Pearse Doherty (Donegal South West, Sinn Fein) | Oireachtas source

The impression was given in an earlier contribution that we should be grateful this Bill has been published and that the austerity referendum was successful because we lost the run of ourselves and the budgetary and debt rules in this legislation will save us. I agree with the point that we should base our arguments on facts. We should look at the facts to support that earlier comment. These rules would not have saved the State from the economic turmoil we face.

There are two key rules. The first rule for a balanced budget is the structural deficit rule of 0.5% in our case. The second is the debt ratio rule, which states that debt should not exceed 60% of GDP. If a country does not abide by either one of these rules, it must go into a European Council economic adjustment programme. How badly did the State break these rules in 2007? If we had passed this Bill in 2007, one year before the economic crash, would we have broken the first rule and run a structural deficit in excess of 0.5%? The Minister has informed me and the House, in reply to parliamentary questions, that we did not have a structural deficit in 2007; rather, we had a structural surplus of 2.3%. Therefore, the rule would not have come into play. Similarly, where were we with regard to the debt-to-GDP ratio? Did we breach the 60% rule, which would have forced us, had these provisions been in place in 2007, to outline a plan to bring the gap down by one twentieth per year? The answer is "No"; in 2007 our debt-to-GDP ratio was 27%. These rules would not have prevented the crisis which came in 2008.

The legislation states that none of these rules will apply in exceptional circumstances. Ireland is not currently going through exceptional circumstances on the basis of the rules of the European Council. What happened in 2008 was exceptional circumstances, with the financial sector on the brink of collapse and the Government forced to intervene by bailing out the banks and increasing the national debt to levels beyond anyone's wildest imagination; therefore, we could have subverted the rules. We need to be clear: this legislation would not have prevented what happened to our country. In my view, this legislation will make future economic recovery a lot more difficult.

We know our debt levels will increase to 120% of GDP next year. Much of that is made up of banking debt. This legislation will be a legally binding mechanism to reduce that debt each year, but we must deal with the fact that a large proportion of it consists of banking debt. The Minister may be able to shine some light on this. I argued with the Minister about the June summit statement and asked him about the issue of legacy bank debt. The Minister told us this was a seismic shift and said it was a game-changer. He said it secured the separation of sovereign debt from banking debt and it secured the fundamental issue of legacy debt. On the question of whether the ESM could be used to recapitalise legacy bank debt, Klaus Regling, head of the European Financial Stability Facility, stated that this aspect had not been discussed by any European bodies.

Did nobody tell the chairman of the European Stability Mechanism that agreement was reached at the meeting attended by representatives of this Government that legacy banking debt would be recapitalised? Why is this individual being kept out of the loop? The Minister referred to one aspect of the agreed statement last week - which made no sense - that if other well performing countries were to perform as well as Ireland, the same would apply to them. Will he inform the House of where the legacy debt issue stands in light of the June statement?

As I have said before, I genuinely wish the Government well in its negotiations. As an Irish person who wants to see this country rebuild itself, as a person who wants to see our young people in a position to stay at home and avail of the opportunities they should have in their place of birth, I want to see the Government do well in these negotiations. I reiterate, however, that the Minister and his colleagues are selling the country short. Spin simply does not cut it, but the problem is that we having nothing else. Last week I questioned the Taoiseach on the fund that was to be set up to encourage job creation, as a precursor to the investment bank that was promised as a central part of the Labour Party's general election platform. I was told that the legislation to amend the National Pensions Reserve Fund, which comes under the Minister for Finance's remit, is not even scheduled to be brought forward this year. As a consequence, the NPRF cannot invest in areas such as long-term capital for small and medium-sized enterprises. Instead of spin, we must deal with the facts.

I was amazed to see a picture of the Taoiseach, good luck to him, on the cover of the European edition of Timemagazine with the headline "The Celtic Comeback". The article talks of the herculean efforts of the Taoiseach in rebuilding the Irish economy from the mess created by Fianna Fáil in the past. The author clearly got a little carried away. In an article responding to the Timesreport, the UCD economist Professor Karl Whelan, whose comments I have referred to on numerous occasions in this House, sets out some basic facts which undermine the claims made in the report. He points out, for instance, that while the debt-to-GDP ratio was 106.5% in 2011, it will increase to 117.5% this year and is expected to reach 120% in 2013. In other words, it will have increased by at least 14% under this Government.

Unemployment is also increasing. While the percentage out of work stood at 14.1% when the Minister and his colleagues in government took office, that figure is 14.8% today. Moreover, as we all know, the jobless rate would be much worse but for the safety valve of emigration. Between April 2010 and April 2011, 1,500 people left the State every week. Between April 2011 and April 2012, that figure increased to 1,600. Despite the return to GDP growth in 2012, we are heading back into official recession territory as real GDP in the second quarter of 2012 was lower than in the previous year. In fact, the domestic economy has never been out of recession and has contracted further since Fine Gael and the Labour Party took office.

By any social or economic measure, the Government has failed to turn the economy around. The reason is very simple, namely, that the Government is implementing the wrong policies. In fact, it is wedded, for some strange reason, to the same policies as its predecessor. Is it any wonder the situation is getting worse? At the heart of the Government's failure is its uncritical support for the policies of austerity that were introduced, drafted and designed by the Fianna Fáil Party and now actively supported by this Administration, the European Commission and the European Council. One does not need a Nobel prize in economics to know that austerity will only make our problems worse. Since the beginning of the economic crisis, a total of €26 billion has been wrenched from the Irish economy in tax hikes and cuts for low and middle income earners while cuts to vital public services have made the situation much worse. Yet, under the Government's plans, a further €9 billion in austerity measures are due in the next three years. Yesterday the IMF finally admitted what many of us have argued for many years, that these so-called adjustments are damaging economic recovery. Its world economic outlook report acknowledged that the fiscal multipliers underlining its growth forecasts underestimated the impact of austerity. Rather than €1 billion of austerity measures leading to a loss of economic output of €0.5 billion, the IMF acknowledged that the true impact could be as large as €1.7 billion.

The lesson in all of this is that one can neither cut nor tax one's way out of a recession. Instead, we must focus on returning the economy to sustainable economic growth by way of investment in jobs. This is not to say there is no need for reform of the tax system and of public services. Of course there is. However, without sustained investment in saving and creating jobs, reform of the tax system and of public services will not produce the social and economic recovery we need. The problem is that investment in job creation is wholly absent from the Government, the European Commission and Council in response to the crisis. Despite all the talk of investing in job creation, both the Government and the European Union have failed to put their - or, more accurately, our - money where their mouth is.

I am conscious in making these remarks that we have a very good news story today. I welcome the announcement by Kerry Group, an Irish company, of the creation of 900 new jobs in County Kildare over a period of three years. This is tremendous news for people in that area. Perhaps some of those who have emigrated will decide to return and help to rebuild the Irish economy. Having said that, it is important to put this announcement in context. Last year our economy lost a net total of 33,400 jobs. Deputy Michael McGrath would like to claim they were all from the public sector, but that is absolutely not the case. There are 33,400 fewer jobs in the economy this year compared with last year. What would it take even to get back to where we were at the start of 2011? It would require an announcement of the magnitude of the Kerry Group's every eight days for the next year just to make up for the jobs lost in 2011. Last year the Government invested less than €0.5 billion directly into job creation. It is no surprise the job crisis is getting worse. This year the European Commission, after all its talk of stimulus and investing in jobs, could find only an additional €10 billion to invest in EU-wide measures for job creation. Is it any wonder that unemployment across the European Union is at an historic high? It is important to compare these figures with the enormous sums given to financial institutions. In 2011 this Government - not the Fianna Fáil Government - poured €21.4 billion into the banks, including €3 billion to Anglo Irish Bank. This week the European Council formally launched the European Stability Mechanism, a fund with up to €700 billion for the purpose of shoring up the European banking system. Austerity is not working. Unlimited bank bailouts are not working and a failure to invest is jobs is not working.

All of this is relevant to the legislation we are debating. The core function of the Fiscal Responsibility Bill is to insert in domestic legislation the rules and enforcement mechanisms arising from the Government's ratification of the austerity treaty. Section 2 enforces the debt and deficit rules contained in that treaty. The impact of adhering to these rules will require austerity budgets up to and including 2020. Sinn Féin warned during the campaign leading up to the referendum on the austerity treaty that the new deficit rule would mean greater levels of austerity. We argued that the structural deficit of 0.5% could mean billions of euro in further adjustments past 2015. This will mean more taxes and further public spending cuts.

Our structural deficit is expected to be 3.7% in 2015, which amounts to almost €6 billion in monetary terms. Compliance with this rule will require either growth coupled with inflation or, where the necessary growth levels are not achieved, greater austerity. While it is fine to put on paper projections for economic growth in 2016, it should be noted that every growth forecast made by the Department has been subsequently revised downwards, as demonstrated in the Fiscal Advisory Council's analysis of economic growth and the report published yesterday by the International Monetary Fund. In light of regular downward revisions of future growth forecasts by the Government, Central Bank, IMF and European Commission, it is highly unlikely that the current growth forecasts for 2015 will stand.

Put simply, section 2 seeks to place in law a rule that will require all future Governments to comply with an arbitrary deficit rule. Based on the current course it is pursuing, the Government will attempt to comply with this rule by imposing greater austerity on low and middle income families and further cuts to front line services. That this rule refers to a structural deficit that many economists argue is difficult to define - it is not clear who will define it - is another issue. Greater levels of austerity will lead to even lower growth forecasts, trapping us into a lengthy period of economic stagnation. How anyone believes it is fiscally responsible to write this type of economic policy into law is beyond me.

Section 6 enforces the section of the austerity treaty that gives significant new powers to the European Commission to impose its detailed policy prescriptions on member states deemed to be in breach of the debt and deficit rules. During the austerity treaty campaign, Sinn Féin warned that the European Commission was being given significant new powers to enforce member state compliance with the existing and new deficit rules. Member states that have ratified the treaty have signed up to legally binding obligations to enter automatically into an economic partnership programme when they are deemed to be in breach of the rules. The content of the programme, which will be determined by the Commission, will be similar to that of the current EU and IMF austerity programmes. The powers of the Commission have been increased substantially at the expense of democratically elected parliaments and governments.

When Sinn Féin made these arguments during the referendum campaign, the "Yes" side accused us of misrepresenting the treaty. Anyone reading sections 6(2) and (3) of the Bill will see that we were correct. They provide that if a country is deemed to be in breach of the deficit rules, the Government of that member state, on instruction from the European Commission, must outline a plan detailing how it intends to meet the rules. Let us consider what is provided for in the plan. We are all used to Ministers stating they want to bid farewell to the troika or shifting responsibility for various measures to the troika. The plan the Government is asking us to sign into domestic law includes a requirement to "specify the period over which compliance with the budgetary rule is to be achieved". This is the same as the troika plan. Moreover, if the period is longer than one year, the Government must "specify annual targets to be met". This, too, is the same as the troika plan under which annual targets must be provided for reducing the deficit. The plan also requires the Government to "specify the size and nature of the revenue and expenditure measures that are to be taken". This provision is also the same as the provision in the troika's programme under which the Government must specify the value of tax increases and public expenditure cuts that are to be made. Section 6(2)(d) the Government must "outline how any revenue and expenditure measures that are to be taken will relate to different subsectors of the general government". This, too, is the same as the troika plan in that the Government will be required to specify whether the measures will be in areas such as social welfare and household taxes.

The Minister is proposing to replace one troika with another. Worse still, section 6 also places a legal obligation on the State to implement any recommendations made by the European Commission on the details of the plan. The Commission's ability to impose its policy prescriptions and adjustment timeframes on our democratically elected Government will be given the force of law. Section 6(3) requires that the plan must be consistent with "any recommendations made to the State under the Stability and Growth Pact in relation to the period over which compliance with the budgetary rule is to be achieved and the size of measures to be taken to secure such compliance". It is astonishing that, having been bound into a troika programme, the Minister is asking Parliament to sign and adhere indefinitely to a set of rules which could result in the country entering a similar programme in future.

One of the strange aspects of the Bill is the suggestion that there are exceptional circumstances during which the rules and enforcement mechanisms may not apply. We are agreeing to these rules while engulfed in a set of circumstances which, by any ordinary assessment, are clearly exceptional. Despite clear evidence of exceptional circumstances, the debt and deficit rules are being applied to Ireland. While I acknowledge that some of them will not come into effect until 2015 and 2018, it is strange that the current exceptional circumstances, for example, bailing out the country's banks, are not considered exceptional, as defined in the legislation.

As with the austerity treaty, the Bill is bad economics and bad politics. It would be better to rename it the "Fiscal Irresponsibility Bill" as it impacts may result not only in damage to the fiscal stability of the State, but also to social and economic stability, not to speak of the political legitimacy of the institutions of government. The Bill also provides the statutory basis for the Irish Fiscal Advisory Council. Sinn Féin does not have any difficulty with the establishment of a body of this nature. The more independent, evidence-based advice that is available to the Government and Opposition, the better. Unfortunately, section 8 gives the council a narrow remit, defining its role as monitoring the State's compliance with sections 2 and 6, the debt and deficit rules and the enforcement of these rules. This does not make sense. Fiscal policy does not exist in a vacuum. Issues of taxes and expenditure are bound up with the type of society we are trying to create, the type of economy we are trying to construct and the type of public services we are trying to deliver. For this reason, any advice to the Government on fiscal policy must be placed in the broader social and economic context. It is meaningless to advise a particular course of fiscal action without a parallel assessment of the impact of such a course on social and economic development.

This narrow focus will make the Irish Fiscal Advisory Council a very limited tool. To date, as has been noted, the Government has chosen to ignore the council's advice to implement significantly higher levels of adjustment than agreed under the troika programme. While I do not object to the Government's decision to ignore this advice - it is the prerogative of all Governments to take or ignore advice - where such advice is ignored, the Government should publicly explain the reasons for its decision. Unfortunately, it has not done so thus far and it is clear from the Bill that it does not intend to do so in future. Section 8 places a limited obligation on the Government to respond in future to the council's advice, namely, only in respect of meeting the debt and deficit targets and compliance with enforcement procedures. This section should be expanded to include responding to the council's budgetary proposals and growth projections.

The Government proposes to establish on a statutory footing a fiscal advisory council which will have two roles. First, it will monitor the Government's compliance with the debt and deficit rules and if, in this area, the Government chooses not to heed the council's advice, it must, within two months, present the arguments for choosing not to accept the advice. Its second role is to examine budgetary matters and fiscal projections. However, when the Government chooses to ignore the council's advice in this area, as it has done in respect of all reports done so far, it is not obliged to state its reasons for doing so. This is a major flaw in the provision and it should be amended.

Over the weekend, I re-read a report done in 2011 on the advice the Department of Finance offered to the previous Government. The report included a number of proposals, including a recommendation to establish a fiscal advisory council. It recommended, however, that where advice is not followed, an acknowledgement and rationale for choosing not to adhere to it should be provided. We know from the report that during the period of the artificial boom advice was being given by the Department of Finance to the then Minister, Deputy Martin, and his colleagues around the Cabinet table but they decided to ignore it without providing any rationale for their decision.

It is important the Minister looks at this section. He has already agreed the principle in relation to the debt and deficit rule that he will make a public statement to the Houses as to why the advice has been ignored and it is important he does the same for the budgerary proposals and for the economic forecasting advice.

Sinn Féin is in favour of fiscal responsibility. We want the Government to get the deficit under control but we are convinced the policies the Government is implementing are actually making the crisis worse. Even where they have an impact on the deficit, it is at great cost to the economy and society at large. It is easy when looking at forecasts, quarterly Exchequer accounts and GDP percentages to get wrapped up in figures and lose focus on the bigger picture. This week the Government began implementing €8 million worth of cuts in home help services. This is one of the cruellest cuts the Minister could implement. I know elderly people in receipt of home help who have seen two world wars; some have even seen the 1916 Rising. At this stage in their lives they are just looking for a helping hand from the Government, but it is being taken away. It might be fine on paper when the Minister for Health, Deputy Reilly, has to balance his budget with the troika, the Minister for Finance and the Minister for Public Expenditure and Reform breathing down his neck. What is missing in this judgment is a realisation of the social consequences of such cuts. Home help is just an example but there are many more.

Is it fiscally responsible to have a debt-to-GDP ratio of 127%, 440,000 people on the live register and 87,000 emigrating each year? Is it fiscally responsible to depress domestic demand by reducing the disposable income of low and middle income families? Is it fiscally responsible to have over 100,000 households in mortgage distress while paying out billions of euro to dead banks? The answer is obviously “No”, but these are the consequences of the policies pursued by the Government with the support of the European Council and the Commission. The measures contained in this Bill will simply serve to further deepen the levels of austerity imposed on the people. They will increase financial hardship, undermine public services and add yet another block to our economic recovery. We urgently need a new approach. At the centre of it must be investment in jobs. On Thursday, Sinn Féin will launch its detailed job creation package and next month its alternative budget. These two documents will outline our alternative to the failed policies of austerity and bank bailouts pursued by Fine Gael and the Labour Party, the European Commission, the European Council and Fianna Fáil before them. These are the very policies being written into this Bill.

While I will table amendments on Committee Stage, Sinn Féin clearly opposes the Bill in its current form. It is bad for the economy and society, and it is bad for the hundreds of thousands of low and middle income families who are struggling under the weight of five years of austerity and are saying they simply have no more to give.

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