Éamon Ó Cuív (Galway West, Fianna Fail) | Oireachtas source

I am pleased to have an opportunity to speak on this Bill. The Bill's aim is to ensure that governments follow good fiscal practice. However, I am not sure the remedy to the problems we face as a country is in this Bill. The history of the past ten years and the lack of definition of a structural deficit demonstrate, based on analysis done by independent international bodies, that during the boom years we would have complied with the terms of the new fiscal treaty. The Bill does not deal with the problem that arose in this country and in Spain, for example, where the transfer of huge funds within the European Union, due to the free market and open banking situation, led to a huge growth in the amount of credit available. This credit did not only come from Irish banks. It is a myth that it was all from Irish banks, but there were other major players in the market here. If the Irish banks had not lent money, the other international banks would have lent even more.

This situation led to a huge growth in tax revenue, which meant large surpluses were created. For example, the National Pensions Reserve Fund was largely funded from the surpluses, other than the Eircom money put into it. It was very difficult to calculate the structural surplus and the surplus due to extraordinary events. All of the economic commentators said we had a structural surplus and did not have a large structural deficit. Therefore, as with many other situations in Europe, the job is only being half done. It seems to me that Europe is reluctant to tackle some of the creations to which it is attached. One of these creations is this god it has made of competition and the free market. It loves hamstringing governments, but controlling the private sector seems to be anathema to it. It seems to believe that by definition, if there is competition, everything will work correctly.

However, as in human activity, what might be a good thing in reasonable measure can become a huge ill in society when taken to illogical extremes. For example, the belief that seems to pervade European thinking - that as long there is competition, business people will make money all the time - has been shown in the banking sector right across Europe to be spectacularly untrue. To be honest with ourselves, if someone had said ten years ago that organisations such as Bank of Ireland, AIB, KBC, Bank of Scotland and others right across Europe could not manage their own businesses, nobody would have believed it. If it had been said that German and French banks were potentially bust if they did not ask Irish and Spanish taxpayers to bail them out, nobody would have believed it, but that is what has happened. Despite all of these new rules, until we control this properly, what happened can happen again.

I do not believe that the European Union came to the aid of Ireland.

The actual reality is that continental banks loaned into Ireland and other peripheral economies. If I lend money to somebody who then lends it on, I am unlikely to expect to get paid if the people they lend it onto do not pay them. The countries in the centre of Europe that loaned to the peripheral countries are basically saying they did not look after their business rightly when lending to countries that then loaned to customers who could not pay those countries back. Despite this, they are insisting on getting paid and claiming to be generous by lending money at a good percentage rate to the reckless ultimate lenders in the centre. If that is generosity, it is a new definition of it. In other words, money is being loaned to the Irish people to pay back the reckless lenders from the centre. That is something that needs to be dealt with. If we do not deal with these issues, we will face a lot of problems coming down the track.

I welcome this Bill as far as it goes. It is time for people in society to understand that one cannot go on forever spending more on a daily basis than one is taking in. That basic principle is understood by every household in the country. I do not think it needs to be written in law. It seems to be common sense. I am not sure the absolute passion in Europe for a rules-based approach solves anything. When one takes a rules-based approach, one normally encounters consequences that were not intended by those who designed the rules. I welcome the effort in the Bill to refocus the minds of people in society on the basic fact that one cannot spend more than one takes in. We have to stress time and again that if somebody wiped out the total national debt tomorrow and the whole lot of it disappeared, we would still be spending more on voted expenditure - the basic services of the State that have nothing to do with borrowings or interest payments - than we would be taking in. If the bank guarantee also disappeared, one would not get the substantial revenue from it that has often been overlooked. I have argued that the difference of approximately €15 billion between expenditure and income, on a day-to-day basis, consists of €5 billion to be raised in tax or cutbacks in expenditure, €5 billion to be raised by getting the economy to grow and €5 billion to be raised by borrowing for capital expenditure on a sustainable basis, as allowed under the famous 3% rule and the 0.15% structural deficit requirement. We have to get growth. We cannot do it through tax increases and expenditure cutbacks. There needs to be growth. We do not actually have to reach 0% borrowing. We can borrow on a continuous basis. There will always be money coming into the system. In particular, we can borrow for capital expenditure to create a productive economy.

As Deputy Kyne pointed out, it is proposed that exceptions to these rules will be allowed in extraordinary circumstances. The problem with that relates to the process involved. I am worried that if what happened in 2008 happens again, by the time agreement is reached in Europe for an exception to the application of these rules, which would involve an extraordinary process involving all the other countries, we would have run out of cash a long time earlier. Europe moves at a slow pace, even in times of crisis. We have seen time and again the reluctance of European leaders to take urgent action when it is needed.

I wish to mention another problem that is not addressed in this Bill. The existing debt to GDP ratio will have to be reduced to 60% at a rate of one twentieth of the difference each year. If the Anglo Irish Bank debt is included, we can take it that the national debt is approximately €160 billion. If that debt is excluded, the national debt is approximately €130 billion. Our GNP is between €150 billion and €160 billion as well. We know that 60% of €150 billion is €90 billion. If one subtracts €90 billion from €160 billion, one gets €70 billion, which is what will have to be reduced by one twentieth. If one subtracts the same €90 billion from €130 billion, which is the figure if the bank debt is not taken into account, the figure that will have to be reduced by one twentieth each year is €40 billion, which almost halves the reduction that will have to be made. The effect on the Irish economy of the 60% rule that involves a reduction of one twentieth each year will differ significantly depending on whether the Anglo Irish Bank and Irish Nationwide debt is in the equation. I reiterate the point I have made previously that we should get the bank debt dealt with before we sign up to that clause. Otherwise, there will be a considerable difference in the level of austerity required down the road to comply with that rule.

I do not believe it would be an act of generosity on the part of the European Union to allow the promissory note to be written off. If one does the calculation, one will find that the inflation it would create in the European economy would be so minuscule that it could not be measured. As there would be no question of bondholders not getting paid, the hazard of creating jitters on the bond markets would not apply. In practice, one would be creating a bit of quantitative easing - the same thing that has been done by Britain and the United States, which have not been locked out of the bond markets. The Government must insist on the promise it says it got in June being acted upon. In other words, that debt should be written off. It is purely a paper exercise. As the money is owed to the Central Bank, this would not have any of the effects that the writing off of bonds would have. When we were in government, we tried to explain that it is difficult, for legal and other reasons, not to pay bonds. I think the Government has since found that out. The promissory note was created in a way that ensured there would be no difficulty in dealing with it over time.

The issue of the calculation of the promissory note in the national debt - the Minister for Finance has said it is counted as part of it - is of crucial importance for fiscal stability. As long as it is on our books, we will have to reduce our structural deficit and take account of the difference between our national debt and 60% of our GDP, even if we get a long-term write-off at an absolutely nominal interest rate.

Therefore, it is not sufficient to get a 50 year write-off, or any other length of write-off, as it will not affect the sums one bit in terms of having to adjust that figure.

I do not know why we are setting up the Fiscal Advisory Council. It seems to me it publishes reports and they are dismissed by the Government and the Taoiseach as being irrelevant. There is not much point in setting up a body if we keep ignoring its advice. It seems we are not even debating what it is saying in detail in this House and that, before we even examine the merits of its arguments, its reports are being dismissed with one wave of the hand. If we are going to have an Irish Fiscal Advisory Council, the Oireachtas should at least go through its analysis line by line, and should then advise as to what is the view across the House of its advice. Only then should the Government finish its consideration of its proposals. Anything less is only window dressing and does not serve any useful purpose except to have more paper gathering dust and to have more staff being paid but no heed being paid to it.

The other issue I am disappointed about is that I thought the Government was making a change to the way we prepared the budget. We were told in early summer that by July the Ministers would come in and discuss next year's budget. It was a small step in the radical reform we need to have on how we do budgeting in this House. However, it never happened and it is now intended it will happen in the next two or three weeks, at the end of October. That is too late.

The second idea we have had over many years concerns the Estimates debate in the committees, in that every Minister used to come to the Estimates debate post factumand the intention is that we would now have this debate pre factum. By doing it on a committee by committee basis, however, each committee will ask each Minister to dig in with his or her Department in order to have the cutbacks made somewhere else or to get them from some mythical tax, and so on. When we were in government, although it did not happen and I regret that, I was in favour of having a budgetary or finance committee which would actually consider the Estimates as a whole and, therefore, it would have to take a holistic view of expenditure. What happens at present is that every committee will make the case for a particular Department and will not have to concern itself with whether more for one Department means less for another.

I put this forward as it would be helpful for Government that those on the Opposition side would also have to take a holistic view, as one does around the Cabinet table, as to the total amount of cake and how one is going to divide that cake. The structures of our House do not force us to face up to reality at times. Often, when we create good structures in committee, we get more consensus than people might have expected. When we were in government, I remember that the members of the present Government used to have all of these suggested savings - I believe there was a €4 billion saving in health that used to be tossed around, but some of us have too good a memory.

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