Martin Mansergh (Tipperary South, Fianna Fail)

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"commends the Government for:

— its management of the economy which means that Ireland has emerged from recession with the strongest GDP growth rate of the Euro area in the first quarter of this year;

— the policies it is pursuing to maintain credibility and sustainability in the public finances, which have been recognised internationally;

— the initiatives taken by the Government to preserve the stability of the banking system and to address the issue of asset quality in the banking system through strengthening the banks' balance sheets in order to facilitate the flow of credit to viable borrowers and thereby underpin economic recovery;

— the measures taken to protect employment including the Stabilisation Fund, the Temporary Employment Subsidy and the PRSI Exemption scheme with the result that employment levels remain at nearly 1.9 million people, which is about half a million more than in 1997;

— the measures taken to provide additional opportunities in education, training and work placement for the unemployed to assist them in returning to the labour market; and

notes that:

— confidence has improved and spending on discretionary items such as cars has increased;

— the Government has kept spending for investment at high levels relative to national income by international standards;

— the public finances are stabilising and are generally in line with expectations for this point in the year;

— virtually all Organisation for European Economic Co-operation (OECD) countries have experienced major economic and financial difficulties over the past two years or so;

— notwithstanding volatility on foreign sovereign debt markets, the National Treasury Management Agency (NTMA) has at the mid-year point, raised over 80 per cent of the funding requirements for 2010 and we are in a comfortable position with regard to funding this year and even if we did no further borrowing this year, existing cash reserves would cover our borrowing requirements for the remainder of the year; and

— the Government through its ongoing management will continue to address the economic, fiscal and banking sector issues facing the country over the coming years in a responsible and sustainable manner."

I am pleased to have the opportunity to speak in this evening's debate in support of the Government's counter-motion regarding management of the economic crisis. At this time, an informed discussion regarding the Government's management of the economy is indeed relevant to dispel some of the myths put forward by those on the Opposition benches. In my remarks this evening, I will outline how the policies adopted by the Government are beginning to bear fruit and in so doing I hope to dispel the negative sentiment contained in the Fine Gael motion.

Last week, the Central Statistics Office, CSO, published first quarter national accounts figures. These data show that economic activity in Ireland, as measured by the internationally-accepted benchmark of gross domestic product, GDP, rose by 2.7% between the final quarter of last year and the first quarter of this year. This is the strongest rate of expansion of any country in the euro area. The data do show gross national product contracting slightly, and this reflects the type of growth, but the figures nevertheless are welcome signs of growth returning to the economy. Some commentators are now forecasting positive GDP growth for this year. Moreover, the Department of Finance is considering its own forecast and is likely to issue a revised set of macroeconomic projections for this year shortly, as is customary in the month of July. Consequently, the policies being implemented by this Government to improve competitiveness, maintain our public finances on a sustainable path and repair our banking system are having the desired effect.

However, I wish to stress that the Government is not complacent and recognises fully the pain and suffering of many in our society who have been negatively affected by the economic difficulties experienced in the last three years. While it is welcome that the economy has emerged from recession, let me be categorically clear when I state this is just the first step on the road to recovery. Nevertheless, economic growth is an important first step as this is a crucial prerequisite for jobs growth and an improvement in living standards. The Government will continue to address the economic, fiscal and banking issues over the coming years in the decisive and responsible manner that has characterised its management of the economy over the past couple of years in the face of an unprecedented crisis.

Before discussing recent domestic developments, I wish to outline briefly some relevant international economic developments. Of course, it is convenient for those on the Opposition benches and part of the media to view Ireland in isolation and to suggest that we are the only country that has experienced economic, fiscal and banking difficulties. The reality could not be more different. Almost all of the world's advanced economies have experienced very sharp falls in activity, giving rise to severe public finance problems and, in some cases, financial sector difficulties. That said, I recognise fully that Ireland's problems are more severe than elsewhere.

As a small and highly open economy, our prospects are inextricably linked to developments in the wider global economy and in this regard, the signs are reasonably good. Most of our trading partners have emerged from recession and this will underpin an improvement in our exports, as well as support inward investment. However, on a more cautionary note, it also is fair to state that the recovery in some of our key markets, such as the euro area and the United Kingdom, is likely to be modest, at least in the short term.

The confidence of global capital markets is another important feature of the international economy. In April and May of this year, we all witnessed the fall-out from a loss of confidence by the international investment community in the ability of one European Union member state to implement sufficient fiscal consolidation policies. These developments demonstrate, if demonstration was needed, the importance of continuing to pursue the necessary budgetary consolidation policies in Ireland. In this regard, the Government's fiscal consolidation strategy has received widespread recognition and approval internationally. As everyone in this House will be aware, between July 2008 and December 2009, five sets of consolidation measures already have been implemented. Broadly speaking, two thirds of the adjustments have been on the expenditure side with the remainder on the revenue side and this approach is in line with best practice.

The measures are paying off. This year the Government expects to stabilise the deficit and the figures published by the Department of Finance last week are consistent with this. Aggregate tax receipts for the first half of the year are broadly on target, although income tax revenue is softer than planned and will be watched closely in the coming month. Spending figures for the same period point to ongoing prudent control by Government and the expectation is that expenditure this year will be in line with and within previously set-out plans. It also is worthwhile to note that, notwithstanding volatility on foreign sovereign debt markets, the NTMA has, at the mid-year point, raised more than 80% of the funding requirements for 2010, with the result that Ireland is in a comfortable position with regard to funding this year. Moreover, even if we carried out no further borrowing this year, existing cash reserves would cover our borrowing requirements for the remainder of the year. For next year, the Minister for Finance has stated that measures amounting to €3 billion will be implemented, with further measures being required in later years so that our deficit will be below Stability and Growth Pact requirements by 2014. This approach has been endorsed by the European Commission and has been commended by other international bodies such as the IMF and the ECB.

An improvement in global economic conditions, while undoubtedly welcome, is generally not sufficient for recovery in Ireland. This is because we need to be in a position to be able to exploit the global improvement or in other words, we need to be competitive. In this regard, there are grounds for optimism. Consumer prices continue to decline, while those in our main export markets are now increasing. This is helping to restore our price competitiveness. In addition, I stress that falling prices are helping to support disposable incomes at a time when wages have come under pressure and when social welfare rates have declined. In terms of cost competitiveness, data from the European Commission show that unit labour costs in Ireland are falling, in contrast to the increases being recorded in the rest of the euro area. Recent exchange rate movements are also beneficial from a competitiveness perspective as the euro has depreciated against both the dollar and sterling.

Hence, our competitiveness is improving and, combined with the improvement in the global economy, this bodes well for exports. Indeed, the latest data show that exports performed well in the first quarter of the year and monthly data also point to a reasonable performance in the second quarter. If we continue to make competitiveness adjustments, then we can expect export-led growth to gain momentum from now on. I also point to the improvement in domestic confidence in recent months. Consumers have become more confident and confidence in June reached its highest level since the end of 2007. The decisive action taken by the Government to address the deterioration in the public finances has helped to create certainty and has generated more optimism. As a result, consumers have started spending once again, especially on big-ticket items such as cars, assisted in part by targeted Government measures for this industry.

The Opposition has sought political gain by criticising the Government for reductions in capital spending. However, this is wide of the mark. The allocation for this year is for capital spending of approximately 5% of national income. By international standards, this level of investment is one of the highest in the developed world. Moreover, it is clear that tender prices have fallen significantly in recent years and by 30% this year, according to some estimates. I am highly conscious of this trend in the Office of Public Works. This has enabled the taxpayer to gain greater value for money. Thus, the Government, by keeping capital spending at relatively high levels, is providing a stimulus to the economy on the one hand, while ensuring better value for taxpayers' money on the other.

There of course are those who believe that more should be spent on capital projects. However, I stress that pursuing capital spending for its own sake is not appropriate budgetary planning. Projects must be assessed on their own merits, having regard to both costs and benefits and the capital programme covering the period 2010 to 2016 is appropriate and involves spending €5.5 billion each year from 2011. This programme will assist our future growth potential.

I now turn to the issue of the labour market. The Government is acutely aware that the greatest fall-out from our economic difficulties is in the labour market. After adjustment for seasonal factors there were 445,000 people on the live register in June, a figure which is far too high. However, we will not be able to reduce unemployment until we can secure robust economic growth and that is what the Government is doing through our competitiveness, fiscal and banking sector policies. Contrary to the Opposition view, jobs are the key focus of this Government. However, in the real world where policies are formulated and implemented, it is clear to all, except apparently the Opposition, that employment growth cannot be achieved without economic growth and that economic growth cannot be achieved without improvements in competitiveness, a sustainable public finance position and a functioning banking sector capable of providing funding to viable projects.

The Government's entire economic strategy is about sustaining and creating jobs, as set out in its framework for economic renewal, Building Ireland's Smart Economy. It is repositioning Ireland as a global innovation hub, that is, the best place for both multinational and Irish companies to start, grow and transform. That will lay the foundations for future employment growth. We are developing opportunities in the green economy, renewable energy and clean technology.

Finally, I wish to turn to the banking system which has also absorbed much of our time and energy in recent years. A healthy, fully operational banking system is a cornerstone of any modern economy so it is clear that restoring confidence and repairing the system is a prerequisite for economic recovery. That is why the Government, like governments and central banks across the globe, has provided substantial support to the financial sector. The main policy initiatives have been the bank guarantee in order to secure the liquidity of the banking system, the establishment of NAMA in order to clear up the balance sheets of banks, the recapitalisation of banks and restructuring of the banking system and reform of the regulatory system.

The Government is determined to put in place the necessary mechanisms to ensure that viable firms and enterprises have access to credit. In this regard, the Government has required AIB and Bank of Ireland to submit SME lending plans to the Department of Finance detailing how they propose making the €3 billion available to SMEs. These plans have been reviewed by Mr. Trethowan, the credit reviewer, and he considers that both are credible programmes to achieve the lending targets.

In addition, the Credit Review Office was established by statutory instrument under the NAMA legislation to ensure that banks continue lending to viable businesses. The office reviews refusals by banks to grant credit, including reductions and withdrawals of credit. The borrower must first invoke the internal appeals procedure in the bank. Mr. Trethowan, the credit reviewer, has worked with the banks to ensure that their internal appeals systems are placed on a more formal footing. Although the number of reviews is quite low as yet, it is expected to increase as people become more aware of the existence of the Credit Review Office and their right to review. In this context, I would encourage any SME or farm enterprise which is refused credit to contact the office to get advice on how to proceed.

As the economy starts to improve, there will be increased demand for working capital as business activity and stock levels rise. The Government expects the banks to play their part by supplying credit to viable businesses to allow them to participate in and contribute to the improvements in the economy. The Government has ensured that the banks have the necessary capital to be in a position to meet the increased demand for credit. It is up to the banks now to make this credit available to viable businesses and their performance will be monitored by the Credit Review Office to ensure that they do so.

In terms of regulatory reform, the Central Bank Reform Bill 2010, which is being debated in the Seanad this evening, is a crucial step in a comprehensive programme to put in place a domestic regulatory framework for financial services that meets the Government's objective of maintaining the stability of the financial system. It provides for the effective and efficient supervision of financial institutions and markets and safeguards the interests of consumers and investors.

This is the first of a three-stage legislative process to create a new fully integrated structure for financial regulation. It provides a statutory basis for the new structure, which will replace the existing Central Bank and Financial Services Authority of Ireland.

The Government has reacted decisively and in a timely manner to address the rapid change in our economic fortunes. That is widely recognised internationally by those who objectively assess our performance. Hard decisions have been taken and these have helped to reposition the economy on a more sustainable, export-led growth path. Those hard decisions are now beginning to bear fruit, as evidenced by the return to growth in the first quarter. While that has not yet had a positive impact on the labour market, as the recovery gains momentum we can expect further dividends, including in the labour market.

In the couple of minutes remaining to me I wish to reply to a couple of points made by Deputy Sheahan. It is often quoted and I must admit I do not approve of the remark myself - we have it so we will spend it - but that did not describe Deputy McCreevy's actual policy as opposed to perhaps his rhetoric. He reduced the national debt and put a great deal of money into the NTMA, which has been indispensable in the recent past, and introduced measures to encourage personal savings. That needs to be borne in mind.

Deputy Sheahan quoted a New Jersey newspaper. We all know that US economic policy is to encourage other countries to continue with stimulatory packages, presumably because that will help the US economy, but one cannot simply equate what might be appropriate for the US economy, which is the world's largest economy, with the Irish economy and to assume that what fits the one will fit the other. I have often expressed the view that we do not have the funds to have a net stimulus which would increase borrowing. I am interested that the new Fine Gael spokesperson for finance, Deputy Noonan, whom I wish well, and who has a considerable reputation, is going to look again at party policy in that regard. I do not think a policy which requires an early increase in indebtedness is viable in the current context.

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