Brian Lenihan Jnr (Dublin West, Fianna Fail)

I am drawing attention to the fact that our sovereign republic from 1916 on has always required external assistance.

The national recovery plan has been published as negotiations for Ireland's entry into an EU and IMF programme for financial support are taking place. The plan has been in preparation since October. It is our plan for this country and it will work. Unusually for a country that is seeking external support, Ireland is funded to the middle of next year, our economy has stabilised and we are moving into a balance of payments surplus.

As the plan points out, recovery in our economy is beginning to take shape. Our underlying budget deficit has stabilised at 11.7% of GDP and will decline to just above 9% next year. Our tax revenues are slightly ahead of target so far this year and our spending is being contained. It is now expected that GDP will record a small increase this year on the back of strong export growth. Our exports have held remarkably well through out the downturn. They are expected to grow by 6% in real terms this year.

This growth is coming not just from the multinationals. Our indigenous exporters are also growing their market share, so it is a broadly based recovery in exports that is being driven by a pick-up in demand in our trading partners and also by the significant improvements in our competitiveness over the past two years. The measures on cost competitiveness contained in the plan will build on the improvements that have already taken place and strengthen the position of our companies in the market place.

Conditions in the labour market are beginning to stabilise. Unemployment is unacceptably high at 13.6 % but the live register has fallen for two consecutive months for the first time since 2007. At the end of the lifetime of the plan, we expect unemployment to have fallen below 10%. Our balance of payments will record a small surplus next year, meaning the economy as a whole is paying down external debt. We are beginning to pay our way in the world.

All of these data paint a picture of an economy that is returning to growth after a deep and prolonged recession. The purpose of this national recovery plan is to plot a course to sound, sustainable growth for our economy. The plan will dispel uncertainty and reinforce the confidence of consumers, businesses, and the international community. Taxpayers have the benefit of knowing that the changes in income tax over the life of the plan will bring us to levels we last saw as recently as 2006.

The site value tax to be paid by all householders will be introduced next year and will amount to an average of €200 per household by the end of the plan, and a maximum of €100 for a large number of households. The certainty the plan gives to taxpayers about the tax they will pay over the next four years will enable them to plan their investments and give them the confidence to spend in this economy. The revenue measures in the plan will reform and overhaul our system, broaden its base and provide revenue stability so that we can raise the resources we need to pay for our public services. It is estimated that this year, 45% of income earners will pay no tax. This is unsustainable. A fundamental principle of the reform contained in the plan is that all taxpayers must contribute according to their means. Those who can pay most will pay most. No group can be sheltered. The wholesale abolition and curtailment of tax expenditures, with a saving of €735 million, will ensure that high income earners will pay their full rate of tax. The reduction of tax relief on pensions over the period of the plan is also more equitable, because the relief is now available to all at the standard rate.

We know from our experience as well as from international evidence that a broadly based tax system is more conducive to economic growth. The plan is concerned not just with the quantity of the revenue raised, but also with the quality of the measures adopted so that at the end of the plan's lifetime, we will have a tax system that serves an advanced, growing economy. Our tax system will continue to incentivise work, entrepreneurship and innovation and our 12.5% corporation tax will remain unchanged.

Deputy Ó Caoláin intervened with regard to the position of the Border counties and their exposure for cross-Border trade. I agree that is an important issue and that is the reason firm and decisive action was taken on it in last year's budget. It is clear from VAT receipts this year that decision has had a productive effect in terms of the generation of trade on this side of the Border. However, I take note of what the Deputy has said in this regard and that is why the planned increases in VAT are left to a later period in the plan. Similar sales taxes in the United Kingdom are seeing substantial increases currently and we have given enough leeway in the plan to ensure an alignment can always take place between the relative rates of taxation on both sides of the Border.

Our day to day spending will be reduced by €7 billion over the next four years, bring us back to 2007 levels. The number of public servants will be reduced by nearly 25,000 by 2014, bringing us back to levels last seen in 2005. We will not allow this reduction in numbers to be detrimental to the quality of our public services. Reforms to boost the efficiency and productivity of the public service will be delivered in accordance with the commitments contained in the Croke Park agreement.

The reductions in expenditure are focused on the areas of greatest cost, public sector pay and pensions, social welfare and programmes such as the public capital programme. I have listened since this crisis began to Deputies talking about making savings from efficiencies. Of course we can do that, and we will. However, it is simply dishonest to suggest that we can right our economic ills without taking difficult decisions affecting the main drivers of public expenditure. Over the past two years we have made substantial adjustments through tax increases and expenditure changes, amounting to €14.6 billion. These succeeded in stabilising the underlying budget deficit this year. There is still a substantial amount of ground to be made up and the plan provides the measures to achieve this. Social welfare spending, which increased two and a half fold during the boom years, will be reduced by €2.8 billion. The available resources will be concentrated on those most in need. The system will be reformed to ensure it does not create poverty traps and disincentives to work and control measures will be intensified to assist in achieving the necessary savings. Capital spending must also provide savings. We have made significant investment in our infrastructure over the past decade and it has been transformed. In the current environment, it should be possible to deliver better value from a lower level of capital investment.

The main elements of expenditure reductions will be as follows. There will be a reduction in the cost of the public sector pay and pensions bill, social welfare and public service programmes. Savings will be achieved in social welfare expenditure through structural reform measures, labour activation and, as a last resort, reduced payment rates. Public service numbers will be cut by 24,500, 8%, compared to end-2008 levels. The public sector pay bill will be reduced by approximately €1.2 billion by 2014. For new entrants to the public service, there will be a reformed pension scheme and a 10% reduction in their pay. There will be more effective use of staff resources, through redeployment within and across sectors of the public service to meet priority needs. Work practices will be reformed to provide more efficient public services with scarcer resources. The student contribution to third level education will be increased. Water metering will be introduced by 2014 and the budget system will be reformed and updated, starting with budget 2011.

Careful choices have been made in determining expenditure for the next four years and these have been guided by the need to provide public services while at the same time ensuring that we return to growth. Investment in education, innovation and enterprise will be maintained at high levels to foster the growth potential in our economy. The labour market will be reformed to remove barriers to job creation. The minimum wage will be reduced and a short and focused review of the employment agreements that apply in the agricultural, catering and construction sectors is under way to ensure that these agreements do not endanger jobs or prevent the creation of new jobs, particularly for our younger people.

Measures to reduce the cost of doing business are also contained in the plan. It also contains a number of specific actions tailored to assist the sectors of our economy which will deliver growth in the medium term. The plan is not just about cutting the budget deficit. We must demonstrate how we will achieve growth and my colleague, Deputy Batt O'Keeffe, the Minster for Enterprise, Trade and Innovation will outline and elaborate on this aspect of the plan in the coming days. Long-term sustainable growth will be export led, but domestic demand is also critical to sustainable growth.

I want to make specific reference to the impact of any assistance package we may agree. First, the size of any programme is not finally decided, but an amount of approximately €85 billion has been mentioned. Whatever amount is agreed, it will not all be drawn down at once. The final amount is not an addition to the national debt figures in the plan. The level of funds available will allow us to replace borrowing which would have had to be undertaken in any event, if that was necessary. As far as banking is concerned, no particular level of drawdown has been agreed, but the fund is intended to be large enough to deal with all possible outcomes. The interest rate is not yet set. It will be an average rate given the different rates which will apply to the funds from different sources. The calculation of the interest rate is technical and complex and this work has not yet been completed. Therefore any interest rate mentioned at this time is speculative.

On the issue of bank reorganisation, the percentage ownership of any bank after this recapitalisation will depend on a number of factors not yet decided, including the amount of capital and whether any of it can be obtained from other sources. While various options for reorganisation of the banks have been discussed, no decisions have yet been made.

The suggestion that because we have not factored in information that we do not yet have into the plan, this invalidates it, is nonsense. The reform proposals and the fiscal measures must be fulfilled, whatever the outcome of our current discussions with the IMF and the EU.

I would like to refer to the commentary on our macro economic projections. Some have said we are being too optimistic, while others say we are overly conservative. I prefer to see the forecasts as prudent, balancing, optimistic and conservative assumptions. By providing certainty to consumers, the plan will build the confidence the economy so badly needs. That confidence will impact on domestic demand and expand employment in those sectors that serve retail demand, such as retailing, catering and construction. It is important for all of us to recall that this economy has had strong balanced growth in the past. This plan provides a path for us to achieve it again. The plan is fair and proportionate. It asks us to take more responsibility for ourselves, for the financing of our public services and for the payment of our children's college education. It concentrates welfare spending on those most in need and provides resources for public services to be delivered in an efficient and cost effective manner. It is a rational and sensible plan to bring us out of the steep downturn from which we are now beginning to emerge. We must all work together to implement it.

See this speech in context