Eamon Gilmore (Dún Laoghaire, Labour)

I move:

"That Dáil Éireann:

noting that:

— the Irish economy is experiencing one of the worst recessions of any developed country;

— unemployment, which stood at less than 5% in 2008, is forecast to reach nearly 14% by the end of 2010, with the live register currently at more than 435,000;

— some 100,000 people are expected to leave Ireland in a two year period;

— there remains a significant infrastructure deficit which undermines competitiveness, constrains productivity, threatens recovery and puts at risk our ability to continue attracting high value-added inward investment; and

— firms must have access to working capital and growth capital, but the banking crisis has seriously impaired the capacity of Irish banks to lend to the SME sector and to start-ups with high-growth potential;

deploring the failure of the Government to produce a coherent strategy for jobs and investment or to address the funding and infrastructure gaps;

calls for the establishment of a Strategic Investment Bank (SIB) with the primary objective of investing and lending for national economic development, including investment in infrastructure and the enterprise sector and which would be broadly modelled on the German Kreditanstalt für Wiederaufbau (KfW), and on the ICC/ACC (Industrial Credit Corporation/Agricultural Credit Corporation) models that previously operated in Ireland and which would be based on the following principles:

— SIB will have full operational independence from the Government;

— SIB would be capitalised by equity investment from the National Pensions Reserve Fund;

— SIB would originate funding for infrastructure projects it deems to be appropriate;

— SIB would be tasked with improving the funding environment for SMEs, particularly high-tech start-ups, addressing existing market failures; and

— SIB would make no distribution of profits and all profits would be retained to increase the capital base of the bank."

This motion is basically about jobs. From the beginning of the economic crisis, the Labour Party has made the point, again and again, that jobs are the key to recovery. Every person who loses a job is another person claiming a social welfare entitlement, another person whose mortgage might be in difficulty. Every time a job is created the Exchequer gains tax income, more money is being spent in the shops. It is that simple. If we want to fix the banking crisis and the fiscal crisis, we must have a clear strategy on employment, but that is precisely what has not been forthcoming from this Fianna Fáil Government. At the time of the last budget, the Labour Party supported the objective of achieving a €4 billion adjustment in the public finances. But we argued then, as we have argued since, that unless that adjustment was accompanied by a jobs strategy, the danger was that the cure would kill the patient or certainly worsen its condition.

A major feature of the recession has been the huge increase in the savings ratio, as consumers lost confidence in the Government and in the future of the Irish economy. The ESRI is forecasting that this increase in savings will take approximately €7 billion out of the economy in 2010. That drainage is reinforcing the impact of the budget cuts. A coherent jobs strategy would help to restore consumer confidence, increase spending and create jobs. The Labour Party's strategic investment bank should be a key plank in Ireland's jobs strategy. Its structure and role would make a major contribution to the immediate task of promoting recovery, while also playing a central role in the transformation and restructuring of the economy and move away from the casino capitalism of Fianna Fáil, to restore this country to an export-led growth model where we pay our way in the world through the quality of what we produce and sell. To achieve that goal, we need investment finance. We need finance for investment in the infrastructure of a 21st century knowledge economy, and we need finance for investment in the firms that will grow up around that infrastructure.

What is clear is that this necessary finance will not be provided by a banking system that is hobbled by the legacy of greed and excess. Even with NAMA, and with the various recapitalisations, it is clear that Irish banks will not be in a position to support investment in innovative businesses and in key infrastructure. The primary focus of the Irish banks in the coming years will be on shrinking their balance sheets and increasing their profits. It will not be on supporting investment in the future of the economy nor do the banks have a strong record in this regard. As the Governor of the Central Bank has recently stated:

I think it's fair to say – and what data we have seem to bear this out – that banks in Ireland reacted to their own difficulties and to the downturn by greatly reducing their risk appetite. Some of this was a necessary adjustment, but the result has been limited availability of credit for start-up firms and SMEs. Indeed, I have the impression that, during the years of property-based lending, the banks have lost their edge in small business lending.

As banks repair and shrink their balance sheets, it is unlikely this position will be reversed. The Government has made all manner of promises about the flow of credit to business. They have made all kinds of noises about getting tough with the banks and demanding that they lend. They have put in place various bureaucratic measures to promote lending, but they made the same promises about bankers' pay, and then they systematically undermined their own guidelines. What we need now, therefore, is a new 'greenfield' bank with a clear mission to support investment in SMEs and innovative firms, and to assist in the funding of infrastructural investment.

The Labour Party's proposal for a strategic investment bank has been set out in our policy paper, Investing in Our Future. Our proposal is that the strategic investment bank would be based on the twin models of the German investment bank, Kreditanstalt für Wiederaufbau, KfW, and on the Irish experience with ICC and ACC. Both of these are successful models that have proven track records. The bank would be capitalised with an initial €2 billion investment from the National Pensions Reserve Fund, allowing it to make loans of up to €20 billion over time. Despite the many problems that we face, we can and should be optimistic about the future of the economy. We live in a time of great economic change, driven by trade and by stunning technological advances, which present great economic opportunities for Ireland if we seize them.

In only a few decades, digital and biotechnology have revolutionised large parts of the economy. Normally, when we think about the knowledge economy we think of computers, pharmaceuticals, electronic communications, scientific instruments, chemicals, and finance, but the knowledge economy is not, and will not be, confined to a few sectors. Technological change will also drive growth across the rest of the economy. It has changed and will change retailing, the food industry, and creative industries such as media and newspapers. As technological change feeds though into other sectors, productivity across the economy can grow. In any workplace technology can be applied to other intangible assets such as research, design, development, creativity , science and branding. Putting the technology together with these knowledge assets will drive economic growth which will be assisted by globalisation, as hundreds of millions of people are brought into the global trading system.

The so-called BRIC economies – Brazil, Russia, India and China - account for 40% of the world's population and only 25% of its income, something that will change in the years ahead. The countries that succeed in the knowledge economy will be those that understand it best, that embrace it and adapt to it and understand how the knowledge economy changes the common sense way of doing things. The challenge we face as a country is to embrace that economy and to turn it to our advantage, even more than we have done up to now, and to do that we need investment.

A sustainable investment-driven, knowledge-based economy is one where innovation is promoted across all sectors, where there is an environment that promotes firm start-up and expansion, and where there is a commitment to the provision of world-class infrastructure. Those are closely linked. Investment in infrastructure such as renewable energy, next-generation fibre networks, smart grids and electric transport will create the environment for a new wave of indigenous companies focused on the huge opportunities that will arise as a result of the expansion of digital technologies and the transition to a low-carbon economy in the coming decades. Those companies must also have access to working capital and growth capital, and to a range of other supports.

The strategic investment bank is designed to meet that investment need. One of its main areas of investment will be in infrastructure, whether privately owned or publically provided. In a footnote to budget 2010, the Government stated that it had approved a capital spending envelope of approximately €39 billion for the seven-year period 2010 to 2016. The Taoiseach has since restated that figure in various speeches. However, while the Department of Finance claims that a review of spending priorities has been undertaken, no new plan for capital spending has been published. That is extraordinary. The Government is effectively admitting that the national development plan has been abandoned, and a new plan put in place, but it will not tell anyone what is that plan. The profile for capital spending, set out in budget 2010, shows nominal spending of €6,466 million in 2010, or approximately 5% of GNP. This is projected to fall to €5,500 million in 2011 and for each year to 2014. In effect, the nominal amount of spending will stay the same, but it will fall as a share of GNP. On the basis of reasonable assumptions about growth in 2015 and 2016, capital spending will fall from approximately 5% of GNP in 2010, to approximately 3.1% in 2016, averaging approximately 3.8% of GNP for the period as a whole. While that is a substantial commitment on the part of the State, it falls well short of the 5% figure to which the Government was previously committed. It also falls short of the level of investment the ESRI identified as being necessary in its last major study in this area, which was completed in 2006. Although this report is now dated, the fact remains that Ireland needs a new programme of investment to reposition its economy and to create jobs. The investment economy cannot be realised unless we look to innovative solutions. We need a fresh approach to investing in innovation and to financing and developing infrastructure.

There have been a number of proposals made in this area that the Government has committed to examining but which have never produced any action. While the Government long ago committed itself to the principle of non-traditional financing through public-private partnerships, PPPs, its implementation of that approach has been fragmented and weak. The cost of PPPs has been the subject of some criticism. The banking crisis has dramatically reduced the level of interest in PPPs among potential investors. The availability of finance for PPP projects from both domestic and foreign banks has effectively dried up since the credit crisis began. Where finance is still available, it is for shorter periods than the life of the infrastructure project in question and at a much greater cost, mostly rendering the PPP funding model unviable. There is nothing to suggest the private banks have any appetite for continuing to finance such projects. Bidders for Metro North have explicitly stated the Government will have to underwrite the financing risks in order for the project to be completed.

What we need to put in place now is a fresh approach, led by a State-owned strategic investment bank. The Labour Party's proposal is that the strategic investment bank would assist in the financing of investment projects. The bank would prepare and issue bonds on the international capital markets and issue them to institutional and retail investors to fund these projects. The private consortium appointed to design, build and operate the project or projects in question would borrow the project funding from the strategic investment bank, and through that bank from other lenders, for a small margin over the coupon the bank would pay on the bond in order to cover its costs. Strategic investment bank lending would reduce the cost of funds for these projects, resulting in the provision of critical public infrastructure at a lower cost to the public purse and to users of services than the current PPP system, a system that is not functioning effectively.

The model of a State-owned, but commercially focused, investment bank has been successful in other countries, most notably in Germany, and is being examined in other countries, including the United Kingdom. Our proposal is to couple this role with an SME financing role, given both the urgent need for finance and the need for long-term investment. As was the case with the ICC, the cost base for such a bank can be very limited. We envisage an organisation with a handful of office locations around the country.

Successive CSO figures have painted a grim picture of the appalling jobs crisis that confronts us. One third of men aged between 20 and 24 and 40% of men under 20 in the workforce are unemployed. It is not morally or economically sustainable to have such large numbers of people out of work in a country. The Labour Party has put forward a comprehensive strategy for dealing with the crisis. It encompasses a jobs fund to support specific interventions, training and educational options of the unemployed and a strategic investment bank to lead the recovery. The bank would play a central role in the repositioning of the Irish economy for decades to come.

We have had many debates in this House on banking and the State committing large sums of money to banks that have participated in and in some cases have been a major cause of the economic crisis we are experiencing. The Labour Party is proposing the establishment of a strategic investment bank and the committal of funding, through the national pensions reserve fund, to capitalise such a bank. The bank would loan to SMEs and start-up companies and provide a vehicle to fund the infrastructure the country needs to get its economy moving again. I commend the motion to the House.

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