Kieran O'Donnell (Limerick East, Fine Gael)

The Financial Emergency Measures in the Public Interest (No. 2) Bill is the topic of debate tonight. The key issue for any government is what choice to make. All parties, including Fine Gael, were in agreement that we needed savings in the area of public sector pay. The choice facing us was how this could be achieved in the fairest possible manner. The Government has tackled the issue crudely and now, regardless of the income of public sector workers, the income cut will apply from the first euro. This is unfair. Fine Gael believes the first €30,000 of income of public servants should be exempt from the cut so that anyone on less than €30,000 would not suffer a pay cut. Anyone earning more than €30,000 would suffer a 5% cut on what they earn over the €30,000 threshold, with the percentage cut increasing as the earnings level increased. This would mean the lower paid would suffer a lesser burden. Many public servants on less than €30,000 a year are young people who obtained mortgages from banking institutions and building societies. These people were seen as having gilt-edged security and were regarded as people whose repayments would be guaranteed. However, they have suffered a reduction in income of between 10% and 15% in the past two years.

What we require of the measures to be applied is to be fair. Fine Gael agreed there should be €1.2 billion of a saving, but it would have applied direct pay cuts of only €567 million and would have exempted all income below €30,000. Fine Gael would have sought savings from efficiencies in local payrolls. The budget fudges the hard decisions. It is a divisive budget that has pitted the public sector against the private sector. This is the wrong approach. Fine Gael realises from its dealings with people on the ground that both sectors are under extreme pressure, but that all realise the critical state of the economy. Deputy Kelleher said the crisis was not all internal. No-one denies that. However, the ESRI has informed us that up to half of the Government deficit has been driven by unemployment. Almost 25% of our GDP was related to the construction sector, but a sustainable percentage should be in the order of 6% or 7%. The Government allowed this happen unchecked. The Governor of the Central Bank appeared before an Oireachtas committee today. With regard to the banking sector, he stated much of the crisis was due to a lack of proper regulation. The fault for this lies with the Central Bank and the Government of the day. We needed an economy that could withstand external shocks, but our problem was that because we suffered internal shocks also we could not withstand them.

The Government fudged the hard decisions in terms of making proper efficiencies within the public sector, dealing with quangos and finding savings in these areas. The Fine Gael policy document tackled those areas. The Government went for the soft target. It decided to hit public servants, hitting particularly hard the lower paid workers in the sector. It hit carers, widows, the disabled and vulnerable groups such as the blind. There is no method in that. Deputy Kelleher referred to the capital programme. The Government cut €1 billion from the capital programme this year and will do the same next year. This is not a courageous budget. It is a budget that aims to balance the books just for the short term, but it is doing that in a divisive way.

The issue of competitiveness should have been tackled. Our exports were growing until 2003, but that year they decreased. At the same time, the residential market went out of control. We are a small open economy, but we became extremely uncompetitive during the Celtic tiger period. Much of the decline in competitiveness happened in areas over which the Government had control. However, the only measure introduced in the budget to deal with this is an exemption from employers' PRSI for new employees taken on in SMEs. One of the main concerns currently is existing employees. What does the Government propose to do for people who are hanging on by their fingernails in terms of keeping small businesses running and keeping people in jobs? The SME sector cannot access credit. I heard of a case today where the banks closed the business account of an individual because he missed one repayment on a loan. We need to support people in the SME sector because that sector can help turn around the economy. However, it is not getting support. Fine Gael proposed a proactive measure to deal with this issue, namely, to cut by half the lower rate of employers' PRSI, from 8.5% to 4.25%, and to cut by 2% the upper rate, from 10.75% to 8.75%. That would benefit enormously employers who are trying to survive. It would cut the cost for the employer while maintaining the minimum wage for the hard-pressed employee.

Deputy Pat Breen organised a meeting with Aer Lingus today on the travel tax. The Minister of State, Deputy Mansergh, is a representative of the region affected by it. The travel tax brought in a relatively small amount of revenue and decimated the tourism sector. Fine Gael believes it should be abolished to allow an air-travel stimulus in the affected region.

The Government reversed the VAT increase, decreasing the rate to 21%. This is to be welcomed. We felt the lower rate of VAT should have been cut from 13.5% to 10% until the end of 2010. This would have provided a major fiscal stimulus in labour-intensive areas. Although the Government produced a budget, it does not restore competitiveness or fuel a capital programme. It is divisive. The role of the Government is to lead all people in the same direction, not to exploit people's fears.

There is not a huge difference between the public and private sectors. Employees in both sectors are under major pressure with regard to children in school. The Government cut child benefit by €16. It is the only universal payment to the child. The cut affects both public and private sectors. It hit those in the public sector, particularly the lower paid, in a very draconian, harsh and cruel way. Next January, when the wage cuts are implemented, parents who will have bought presents for their children and who will have tried to have a good Christmas will find their pay reduced by 5% and upwards. This will be in addition to cuts to benefits for carers, widows, the disabled and the blind. The cuts will affect people's ability to repay their mortgages.

Fine Gael favoured a more progressive measure, namely, to exempt from the cuts the first €30,000 earned by any public servant. I hope the Minister will take on board our suggestions on Committee Stage. The proposed exemption would give some leeway to the lower paid and to everyone working in the public sector. The measure proposed is fair and balanced and deals with the need to make savings in public sector pay; yet, in its place is a crude device that will set up a winter of discontent and put people under enormous financial pressure. There is nothing in the budget to provide a proper job stimulus package.

I ask the Minister to take on board our reasonable suggestions on Committee Stage tomorrow. They are fair and deal with the financial circumstances of the State while recognising the difficulties being experienced by, and the pressure on, public servants.

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