Brian Lenihan Jnr (Dublin West, Fianna Fail)

This has been a traumatic and worrying time for the citizens of our country. They are concerned that we had to seek external support to help us with our economic and financial difficulties. They are worried about the impact of this momentous and difficult decision on all our lives. Yet, in fact, even in this most intractable and complex crisis, there are clear signs of hope.

Amid the turmoil in the financial sector over recent months, it is very easy to lose sight of the fact that economic activity in this country has stabilised. From a drop of 7.6% in 2009, GDP will record a small increase this year. Recovery in the real economy is beginning to take shape. As anticipated, this recovery is being led by exports. Our exports increased by nearly 7% in real terms in the first half of this year. Output in the manufacturing sector was up 12% in the third quarter, while surveys point to continued strong growth in export orders for both goods and services. Agriculture and the agri-food sector has strengthened this expansion. The growth is broadly based and is being driven not only by a pick-up in demand in our trading partners, but also by the significant improvements in competitiveness that have been achieved in recent years. Yes, domestic demand remains weak, as households and businesses continue to work off the excesses of the boom. However, continued export growth will protect and expand high-value employment and stimulate domestically trading sectors of the economy. This, in time, will reduce unemployment, help build confidence among households and firms and stimulate renewed growth in consumer spending and investment.

There are signs too that conditions in the labour market are beginning to stabilise. The live register has fallen for the third month in a row, the first time since early 2007. Redundancies in the past three months were more than 30% lower than in the same period last year. Our underlying budget deficit has stabilised at 11.6% of GDP. Our tax revenues are ahead of target, despite a weak start to the year, and our spending has been brought under control. So our actions to stabilise the public finances have made progress. The balance of payments is expected to record a small surplus next year, meaning that the economy as a whole will be paying its way in the world. These data taken together paint a picture of an economy that is returning to growth after a deep and prolonged recession. For the period out to 2014, real GDP is forecast by my Department to increase by an average of almost 2.75% per annum with real GNP growing by an average of just more than 2% per year in the same period.

So if the real economy is poised to grow, why do we need the help of the IMF and the EU? The answer is that we need their support to break the vicious cycle that has threatened our national finances and our banking system since the second quarter of this year. Following the Greek crisis this spring, funding for the State and our banks became increasingly expensive. The rising costs of dealing with the banks that became evident during the autumn and the growing concerns about the prospects for the global economy reinforced doubts among international investors about the sustainability of our public finances and our capacity to fix the financial system unaided. The joint programme of assistance, involving stand-by resources of up to €85 billion, provides us with the firepower we need to restore market confidence, strengthen the financial sector and press ahead with our plans to reduce the budget deficit and facilitate the economy's return to sustainable growth.

Without this support, there would have been serious doubts about the ability of the State to raise funds at reasonable cost to pay for key public services and to provide a functioning banking system to support economic activity. That is the reality. We are in a position to contribute one fifth of the fund ourselves from the National Pensions Reserve Fund and domestic cash balances. As I said last week, it is not credible to suggest we could have retained a sovereign wealth fund while expecting others to make resources available to us. The policies set out in the joint programme, which closely reflect our national recovery plan, are not a new departure. They are a continuation of the Government's strategy for recovery which has remained steadfast since the onset of the crisis.

Over the last two and a half years, the Government has worked hard to get its spending back under control. We have made very difficult decisions and our citizens have demonstrated enormous forbearance in accepting the need for those decisions. We have secured an overall adjustment of €14.6 billion. Without this adjustment, our underlying deficit would already have ballooned to more than 20% of GDP.

The budgetary adjustments we plan for the coming four years are large. But if we postpone them, even bigger and more wrenching adjustments will be needed at a later date. Our proposed budgetary measures have been laid out in considerable detail to give certainty to households and firms so that they can plan for the future.

It is the Government's strong view that the economy can continue to grow while we make the budgetary adjustments outlined in the national recovery plan. We need to ensure our economic growth is built on solid foundations that are sustainable socially, economically and environmentally.

The Government has committed to the introduction of a new national performance indicator to allow a variety of quality of life measurements to be assessed and reported on a regular basis, complementing traditional economic data. This will be used to guide policy development. It will allow the public to assess the progress being made across a range of indicators.

The CSO is working on the development of this new national welfare index. Our attractiveness as a country in which to live is an important part of our overall competitiveness.

This time last year, it was assumed that an adjustment of €7.5 billion would lead to a deficit of 3% of GDP by 2014, the target year agreed with our European partners. Given the medium-term growth prospects have been revised down and our debt interest costs have risen, this adjustment has had to be revised upwards to €15 billion.

In the national recovery plan, we have set out the timetable for achieving this adjustment over the next four years. These targets are reflected in the joint programme of assistance. As the European Commission has more conservative forecasts for the medium-term, we have been given an extra year to reach the 3% deficit target required under the Stability and Growth Pact. But this changes neither our targets nor our timetable for reaching them. As outlined in the plan, €6 billion of the overall adjustment is being made in today's budget. The scale of this adjustment is demanding but it demonstrates the seriousness of our intent.

In simple terms, the gap between Government receipts and spending is almost €19 billion this year. This gap must be closed. We got into this position by seeking, with the full support of those opposite, to spread the benefits of the boom across every section of the population. Between 2000 and 2008, public spending increased by over 140%, while the consumer price index increased by just 35%. Working-age social welfare rates are now more than twice their rate in 2000. Over the same period, the State pension almost doubled. These increases were well ahead of the cost of living.

At the same time, taxation was reduced and the proportion of income earners exempt from income tax increased from 34% in 2004 to an estimated 45% this year. All of this was made possible by the very large property-related tax intake during the boom years. In our dramatically changed budgetary circumstances, it is clear the State can no longer afford this level of social provision.

The changes I am announcing today are substantial but it is important to keep things in perspective. The current spending reductions set out in the national recovery plan out to 2014 will bring total gross voted current spending back only to 2007-08 levels. The income tax measures in the plan will bring us to levels prevalent as recently as 2006. Those years were not times of hardship. The reductions will impact on living standards but the fact is social welfare rates are still high in this country and much higher than our nearest neighbour.

Budget 2011 continues the task of bringing the cost of our public services back to levels that can be sustained by our economy. I do not propose to repeat here today the spending reductions that have already been outlined in the national recovery plan and are set out again in the Estimates published today.

The one area of expenditure in which decisions have not yet been detailed is social welfare. First, I want to confirm that the Government has decided there will be no reduction in the State pension this year. We have significantly increased the State pension over the last ten years and it is the Government's view that the security this has brought to older people should be preserved.

In the case of working-age rates of payment, there will be a reduction of about 4%. The Government has maintained these payments at a rate which far exceeds total inflation since 1997. The 2011 basic working-age payment will be almost 117% more than it was in 1997. Cumulative inflation over the same period was around 40%.

Regrettable as they are, the impact of the reductions is lessened by continued low inflation. The rates in question will still be slightly ahead of the 2007 working-age rates of payment. We have built up a generous level of welfare provision over the last decade and though they must now be reduced somewhat, our record of commitment to those in need stands up.

Over the next four years, further reductions in social welfare spending are unavoidable if we are to reduce the budget deficit. The size, nature and composition of these reductions will depend on the rate of decline in unemployment; the effectiveness of anti-fraud and control measures; and the reform of the benefits system. Our number one priority for 2011 and onwards must be economic growth and maximising employment creation. That demands improved competitiveness which is at the heart of the social welfare and labour market measures we have proposed.

Child Benefit

There will be a €10 reduction on both lower and higher child benefit rates with an additional €10 reduction for a third child only. These reductions will bring rates of payment back to the 2006 rate for the first and second child and to 2005 rates for the fourth and subsequent children with the rate for the third child reflecting the 2004 rate. The new rates are still three times higher than they were in 1997.

Details of the specific social welfare measures are set out in the summary of budget measures-----

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