Dáil debates

Wednesday, 27 October 2010

Macro-Economic and Fiscal Outlook: Statements

 

7:00 pm

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to speak in this important debate. It is important to acknowledge that all of the political parties accept the need to reduce the deficit, and the main Opposition parties accept the target of reducing it to 3% by 2014, although the Sinn Féin party does not subscribe to that view.

We need to acknowledge just how dependent we are, as a country, on Europe for support at present. Our banks are relying almost exclusively on support from the European Central Bank, though I note Bank of Ireland successfully managed to raise some funding on the international markets today. The support of the EU is critical to Ireland's ability to continue to raise funds on bond markets and we can continue to bridge the deficit between income and expenditure with borrowing.

We have to accept that no one owes Ireland a living. At the end of the day, we have to show a commitment across the political system to reduce and over time eliminate the fiscal deficit that has built up. The cost of borrowing, which has crept back up again today to approximately 6.9%, is a crippling level of interest and underlines the scale of the enormous challenge we face, as politicians, in the weeks before the NTMA returns to the bond markets in the new year to raise money to ensure this country can continue to function. Clearly, those interest rates will have to come down because that is not a sustainable cost of borrowing for a sovereign country to pay. It needs to come below 6% and we need to do whatever is required in the coming weeks to convince the international markets of our commitment in that regard.

I want to be as practical as possible in my contribution and will cover some key areas of policy. First, I welcome the recent allocation of funding of €3.3 million for the enterprise boards. However, I was surprised how little money the Government is giving to enterprise boards in general - I understand the €3.3 million was on top of €15 million provided already in 2010. Given the intention is that the €3.3 million will create 450 jobs, that works out at a cost per job of €7,300, whereas if one is paying somebody jobseeker's benefit or allowance, one is paying a single person €10,000 a year. It represents excellent value for the Government to invest a lot more money in the city and county enterprise boards if they are delivering a return of that level of employment. I would like to see a far greater focus and emphasis in that area. Perhaps some of the money invested in the national solidarity bond, which has in the region of €260 million already invested since May, could be diverted to enterprise support across the country. We would benefit from a very significant dividend if we were to do that.

We need to divert as much capital spending as possible next year to labour intensive projects and, rather than focusing on a small number of large iconic projects, we should spread that money across as many individual projects as possible. When one considers the return we are getting from the home energy savings scheme, for example, which is an exceptionally efficient and effective scheme, as well as the housing grants that are made available, such as the adaptation grants for people with disability and the mobility aids for the older person scheme, we get a great return from those investments. If we spread the capital investment across schemes such as those, we will get a far better return in terms of employment and in terms of generating activity in the economy. I firmly believe that if we give people a small incentive to spend money, even if it is only a few hundred euro, they will end up spending multiples of that.

The other major issue I want to touch on is the black economy. My sense is that at present the black economy is thriving in this country. We have to devise a system to capture as much of the activity happening in the black economy as possible. It is impossible to quantify the loss of revenue to the Exchequer by the amount of activity in the black economy but it almost certainly runs into hundreds of millions of euro a year. One idea to tackle this would be for the end customer who can produce a valid VAT receipt for work done to be given a small refund of VAT, which would incentivise more people to ensure the work carried out is done through the system and, as a result, the Exchequer would benefit.

With regard to the Croke Park deal, we need to see real savings, a timeline, deliverables and the objectives being achieved. In general, we will have to aggressively tackle the issue of bureaucracy and red tape, which has become almost an industry in recent years. It is very difficult for anyone with a business idea to get up and running and to tackle all of the bureaucracy and red tape that must be confronted.

I have raised the issue of local authority costs in the House previously. We must be radical in this area and do something really ambitious in regard to local authority rates, water rates and development charges, which are stifling the enterprise culture that is in every community. If we do not get to grips with this, we will not come out of the economic downturn as well as we should. I welcome the very positive report today in regard to exports, which are doing exceptionally well, but we need to focus on stimulating domestic demand. We must try to rebuild consumer confidence and improve consumer sentiment. It is clear a lot of money is being saved and we need to give people targeted and imaginative incentives to spend that money, or at least some of it, such as the car scrappage scheme, which has proven very successful.

The Minister for Social Protection, Deputy Ó Cuív, is seeking to reform the social welfare system. He will have to ensure it is worth people's while to go to work. The reality is that a married couple with two or three children relying completely on welfare would need to be earning approximately €35,000 to €40,000 per year to make working worthwhile. We must ensure that, in whatever we do with taxation and welfare, we do not reduce the gap further between welfare and work and that we incentivise people to go to work. The economy in general will benefit if we do so.

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