Michael Noonan (Limerick City, Fine Gael)

I will focus my contribution this evening on issues relating to my Department.

The programme for Government envisages that the Department of Finance will be reconfigured as two Departments: a restructured Department of Finance, which will encompass the budget, taxation and economic division and the banking division, and the Department of Public Expenditure and Reform, which will comprise one division dealing with public service management and development and another, the sectoral policy division, dealing with matters relating to public expenditure.

There is a myth that the Department was divided because there was a failure to agree in the Government negotiations. This is not true. The decision to separate the functions in this way derives from a policy proposal developed by the Minister for Enterprise, Jobs and Innovation when he was the Fine Gael spokesperson on finance in Opposition.

As Deputies will be aware, there have been many attempts at public sector reform in the past. The assessment of the Minister, Deputy Bruton, supported by Fine Gael colleagues and our new colleagues in Government, was that previous attempts failed for two reasons. First, previous processes over the last number of years were not driven by a Minister of Cabinet rank. Second, where the reform agenda was being pursued, the Minister of State or the official driving the initiative was hampered by not having the necessary levers available to deliver on that agenda.

The new organisational configuration overcomes these drawbacks. We now have a position where the Minister responsible for public sector reform is a Minister of full Cabinet rank equal in every respect to all other Cabinet colleagues. This will ensure that the reform process can be advanced and championed at government level. In addition, because the Minister's portfolio now includes the expenditure control function, he will have the necessary levers to deliver on reform. These two aspects are fundamental departures from the approach adopted by Administrations up to now and the Government is fully confident that the new arrangements will be successful. Reforming the delivery of public services, while at the same time controlling Government expenditure, taking account of the poor state of the public finances, will be a key priority for the Government. If anybody wants to check the facts, the public sector reform policy published by Deputy Richard Bruton last September has this in detail, and it was carried forward into the Fine Gael programme for Government. That is the origin of the proposal and it is a myth that it arose from any decision between Labour and Fine Gael in the discussions for the programme for Government.

The Government programme sets out the fiscal strategy that the Government intends to follow. As stated in the programme, we believe that it is appropriate in order to enhance international credibility to adhere to the aggregate adjustment as set out in the national recovery plan for the combined period 2011 to 2012. This approach to our fiscal position is both prudent and practical. In the process of negotiating the programme for Government, the negotiating teams from the Government parties were briefed by officials from the Department of Finance, the Central Bank, the NTMA and others. It became evident that while the path forward for the economy can be set out with some certainty for 2011-2012, beyond that matters become somewhat more opaque. The Government will keep to the fiscal targets of 2011 and 2012 but, on the advice of the Governor of the Central Bank, we will build in a review for the later years. In this regard, three variables are relevant: the projected rate of growth; the impact of the Government's jobs and growth strategy, and the extent to which it is possible to renegotiate the EU-IMF programme of support.

In relation to the first of these, the projected rate of growth for the economy varies from forecast to forecast depending on the agency making the projection. My Department's view, based on its assessment last November, is for an annual average GDP growth rate of around 2.75% over 2011 to 2014. As part of the new EU semester which applies to all member states, the Department will submit revised forecasts to the European Commission next month, which will take account of the latest domestic and international information to hand.

On the second issue, the Government is very strongly committed to a jobs and growth strategy, and I understand this was a theme that went right through the debate today. We are also fully committed to bringing forward as a priority a budget to put the strategy into effect in the early stages of our term. We are optimistic that this will be successful and will enhance the rate of growth in the economy. The Government also hopes to secure a renegotiation of the EU-IMF programme of support including a downward revision on the interest rate which applies to the financial elements of the programme. As Deputies will be aware from events in Brussels in the last number of days, the negotiations are likely to be challenging, to say the least. The Taoiseach and I have been making the Irish case and while nothing final has been agreed, I am confident that we can achieve some improvement in the costs associated with the programme. Obviously, success in this area would ease the quantum of the adjustment required to reach our deficit target by 2015 and this is to be welcomed.

As stated in the Government programme, beyond 2015, our commitment goes further than that of the previous Administration and envisages balanced budgets and current surpluses. This is an important commitment as our colleagues in Germany, the Netherlands, Finland and Austria in particular want assurances that if the European Union gets its house in order in fiscal terms it will not regress to previous undesirable practices. We share this commitment and it is something that this Government fully supports. In this regard, it is my intention to strengthen our budgetary process to best international practice and standards.

I would now like to turn to the issue of banking policy. The crisis in our banking sector remains a major problem for Ireland. The cost of the banks is perceived to threaten the sustainability of our fiscal programme. The continued reliance on Central Bank funding has eroded market confidence in our banks and their ability to access market funding. There is broad agreement that the medium-term solution for the problems of the Irish banks is to deleverage them, that is, to reduce the size in a balanced and measured way. At the same time, a fast deleveraging process cannot be undertaken because, as recognised in the programme agreement, sales of bank assets at fire sale prices would have significant consequences for our sovereign indebtedness.

The EU-IMF programme of support addresses the uncertainty over the capital needs of the banks by providing that a detailed analysis of the Irish banks under an extreme stress scenario is currently being carried out by independent consultants. As the House will be aware, I have indicated that the €10 billion earmarked in the EU-IMF programme for recapitalising the banks will probably not be enough. The extent of the shortfall will be revealed by the results of the banks' stress tests, which will be published by the end of March. Any significant increase from the current estimated capital need will exacerbate market concerns regarding the sustainability of our debt position.

The EU/-IMF programme does not address the question of the medium-term funding for the Irish banking system, which remains one of the major vulnerabilities for the sector overall. The fact is that without medium-term funding at a reasonable cost, the Irish banking system will not be able to return to a stable funding position. A mechanism which addresses this issue for the banks would play a major role in restoring confidence in the sovereign and help underpin the good progress being made on the fiscal side.

In early February, my predecessor, Deputy Brian Lenihan, decided not to inject further capital into the banking system to ensure that Allied Irish Banks, Bank of Ireland and the Educational Building Society would be capitalised to a level of 12% core tier 1 capital as required under the programme agreement. The move was to have been carried out as part of the commitments under the EU-IMF programme of support. As had been made clear, the new Government will not make a decision until the results of the P-CAR exercise, that is, the stress testing to which I have referred, become available. The Government expects to have the results by the end of March.

I wish to make a general point before I close. The Government has an enormous and urgent programme of work, mandated by the people, to get the economy moving, restore confidence and support the protection and creation of jobs, a task which is even more pressing in the light of the latest labour market figures for the final quarter of 2010 which were published earlier today. We have also the task of fixing our banking system which is not going to be easy or pleasant. In addition, our political system must embrace change and our system of government must modernise and deliver better services with scarce resources. The Government for National Recovery 2011-2016 programme is aptly named. It is a comprehensive and soundly-based programme which will deliver national recovery and put us back on a sustainable path where our potential can be realised.

During the debate it was suggested that the programme is long on rhetoric but short on specifics. It was also suggested that it contains no strategy for getting people back to work. I do not accept this analysis. The programme contains many specific commitments in relation to a jobs programme and labour market policy and covering banking policy, fiscal reform and political and public sector reform. It is also the case that, as I mentioned earlier, the programme outlines the Government commitment to bring forward as a priority a budget to put a jobs and growth strategy into effect in the early stages of our term.

I listened with interest to Deputies Michael McGrath and Dara Calleary, very able young people who will be here long after I have gone, I have no doubt. When they are holding the Government to account, however, and describing the dire state of the country as they now perceive it, they should recall that what they are really talking about is the Fianna Fáil legacy, after 14 years in Government. When they are holding us to account, they just cannot go in, like the múinteoir into the classroom on the morning and clean the blackboard with a glantóir. Everything they describe, deplore wish to change and find unacceptable in Irish society is the Fianna Fáil legacy after 14 years in Government.

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