating a smart, high-productivity economy. Increasing productivity is the key building block for economic growth. A key driver of enhanced productivity is investment in infrastructure that stimulates the economy and improves the competitiveness of Irish business. Investments in infrastructure support employment and stimulate economic activity. There is still a strong pipeline, with projects being completed and coming on stream over the next couple of years.

The Government has revised its capital programme, and will invest close to €40 billion between now and 2016 to enable a return to robust economic growth over the medium term and advance the goals of the smart economy framework. We are prioritising projects with the most immediate positive impact on the economy and employment which also lay the foundations for sustainable growth. Next year, the level of public capital investment - at about 5% of GNP - will be proportionately the highest capital investment programme in the EU.

Our consistent approach over many years has been to prioritise the social benefits of investing in our social infrastructure as well. Despite the difficult economic circumstances we face, we are committed to continuing to invest in areas such as health, education, public transport, housing and urban regeneration as part of our overall approach to serve people's needs. Investment projects will include more than €500 million on school building and maintenance and more than €800 million on local authority housing, including special needs accommodation and the retrofitting of public housing. Some €625 million is being invested in key public transport projects such as the Luas extension to Cherrywood in South Dublin, phase 1 of the western rail corridor, the completion of the Kildare route and phase 1 of the Navan line.

At nearly €500 million, the investment in our health infrastructure next year will achieve continued, sustained improvements in the quality of our health services despite the ongoing budgetary adjustment we have to make in current economic circumstances. It will enable us to continue projects already under way and to start a number of new ones, including the development of the new, single national paediatric hospital as a key priority; the development of substantial additional radiotherapy capacity as part of the national cancer control programme; the construction of critical care facilities in the Mid Western Regional Hospital in Limerick; the opening of a new accident and emergency department in Drogheda and the construction of new ward accommodation during 2010-----

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