Brian Cowen (Laois-Offaly, Fianna Fail)

It must be clearly understood that if we are to be in a position to borrow to maintain our public services, State pensions, unemployment benefits, schools and hospitals and pay those who work in them, we must adhere strictly to the agreed parameters of the national recovery plan we have drawn up and agreed with the European Union, ECB and IMF. The plan is the sole basis for drawing down the financial facility these bodies have made available to us. The front-loaded €6 billion cut in the deficit is the first and most crucial instalment.

There is no alternative option of €4.5 billion. If the Labour Party in government were to attempt to draw back from any aspect of the EU-IMF programme for financial support for Ireland without putting forward a full equivalent alternative, eurozone Finance Ministers would point out to it, in no uncertain terms, that it is bound by the scale of the commitments which underpin the agreement to provide support. If not, assistance would be suspended. Deputy Gilmore would do well to recognise his potential responsibilities and stop pretending to people in either a naive or deceitful way that his party has some other way.

Despite the adjustments made to date, the economy is emerging from recession. There have been significant improvements in our competitiveness, as Ireland prices itself back into international markets. Our exports are performing strongly and have increased by 7% in the first half of the year. We are moving into a balance of payments surplus in 2011. Tax returns for 2010 are expected to be €450 million ahead of projections, while economic growth will also exceed forecasts. Unemployment has stabilised and the live register has fallen in each of the past three months.

When considering the challenges that lie ahead we need to remember how far we have come and the resilience shown by Irish people over the past two years. It is this resilience which gives confidence that we will emerge from this crisis quicker and more strongly than many commentators expect.

The national recovery plan published by the Government on 24 November is the basis for sustaining recovery. The plan outlines a pathway to restore the public finances by returning tax and expenditure levels to close to those of other European countries. Some €10 billion or two thirds of the budgetary adjustment will be achieved through reduced expenditure, with €3.9 billion of this figure being achieved in this budget. This means that by 2014 gross current expenditure will be back to 2007 levels.

Total Government voted expenditure as a percentage of GNP will be reduced from 49% to 36% by 2014. The remaining one third of the adjustment - €5 billion - will be achieved through taxation. The focus will be more on broadening the tax base than increasing tax rates, which is a more effective way of achieving revenue targets.

Tax receipts in 2010, nevertheless, will be 35% lower than in 2007, reflecting the over-dependence on property and construction-related revenue sources at that time.

A fundamental principle of the reform outlined in this plan is that all taxpayers must contribute according to their means. Those who can pay most will pay most, but no group can be entirely sheltered. The changes in the plan will bring the income tax structure back nearer to what existed in 2006. This budget is the first phase in this fundamental restructuring of the public finances, bringing them back to a sustainable position, while maximising the economy's potential to grow and again create jobs.

We cannot afford delay. As of now, the parties opposite are not agreed on how much needs to be done or how it is to be done, as our previous exchanges amply illustrated. We do not have the luxury of time to allow all that to be worked out. Completion of the first steps towards the agreed target deficit of 3% of GDP by 2014 or, at the latest, 2015, will create the necessary breathing space, so that an election can be held and a new Government formed. We will not shirk our responsibility for the welfare of our people in the meantime. All sides of the House and people outside it need to be aware that restoring our country's credibility, including re-building the confidence which is essential to recovery, depends on our being able to follow through swiftly on the commitments we have made.

The main task of the Government I have led has, from the outset, been to secure the best interests of the nation in the most challenging times. We have made hard choices and taken unpopular decisions in the interests of the security and well-being of our people. As a Government, we did our best to resolve both the banking and the deficit situations on our own. The interdependence of the modern world as well as our membership of the eurozone and large market movements have, in the end, put some of the solutions beyond our control.

Both the EU and the eurozone are themselves facing fundamental challenges in devising a fair and equitable response to a financial crisis situation, present and future, that may, in a chain reaction, adversely affect several member countries. That our domestic measures did not prove sufficient does not mean they were not necessary. It was essential for us to make the maximum effort, which will now be supported by the European Union, the European Central Bank and the IMF. We are in a different territory from when such interventions were made in the past, for example, when Britain in 1969 and 1976 made application to the IMF at a time when we shared a common currency with it. For a small country, in particular, economic sovereignty has in practice always been somewhat circumscribed.

If we are to recover greater freedom of action in the future, as we all wish, it will not be done by a foolish and petulant unilateral repudiation of our obligations, for which there is no successful precedent anywhere, nor by a refusal to accept any share of responsibility for our collective actions in the boom years. Our situation will only be improved by following the route set out in the national recovery plan, of which the budget is the critical first instalment. Principally, what we must do to put our economy and our finances back on an even keel is to correct the overshoot wherever that occurred. A limited sacrifice in recent improvements in living standards will put us back on a path we can sustain. It is not about reverting to where we were ten or 20 years ago, rather, in most cases, to where we were only a few years ago.

I accept the argument that we have to start at the top. The Taoiseach's salary is being reduced by a third compared to what it was in 2008, with net pay down 45%. The future salary for the President will be set at the new public sector ceiling of €250,000, which, when existing top level contracts in the semi-State bodies expire, will apply across the public sector, including to judges. I wish to acknowledge the President's announcement that she will, on a voluntary basis, apply this new rate as she has accepted previous reductions. Ministers will have seen their net take-home pay reduced by 36%, while Deputies' net salaries will have been reduced by a third.

Pension lump sums will be taxed above €200,000, and the public service pension will be reduced by an average of 4%. New entrants will enter at a 10% lower starting income. With the important exception of education, public sector numbers will fall back to lower levels by 2014, though much of the improvement in services will be broadly maintained. A more competitive economy has to reduce its overheads.

The cumulative impact of budgets since budget 2009 has been highly progressive, taking welfare and tax changes together. Changes in the pension regime are mainly focused on the highest earners. Twenty-four reliefs and exemptions are being terminated or restricted, including property reliefs. The cap on employees' PRSI is being removed, as has long been advocated. In making the adjustments in this budget, we have protected the vulnerable as much as possible while continuing to incentivise work, jobs, and growth, on which their incomes depend.

Everybody pays something, but the better-off pay most. At present, the top 8% of earners pay 60% of tax. After this budget, the top income earners will continue to pay, proportionately, the most. Much criticized tax breaks which mainly benefit high earners will be largely eliminated. While it has been necessary to cut working age welfare payments, the 2011 rates will still be more than double the 1997 levels, compared to a consumer price index or price increase of 45%. Child benefit rates will be three times higher than in 1997.

To put all this in context, tax measures over the four years of the national recovery plan will bring us back to 2006 levels. After this budget, 38% of people will still be outside the tax net. The increase in numbers of people coming into the tax net at present is 45% and will be 38%. The new minimum wage level, designed to increase the availability of jobs, will not be in the tax net. The sum of €306 for a 40 hour week compares favourably with a single person's job-seeker's benefit of €188. Despite the reduction, the minimum wage will still be considerably above the level in the UK and Northern Ireland.

In the debate, I cannot overlook the fact that the Labour Party is seriously at odds with Fine Gael as to the proportion of the adjustment that would be met from additional taxation. The Labour Party's tax policy is closer to Sinn Féin's than it is to Fine Gael's. Fine Gael's commitment is to confine tax measures to one-third of total cuts from 2011-2014. The Labour Party proposes that half of the adjustments will come from more taxes. It is worth pondering what the outcome of the Labour Party's proposal of increased taxes might mean for average working families. If the party had its way on raising €2.5 billion in taxes as it proposed last week, and given that it voted against our proposals, this could, for example, involve a 2% increase on the standard rate of income tax, a 5% increase on the higher rate, or 1% on the lower rate and 3% on the higher rate in addition to a further 2% increase on the standard VAT rate to 25% with implications for competition across the Border, as well as a site value tax of €400, not the €200 average. In spite of claims that the target would be the well-off, experience shows that the average PA YE taxpayer has always fared worse when the Labour Party was in Government.

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