Brian Cowen (Laois-Offaly, Fianna Fail)

The second and third phases for Clonmel are due to start in March of next year thanks to the Minister of State, Deputy Mansergh. I will ask the Minister of State to keep the Deputy informed.

Another element of stimulus is to the housing market with not only the extension of mortgage interest relief for those who brought in 2004, 2005 and 2006 when the market was at its peak, but the incentive to buy a house in the next two years for anyone still anxious to avail of mortgage interest relief before it is abolished in seven years' time.

This budget has been framed at a very difficult time for Irish families. I fully understand the needs of those who depend on social welfare, and the Government has done its utmost to protect the most vulnerable people in our society. The reductions in many social welfare payments are a regrettable but necessary part of this adjustment. The reason we are reducing payment rates is to ensure that we have a sustainable welfare system which can continue to protect the most vulnerable. A State that is insolvent would be of no support to those who rely on it for their incomes.

Reductions in pay and welfare payments must be seen in the context of falls in prices. The CPI fell by 6.6% in the 12 months to October. In 2010, we expect the CPI to fall by 0.8%. Year-on-year, food is down by 6%, energy by 11% and clothing and footwear by 13%. The reduction in social welfare payment rates is less than the fall in prices. The value of the payments in people's pockets will, if anything, be higher than it was previously.

The support provided by the Irish State to those on welfare is one of the best in Europe. In recent times, there have been record increases in the level of social welfare. Welfare rates have doubled since 2000. In the past 12 years, we have increased pension rates by almost 120%, unemployment benefit by almost 130% and child benefit payments by more than 330%. It is worth pointing out, over the same 12 years, the cost of living has increased by less than 40%. In the same period, Government also extended coverage, removed barriers and increased entitlements such that the level and extent of social support payments has been transformed beyond recognition.

Given that social welfare accounts for about one-third of all day-to-day spending, reductions in this area had to be found. The scale of savings required from public expenditure as a whole means that savings in the welfare bill are unavoidable. What is most important now is that we can sustain a strong welfare system into the future. If we do not cut back slightly, there might have to be more drastic cuts in the future.

Bearing in mind that we increased welfare rates by around 3% in Budget 2009, the net reduction is minus 1.1%. This brings social welfare back to around 2008 levels. However, the cost of living has come down by around 6% in the past year, and is back at what it was at the beginning of 2007. Child benefit is back to 2006 levels. Therefore, the changes we have made have ensured that, viewed over a three year period, the spending power of people who received welfare and-or child benefit remains broadly stable.

We have not touched the State pension. Older people do not have the same option of going back to work to supplement their income. They have worked all their lives and should not have to rely on their children to live in dignity.

Our tax revenues are at 2003 levels but we have left welfare rates at 2008 levels so, in cutting back on spending, we are still prioritising those on the lowest incomes.

Turning to broader issues, in the past year, I have made it clear that I would wish to continue the positive relationships with the social partners, which played a central role in our economic and social progress over the past 20 years. Good progress was made in developing a framework last January which set out shared perspectives on how the present crisis should be approached.

It is disappointing, but not wholly surprising, that it has not been possible to continue the pattern of wide-ranging partnership agreements we have seen in recent years, given the scale of the challenges and the speed of the economic and social deterioration which has overtaken the country. I would not rush to conclude that the social partnership model is dead, because we have failed to reach a formal agreement on this occasion.

There continues to be a social partnership agreement in place in Towards 2016, which sets out the medium to long-term objectives and principles for economic and social development. There is scope for that agreement to continue to shape the process of social dialogue, which inevitably will continue between the Government and the social partners, just as it characterises the overall European way of doing business, both at the level of the European Union and within individual member states.

The strenuous efforts made last week to conclude a pay agreement in the public service did not, regrettably, result in success. This was not for lack of effort or good faith on the part of the participants. I set out in the House on Wednesday, 2 December, the criteria which would have to be met if agreement were to be reached. Unfortunately, these were not met, not least because the certainty about the scale and permanence of the measures in reducing the cost of the public service pay bill were not sufficiently clear given the need to demonstrate that the measures taken in the budget would represent clear and structural change. However, I welcome the fact that the talks were marked by an acceptance of the need and the capacity to generate significant reductions in the public service pay bill in 2010.

It is also significant that the negotiators were able to identify agreed approaches to effecting change and increasing productivity in the various sectors of the public service. Ultimately, it is only through real and lasting change based on constant renewal, redesigning how we do our business, applying to the full the potential of new technology and challenging accepted ways of working and organisational structures that those who work in the public service will be able to sustain their standard of living. Unless public service workers demonstrate the same productivity growth as their private sector counterparts, inevitably incomes will fall behind over time. The surest route to secure and stable income levels, and to avoiding future pressures for further reductions is the embracing of change. Greater flexibility and new ways of doing our business should not threaten us; on the contrary, it should provide confidence and assurance about the viability of employment and living standards in the public service for the future.

For that reason, while recognising that the current situation of breakdown is an unhappy one and that we do not have an agreed basis for moving forward, I would urge public servants and their unions to reflect on the potential to build on the progress made last week, and to recognise the direct and immediate benefit of a positive approach to public service reform that liberates the talents of those who work in the public service, secures their incomes into the future, and provides a more efficient service for our citizens. Dialogue on this basis is the best way to deal with concerns about pay and conditions for the future.

I acknowledge and welcome the fact that both Opposition parties have put forward budget proposals. In particular, I am glad that they agreed with the Government on the need for a €4 billion adjustment in 2010. However, both parties differ sharply on how to make up the €4 billion.

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