Brian Cowen (Laois-Offaly, Fianna Fail)
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I welcome the opportunity at the beginning of the new Dáil session to address the current economic challenges facing this country and to outline the Government's strategy in response.

We are facing the most difficult global economic conditions in 70 years. The most severe financial crisis since the Great Depression is taking its toll, for example, on the US economy, now in the middle of recession that began in December 2007 and which may prove to be the longest and most severe of the post-war period.

The International Monetary Fund is expected to make further significant downward revisions to its global forecasts, beyond those already made in November. Most of the world's advanced economies are in recession. Global output is expected to decline for the first time in recent memory. International trade is also declining sharply, with the World Bank expecting global export volumes to be down for the first time since 1982.

As a regional economy accounting for around 1.8% of eurozone output, Ireland is particularly exposed to these developments. The combined value of our imports and exports is equivalent to approximately 150% of national output which is among the highest shares in the developed world. Exports of goods and services represent approximately 80% of our national output, which is over double the EU average, and means our fortunes are inextricably linked with those of global and European markets.

The scale of the economic challenge which we in Ireland face is clear. It is evident in the distressing rise in the number of people becoming unemployed. It is evident in the downturn in economic activity and the associated sharp reduction in Exchequer revenue. It is clear from the crisis in the banking sector and the associated difficulties in securing access to credit on a consistent basis and at competitive rates. It is also evident from the global spread of the crisis, and the uncertainty about its likely depth and duration.

The economy contracted by close to 2% last year and this is likely to represent the beginning of an adjustment that will see a reduction of up to 10% in national income over the 2008 to 2010 period, a scale of decline that is without precedent here in Ireland and with few international parallels. The direct impact on the labour market is already evident and we are faced with the prospect of further job losses totalling over 100,000 between this year and next.

The challenge is severe but the Government has a clear strategy which we will continue to implement. This combines a clear medium-term approach to renew and revitalise the economy based on a deepening of competitiveness and specific short-term measures to address the immediate difficulties we face.

In assessing how well we are placed to confront the crisis, it is reasonable to consider how well the nature of the problem is understood, how clear is the strategy that is designed to respond to it, how credible are the measures to be taken and how likely are they to succeed.

In the first case, the various elements of the interactions which have brought us to the current stage are well known. The unexpectedly rapid collapse of activity in the construction sector in Ireland, the crisis in the international financial and banking system, the sharp appreciation in the value of the euro, especially against sterling, and the decline in demand in our export markets associated with the general downturn, have all impacted severely on the economy.

There is little point in looking back at how some of this might have been anticipated or avoided. The reality is that the current situation is unprecedented and calls for clear thinking and resolute action. A critical challenge to be faced is the rapid decline in tax revenue requiring an unsustainable level of borrowing to fund day-to-day expenditure. Tax revenues in 2008 were over €8 billion below expectations, reflecting the rapid downturn of transaction-based taxes in particular.

Last July, we took early, and successful, action to restrain the growth in public expenditure. As the situation deteriorated further, we brought forward the budget, containing some very difficult expenditure and taxation adjustments to give a clear signal of our determination to respond to those pressures.

The outlook for the public finances in the period ahead is subject to more uncertainty than normal, and depends on the timing and extent of an international recovery, and how well-placed we are to participate in that upturn. However, our considered assessment is that in the absence of appropriate further measures, a general Government deficit of between 11% and 12% of GDP would be in prospect for each year up to 2013. This is not sustainable and urgent measures are now required to start the process of fiscal stabilisation.

Earlier this month, the Minister for Finance published a five year fiscal consolidation programme which sets out how we will progressively reduce the level of Exchequer borrowing over the next five years, in order to reduce the general Government deficit to below 3% by 2013. This will involve a combination of expenditure and taxation measures over the period. We have also indicated that a credible start in 2009 requires a further adjustment of €2 billion, and we are committed to making decisions to achieve that adjustment.

The €2 billion required now is only the first phase in the process. Further adjustments of the order of €15 billion will be required for the five year period as a whole. The Government has established two independent processes, namely, the Commission on Taxation and the special review group on public service expenditure, which will inform our decisions in 2010 and beyond.

The international financial crisis, alongside the fall in housing prices, has created enormous pressures on our domestic banking sector. We swiftly introduced a banking guarantee scheme to ensure the viability of our banking system. As experience in other countries has shown, the scale and complexity of the difficulties facing the banking system do not lend themselves to simple solutions. We have adopted a comprehensive approach and acted with care and prudence at all stages. We are determined to ensure that our main banks continue as strong, independent institutions, while our financial system as a whole can enjoy international confidence and provide adequate liquidity flows to business.

As part of our strategy for the banking sector, we are also acting to support mortgage holders who get into arrears on their mortgages. The Financial Regulator is developing a statutory code of practice on mortgage arrears and home repossessions, and funding under the mortgage interest scheme has been greatly expanded. Thankfully, at present the current level of home repossessions remains very low, and significantly lower than the UK, but we will be monitoring trends very closely and will take further measures if required.

There must be a new approach to doing business in the banking sector. The Government will support efforts at international level to establish regulatory mechanisms to ensure that this financial crisis crippling the world economy can never happen again. Even more importantly, the international financial community must work to a higher ethical standard. Poor standards of behaviour on the part of well paid executives must not be allowed to result in ordinary decent people losing their jobs and businesses struggling to stay afloat.

Another area of concern is the dramatic impact the downturn in our economy is having on increased unemployment. This represents one of the starkest and most immediately understood impacts on the lives of individuals, families and communities. Despite the budgetary constraints, the Government is maintaining proportionately the largest capital investment programme in Europe. We will prioritise, to the greatest extent possible, employment-intensive activities like school buildings and energy efficiency improvements. The Government is also working to improve significantly access for unemployed persons to job search, training and education, and employment programmes. Relevant Ministers and their Departments are working together to maximise opportunities for up-skilling and re-skilling, so that people will be better placed to avail of new job opportunities when they become available, including in new sectors such as energy efficiency.

Specific actions already taken include the following. We have identified scope for approximately 30,000 additional places in 2009, ensuring that unemployed people have access to all existing full-time further and higher education places. We have established a training fund to enable a speedy response to identify re-training needs for low skilled and redundant craft workers. The Government will bring forward further measures in these areas which ensure that we get the maximum impact from resources available and that innovative approaches are used to maintain people in employment as well as assisting those who lose their jobs.

Our people need to have confidence that the difficult decisions taken now are part of a coherent approach to return the economy to sustainable growth. That approach is articulated in the framework for sustainable economic renewal, which was published by the Government in December. That framework, based on the development of a smart economy, reflects the Government's determination not only to meet the severe short-term challenge we face, but also to make the structural reforms which ensure that Ireland emerges from the global downturn in pole position to benefit from the international recovery when it comes. We have set out clearly the measures we are taking to support a return to sustainable growth and jobs over the medium term, with specific actions in the following areas: maximising the potential for growth by building on our strengths in innovation and research and development; addressing the huge market for environmental and energy related products, services and innovation; investing in critical infrastructure, while favouring more employment-intensive activity in the short term; and driving our reform agenda for a more efficient and effective public service supported by smart regulation.

We have already taken steps in the budget and in the Finance Bill to help realise these objectives, including an increase in the research and development tax credit available to companies from 20% to 25%, putting us to the forefront of research and development regimes globally. This will increase Ireland's attractiveness as a location for research and development activity and it will provide a well-targeted stimulus for such value-added activities. We have also provided an exemption from corporation tax and capital gains tax of up to €40,000 for the first three years of any new start-up business, and we have provided other measures to help people who want to start enterprises and create jobs. We are working to bring forward further measures to implement the vision set out in the smart economy framework.

Over the medium-term, our economy, employment prospects and living standards require a rebalancing of economic activity towards sustainable, export led growth. That is why we are determined to build on our core strengths, strengths which have brought us two decades of economic expansion, doubling the number of people employed to around 2 million. The smart economy framework will see continued high levels of investment in upgrading the knowledge intensity of key growth sectors. It will move the economy to a more sustainable growth path, reducing our reliance on fossil fuels and further lowering the carbon-intensity of what we produce. This is not fanciful or speculative on our part. On the contrary, it represents a deepening of our commitment to the measures which we already know have been delivering for our economy in recent years.

OECD figures show that our investment in knowledge — including higher education — has increased by an annual average of over 10% in the last decade, compared with EU and OECD averages of around 3%. The critical mass we are building means that research and development investments accounted for over four-in-ten of all new projects announced last year by IDA Ireland. This pipeline remains strong, and will be further strengthened by the initiatives we are taking.

Services exports, on which future prosperity is increasingly reliant, have seen a threefold increase since 2000, bringing to over 40% their share of total exports. This is a figure the ESRI expects could reach 70% by 2025. We are confident that the measures we have set out in the framework for sustainable economic renewal will continue to attract the best of internationally mobile technology and talent-driven investment. No less important, they will bring a new emphasis to embedding this investment more deeply in linkages with the rest of the economy. We will create new funding and venture capital for Irish firms, and new niches of excellence in which they will succeed on world markets.

I have outlined the core elements of the Government's strategic response to the crisis and we are determined to continue on that path. However, all our experience tells us that effective implementation requires mobilisation of stakeholders behind this effort. It is that which builds confidence and credibility, at home and internationally. It is particularly important in a small economy in which flexibility and consistency of response can become critical sources of competitive advantage. For that reason, the skills and relationships built over the past 20 years of social partnership are potentially an asset of great value to Ireland in finding a coherent way through these difficulties. Other countries with similar systems of social dialogue, such as the Netherlands, are also using them to help navigate through this crisis.

Social partnership was central to Ireland's economic resurgence starting with the Programme for National Recovery in 1987. The Government believes that a similar approach now, where all sectors agree to share in the difficult adjustments required, will greatly enhance internal and external confidence in our economic strategy.

The Government is in the process of finalising a framework with the social partners within which it is intended to develop and implement a pact for stabilisation, solidarity and economic renewal. It embodies the conviction, which is shared by the social partners, that any failure to take radical decisions in the years to come has the potential to erode national and international confidence in the Irish economy. The draft framework being discussed with the social partners includes an outline of the challenge facing the country, the rationale for urgent and radical action and the potential contribution of a shared approach through partnership. It highlights the need to stabilise the public finances over the next five years through an appropriate combination of tax and expenditure measures, such as an adjustment of approximately €2 billion in 2009. The document focuses on areas that require short-term stabilisation measures, including maximising economic activity and employment, stabilising the financial and banking sector, maximising employment and helping those who lose their jobs. It lists a number of policy issues on which the Government and the social partners can work together to implement reforms which will ensure Ireland emerges from this crisis as quickly as possible. The document draws in particular on the Government framework for sustainable economic renewal, which was published in December.

Significant reductions in public service pay and pension costs cannot realistically be achieved if the burden of the adjustment is not fairly spread across society and the proposed framework does not identify some of the implications of such an approach. The implications include moderation in executive remuneration, particularly in the banking sector. Those who benefited most from the economic boom should make a particular contribution to the adjustment that is required. I hope it will be possible to conclude a pact with the social partners based on a shared understanding of the problem and the best way forward. The Government will have to take the decisions that are needed if it is to achieve its objective of stabilising the public finances. Its clear strategy for the difficult times that lie ahead is based on the framework for sustainable economic renewal that was published in December. We have put in place a five-year fiscal stabilisation strategy. We will announce measures next week to make a significant start on providing for a further adjustment of €2 billion in 2009. We will continue to act decisively to ensure our banking system serves the needs of the economy. Credit should be extended to the enterprise sector, as appropriate, and householders facing mortgage difficulties should be assisted. We are taking immediate measures within the fiscal constraints we face to maximise economic activity, sustain employment and help people who lose their jobs. We are reforming and restructuring the economy to ensure we emerge well placed to benefit from the global upturn, with a focus on innovation, research and development, green enterprise, energy efficiency and high productivity employment.

The Government's strategy addresses the challenges that face the country. We are working with the social partners to conclude an agreement that is based on an approach of solidarity and equity and ensures that all sectors of society make an appropriate contribution. The strategy is clear, appropriate and credible. There are no easy options. Challenges will be faced across all sectors of society. If we work together constructively, we can meet those challenges. We face many difficult decisions. While it is easy to call for quick action, we need to ensure, based on careful analysis of a fast-changing economic situation and following consultation with major stakeholders in Irish society, that the decisions we make are the right ones. This debate is an important opportunity for the Members of the Dáil to make their views known as a contribution to this process. The world is in recession. Ireland is being battered by international storms the like of which this generation has never seen. I assure the Irish people that if we work together as a team, we can ensure we have a prosperous future for ourselves, our children and future generations.

Deputies:

Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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Is that it?

Billy Kelleher (Cork North Central, Fianna Fail)
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We can hear the Deputy's ideas in a moment.

Joan Burton (Dublin West, Labour)
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The Taoiseach did not even acknowledge responsibility for how bad it is.

Enda Kenny (Mayo, Fine Gael)
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The speech just given by the Taoiseach belies the reality, which is that the clear Government strategy to which he referred does not exist. Departments are not working together. The Department of Social and Family Affairs does not even collate statistics on the numbers of people looking for mortgages. The reply the Taoiseach gave to the Chairman of the Joint Committee on Climate Change and Energy Security a few minutes ago is further evidence of the fact that there is no drive on the part of the Government to deal with the possibilities of renewable energy. The Taoiseach was unable to give the House details of the current status of a Bill dealing with renewable energy and foreshore licences. Such a Bill is needed to maximise this country's potential to become a centre for the development of technology in this sector, with the ultimate aim of exporting energy from Ireland within ten years.

We are facing an economic crisis of frightening proportions. I am worried that officials in the Department of Finance, the banks, the National Treasury Management Agency and the regulatory authorities have never before faced a crisis of this scale. The Government is not leading any co-ordination between the various sectors of the Irish financial sector. That is frightening people who are losing their jobs, whose businesses are in distress or who see a bleak future for themselves. It is no exaggeration, unfortunately, to say that the bubble economy created under Fianna Fáil is imploding before our eyes. People across the country are frightened out of their wits about their prospects and those of their children. Irish retailers have endured the greatest collapse in sales since 1984. Thousands of small businesses are failing as banks pull back their credit lines. Every Deputy in this House is aware of businesses, including some that had been in operation for 30 or 40 years, that have closed in their local towns, cities and villages over recent months. Perhaps some of the newer businesses that have closed were not going to make it anyway. The scale of closure is incredible. Many closures have resulted from contracts that were signed for exceptionally high rents, or transport, energy or communications costs that were driven by Government decisions.

We are losing thousands of jobs every week. It has been estimated as being the equivalent of five Dells every month. It has been suggested that 400,000 people may be unemployed by the end of this year. Over 100,000 young families are now finding that their mortgages exceed the value of their homes. They are trapped in the negative equity trap. Hundreds, if not thousands, of people will lose their homes in 2009. I was glad to hear the Taoiseach say he is aware, at least, that people are in distress. When I addressed my party in Wexford last November, I called for banks to be instructed not to foreclose on the mortgages of people who are in distress. I suggested that arrangements like those agreed in the 1980s, when mortgages were split in two and people were encouraged to pay off half if they could, be put in place again at this time. It is exceptionally difficult for people who are out of a job, working a three-day week or facing redundancy to be in a position to pay their mortgages. I hope the Taoiseach reminds the banks that looking after such people is a priority. We do not want thousands of homes to be taken over. Private sector wages are falling for the first time in the history of the State, even though Ireland continues to be the most expensive country in Europe. Everybody has evidence of wage cuts of 10%, 15%, 20% or, in some cases, 50%, along with redundancies and the imposition of a three-day week.

The European Commission estimates that the Irish economy will decrease by 5% this year. Others have suggested that the real pace of decline is twice that. The Government's estimates were off target by €2 billion, or €500 million a week, in a four-week period coming up to Christmas. Are we sure that the scale of the crisis under discussion will not be greater than that currently projected by the Government? The Government is continuing to peddle the delusion that the scale of the problem in Ireland is replicated throughout the world. I would like the Minister for Finance to contribute to this debate by telling us where else in the world unemployment is about to double in the space of a year. Where else are living standards declining so dramatically? What other country is hiking up taxes while slashing investment in infrastructure because its public finances are in such a mess? Is the national debt of any other country about to double in the space of two years? It seems to be escalating out of control in this country, with potentially ruinous consequences for the next generation.

The frightening aspect of this problem is that the Government does not seem to have the capacity to get from the back of the curve to the front of the curve and beyond, by dealing with the scale of the problem we now face. While all countries are facing economic difficulties, few if any are facing an economic reversal on the scale of this country. Under the leadership of the Taoiseach, Ireland has been relegated from the premiership of world economies to the third division. Under the Taoiseach's economic leadership, Fianna Fáil turned the Celtic tiger into a bubble economy. It destroyed the basis of our economic and social progress. When he was in charge of the Department of Finance, we had the biggest property boom of any EU country, the highest level of personal debt, the biggest loss of national competitiveness and the biggest reliance on the construction sector to provide jobs.

The economic principles that delivered the prosperity of the Celtic tiger in the 1990s were control of costs, high productivity, export-led growth, tight budgeting and prudent regulation of the financial sector and the housing market. All these economic strengths were hard won by the people of Ireland under the leadership of previous Governments but were swiftly abandoned under the Taoiseach's leadership. Government indecision and incompetence are making the crisis even worse, and we are now in a situation where the State must borrow €55 million per day.

Last December, the Government published a strategy for economic renewal, entitled Building Ireland's Smart Economy. While it contains little that is objectionable, neither is there anything novel, visionary or coherent. Of the 125 action points in the document, only one can be counted as new, the rest being recycled promises from previous unimplemented strategies. The cut and paste mechanism worked exceptionally well. The problem is that one cannot build a smart economy with dumb decisions. The strategy does not reverse any of the major policy mistakes made by the Government in recent months which threaten to turn the current recession into a deep and sustained depression.

Among these mistakes was the 18-month delay since the Taoiseach's party was returned to government in its acknowledgement of the scale of the crisis and the failure to take any action to rein in the unsustainable growth in spending, making the adjustment now required all the more painful and severe. Another mistake was the decision last September, taken wilfully by the Government, to promise €2 billion in pay increases in 2008 and 2010 to an unreformed public service when it was already clear that this would require extra borrowing and more cuts in front line services. The Government paid out that money in the knowledge of the crisis coming down the track.

The 17 new taxes and tax increases introduced in the budget and Finance Bill will cost the average family more than €3,000 in 2009, just as consumers are already losing confidence and cutting back on spending. These tax increases will raise at total of €2 billion for the State. The hike in VAT to 21.5% since 1 December, just as the United Kingdom, including Northern Ireland, reduced its rate of VAT from 17.5% to 15% turned a steady trickle of cross-Border Christmas shoppers into a flood, with devastating consequences for Irish retailers within a broad swathe of what used to be known as the Border area.

Another mistake the Government has made is to reduce spending on infrastructure by €1 billion in 2009, just when the construction industry needs a boost because of the collapse in house-building. The former Minister of State, Mr. Tom Parlon, said yesterday that money must be provided for State investment in infrastructure so that tradesmen and crafts people can go back to work. Where is the response to the requirement for a regeneration of Limerick city? As Deputy Noonan pointed out, an investment of some €3 billion is projected, which would create thousands of job. Representatives of the construction industry say it can provide those workers in the morning.

There has been ongoing prevarication and indecision in addressing the banking crisis. It is four months since the crisis began and no actions have yet been taken to kick-start lending to credit-starved businesses. It is because of these types of decisions that domestic and international confidence in the competence of Ireland's economic management is at rock bottom, making the crisis much worse than it need be. International bond markets look at this country in the same way they look at our banks, and they have confidence in neither. The actions and inactions of the Government have done precious little to reverse that impression.

The truth is that the implosion of the bubble economy has exposed the fallacy of the Government's claims to economic management skills. This Government is the worst in 40 years and must now deal with the worst economic crisis the country has ever faced. While the Government sought all the credit for the Celtic tiger, it is now casting around to blame everybody but itself for the part it has played in this economic crisis. The Government blamed the Opposition parties for talking the economy down. To mention economic difficulties was to be guilty of national sabotage. Journalists were blamed for the bank crisis. Those who rejected the referendum on the Lisbon treaty were blamed for the loss of confidence. That treaty rejection is now playing a crucial part in the attitude of Europe towards the State. The Minister for Finance, Deputy Brian Lenihan, blamed the Irish people for the housing boom when he said:

You know, we have to be honest about this as a people. We decided as a people collectively to have this housing boom.

Now he tells us we have a thriving economy. The Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Coughlan, even sought to blame struggling families when she suggested that families seeking lower prices north of the Border were being unpatriotic.

It is clear that we cannot solve the mess in the economy and public finances created by Fianna Fáil through higher taxes on work and enterprise, stealth charges and cuts in front line services and capital spending. This is only further damaging confidence and competitiveness. I believe it was Churchill who said that any country that intends to tax itself into prosperity is like a man standing in a bucket trying to lift himself by the handle. However, I also recognise that we cannot massively borrow our way out of recession by spending on unreformed public services. Borrowing is already spiralling out of control. The news every day is critical given the cost of money and the difficulty the State will have in borrowing in the current circumstances.

On the current path, even excluding the currently unknown cost of rescuing the banks, Government borrowing will triple to at least €140 billion by 2013, up from just over €46 billion in 2007. The greatest problem is that we do not know the scale of what we have got ourselves into in regard to the banking crisis. We have not been told the assessment of liability for Anglo Irish Bank. While we strongly support the two major banks, we do not know the extent of any so-called toxic debt they may have. That is why I said during Leaders' Questions that we must separate out the banks' commercial, residential and other loans so that there will be a clear picture which will allow us to devise the clear strategy to which the Taoiseach referred. At the current level of borrowing, annual interest costs will rise to some €8 billion per annum, which is equivalent to the hospitals budget, from €1.8 billion in 2007. This assumes international markets are willing to lend us this amount of money, which is by no means clear.

The Government has set out a target of €2 billion in current spending cuts this year. Failure to achieve this target would signal to the world that this Administration does not have the political vision or strength to do what it takes to fix the public finances and the economy. This is why Fine Gael took the difficult decision of publicly recognising, in a manner the Government remains unable to do, that cutting the cost of running the public service must play a key part in a credible economic recovery package. This was outlined in detail by our spokesperson on finance, Deputy Bruton, on many occasions.

Last November, I called for a complete public sector pay freeze, including increments, to help recover competitiveness and to free up resources for investments in infrastructure which position the economy for an export-driven recovery. We will not escape this crisis unless we can trade our way out to the scale of export percentage we had in previous years. Public sector pay increases are simply wrong at a time when front line services are being cut, borrowing is spiralling out of control and wages are falling across much of the private sector. I understand that public sector workers might feel angry on hearing this message. They are not responsible for this economic crisis, the Government is. I have listened carefully to the arguments from trade unions that public sector payroll cuts would be deflationary and would make the crisis worse. On balance, however, I am of the view that a significant cut in the public sector pay bill is a vital element of protecting jobs across the economy because of the impact it would have on competitiveness, on the resources available for capital spending and on international confidence in the long-term stability of the Irish economy.

I have set out our view in terms of the public sector. Six years ago I pointed out that the then Government had a brilliant opportunity to begin a real process of public sector and public service reform with the benchmarking process, which is now costing €2 billion per year. Everybody in the country knows the extent of waste through Departments and across a whole range of sectors. This has never been examined properly by the Government. If the Taoiseach expects that it is so easy to put his focus on the public sector, the workers in that sector are the first who would recognise that they can contribute towards moving our country forward. However, the Taoiseach must point out before they do so that if they are to take pain in the same way as all others, he must have a tough but fair strategy and he must be able to point out how he intends to reform the business of the economics of running the country and the public sector in providing services for the taxpayer. He has not done that, nor has he made any reference to it. He has not faced the big decisions that need to be taken in terms of reducing public payroll costs.

Cutting the public sector pay bill is necessary but not enough. What is also needed is a credible medium-term plan to cut Government, control prices and eliminate the bureaucracy, waste and extravagance that still plagues public spending and diverts scarce resources to the wrong places. That is why Fine Gael called for radical public sector reforms to deliver 3% annual efficiency improvements in each Department, as has been achieved in Northern Ireland.

Hospitals should only be paid for what they do this year, not what they spent last year. Why should it not be the case that hospitals get more money if they treat more patients, rather than closing wards and cancelling operations when they run short of cash?

Charlie O'Connor (Dublin South West, Fianna Fail)
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I remind the Deputy that he has one minute remaining.

Enda Kenny (Mayo, Fine Gael)
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The Acting Chairman will have to give me another one after that.

Charlie O'Connor (Dublin South West, Fianna Fail)
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It could get me into terrible trouble.

Enda Kenny (Mayo, Fine Gael)
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Being from Tallaght, I know the Acting Chairman is a generous man.

The €300 million State subsidy for public bus transport should be opened up to new alternative, more efficient providers. It is lunacy that CIE should respond to falling demand by cutting services and raising prices while continuing to make pay increases. Dubious capital projects should be subject to published cost-benefit evaluations, which would avoid the PPARS and the e-voting debacle we had some years ago. Contracts with public servants should be changed to provide for much more flexibility to move staff to new priority areas. The Comptroller and Auditor General should be given new powers to improve the governance and financial management of agencies in order to root out the type of waste and excess we have witnessed in FÁS.

We will support Government if it implements Fine Gael policies to help small businesses and the unemployed such as the following. An immediate cut in VAT — at least back to the 21% before the introduction of the budget — should be introduced to ensure that retailers can compete on a level playing field with Northern Ireland and the UK. An employer PRSI exemption should apply for businesses that take on extra staff in 2009. No employment PRSI payments should apply for extra staff for two years. Additional PRSI offsets should apply for employers' investment in research and training. A freeze in commercial rates and other State charges should apply for businesses. A massive investment should be made to drive high speed next generation broadband across the country. In a place on the west coast people are moving around inside a building, as the Minister sitting next to the Taoiseach is aware, to find where they can connect to the Internet. A massive investment should be made in retraining unemployed construction workers in areas such as home insulation, smart electricity appliances and energy certification. Better access for training for the unemployed should be provided, for example, by changing the criteria for the back to education allowance.

We will play our part in ensuring that this country recovers through this recession, but this debate is taking place in the vacuum of our not being told the truth or the reality by Government, and I deplore that kind of activity. This is the House where the Taoiseach should be making his State of the nation address. This is where the decisions should be made. In reference to what we said last week in the Mansion House, the fundamental principle of the First Dáil was accountability and transparency by all Ministers to this House, the elected representatives of the people, and I deplore the way the Taoiseach has gone about this.

Deputies:

Hear, hear.

Charlie O'Connor (Dublin South West, Fianna Fail)
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I call Deputy Gilmore and advise that I am obliged to interrupt him at 1.30 p.m. for which I apologise in advance.

Eamon Gilmore (Dún Laoghaire, Labour)
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Since this country went into recession the Labour Party has taken a positive and hopeful view of our country's economic affairs. We have concentrated on putting forward solutions, suggestions seeking to convey our belief that, as a people, we can get through this recession, there can be better times and, however difficult the adjustment may be, that it will be worth it in the end.

Despite every effort we have made to see opportunities where there are obstacles, the most depressing thing I have heard in this period of recession is the speech the Taoiseach has just delivered. Is that the best the leader of the country's Government can offer the people of Ireland at this very difficult time? I was angry that no proposals were presented by the Taoiseach before the commencement of this debate and that we are debating this matter in a vacuum. To find not only have no proposals been put forward in advance of the debate but that nothing new was on offer in the Taoiseach's contribution tells me that this country is now led by a Government that is incapable of leading us out of the recession and that is bankrupt of ideas.

Ruairi Quinn (Dublin South East, Labour)
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Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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Let us consider some of points the Taoiseach made today. He said that the Government has a clear strategy which it will continue to implement. If it has a clear strategy, we have not been told about it and we certainly did not hear about it today. As for continuing to implement it, I advise the Taoiseach that "continue" is not the verb for these times, "change" is the verb for these times.

Ruairi Quinn (Dublin South East, Labour)
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Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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If the Taoiseach continues to lead this country in the way he is and if he continues on the road he prescribed in his speech, he will lead it to ruin. He told us that there is little point in looking back at how some of this might have been anticipated or avoided. From a Government that has been in office for 11 years, the Taoiseach has some neck to say there is little point in looking back; there is every point in looking back because the pilot who crash landed this economy is hardly the pilot who will take off this economy and lead us back out of this recession.

At the end of his contribution, the Taoiseach invited us to work as a team. We are willing to work as a team, but we want to know what is the game. The Taoiseach has not told us. He has not outlined any set of proposals. He has not said anything in his contribution to this House today to which any member of the Opposition can constructively respond because there are no new proposals coming from Government today.

We are at a moment of grave national crisis. It would be difficult to overstate the depth of the economic emergency that now faces our country and people. The extent of our difficulties is well known, even if their cause is not admitted and the cure is disputed.

It is not necessary for me to rehearse the full litany of statistics that describe the fall in economic output, the threat to our banking system or the spiralling gap in our public finances. This is not a debate about statistics, it is about people. It is about the 300,000 of our people now signing on the live register, queuing down the street in the rain, trying to collect social insurance to which they contributed, caught up in an unfamiliar bureaucracy which seeks to deny them and which often humiliates them. It is about elderly people who have watched helplessly as their bank shares have collapsed in value and, in the case of Anglo Irish Bank, have been extinguished. It is about the unrelenting dread of a parent who wakes each morning to the fear of losing the family home. It is about the best and brightest of what would have been our most fortunate generation graduating once again to the emigrants' aeroplane. It is at this moment that our people look here, to the Dáil and Government for leadership. People want to know if there is somebody, somewhere in Government, who has a grip on this situation. What they will see today is the Dáil gathered to debate a Government plan that does not exist, drafts of which it is not allowed to see, including a set of cuts that the Cabinet will not publish

This is an economic crisis, but it needs a political solution. It requires a Government that is clearly in command of the situation in everything it says and does. The nucleus of a modern economy is trust. From the moment money replaced barter as the means of exchange, economies became dependent on trust. In the global economic turmoil that has followed the collapse of Lehman Brothers Bank, trust has been in short supply. The first function of Government is to make up that shortfall.

That means bringing forward a national recovery plan that will address the economic crisis, comprehensively and coherently. It should be a plan that shows the Government has a grip on the situation, a plan that will allay fear and chart a course out of recession. It should be a plan not to shrink the economy, but to stimulate it. The question is not what can be cut, but what can be created.

I do not suggest that this can be done without pain. It cannot. However, one must know what it is one wishes to achieve. Is it to re-boot the economy, protect jobs and restore growth? Or does one wish to focus solely on one component of the problem, namely, the public finances, and, in so doing, risk a downward spiral of cuts and economic contraction?

The recovery plan should be based on what I call the three Cs, namely, confidence among consumers, credibility among investors and competitiveness on world markets. It is an understatement to say that consumer confidence is low. It would be more accurate to say that consumers are petrified. The ESRI consumer confidence indicator has fallen to historic lows and retail sales are collapsing. The latest figures from the CSO, which relate to November, report the largest annual fall in retail sales since April 1975. A survey of retailers published last weekend in the Sunday Business Post suggests a fall of 10% in the fourth quarter of 2008, compared to the same quarter of 2007. This indicates a significant rise in the savings rate consequent on a loss of confidence. Many people have lost their jobs, but a lot of people have not. They simply are not spending money.

The Government can act to restore confidence by addressing fear head on. The one thing people fear more than losing their job is losing their home. It would allay much of the fear among consumers if there were to be a guarantee that, for the duration of the recession, nobody will lose their home.

Deputies:

Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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We must also look at the VAT situation. The flood of consumers going over the Border cannot be ignored. Equally, falling prices are likely to result in consumers postponing their spending. A temporary cut in VAT would have the effect of boosting incomes and would also help to shift the growing expectation of falling prices.

There has been a similar shift in sentiment among the buyers of Government bonds. The benchmark measure, namely, the yield on ten-year paper compared to German bonds, or the Bund Spread, has widened dramatically in recent weeks. Germany borrows ten-year money at 3.2%; Ireland borrows at 5.65%. Clearly, there are strong fundamentals driving that market but the rising rates are also the result of incompetence and inaction.

So far, the Government has made five major policy shifts on Anglo Irish Bank. On each occasion, the remaining banks were the subject of unwelcome attention from the financial markets. The Government cannot even get its story straight as to what happened on the night of the guarantee. We are also suffering the effects of a failure to set out a credible fiscal strategy for the next five years. For months, the Labour Party has been calling for a medium-term approach to the fiscal and economic crisis. The stability pact update published in January is not a plan but an accounting exercise.

The third component required is competitiveness. We all know that Ireland must begin to wean its economy from reliance on construction and get back to the business of selling goods and services in the rest of the world.

Deputies:

Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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Our competitiveness was badly eroded during the property boom and the problem has been made worse by the fall in the value of sterling. It is a source of deep concern, therefore, to read reports that the Government is contemplating cuts in capital spending. Ireland has serious infrastructural deficits that must be remedied. Looking back on the past decade, it is unbelievable that the deficiencies in key infrastructures such as broadband could not be dealt with in the best of times. It was hard not to agree with the person I met last week who summed up the achievements of this Government as "a broken bank, two trams that don't meet and a spike in O'Connell Street".

For some months now, the Labour Party has been advancing concrete proposals to stimulate economy recovery and create jobs. Our approach has been similar to that proposed in November by the European Commission. Public investment should promote short-term stimulus and long-term competitiveness. We have brought forward a series of concrete ideas and proposals. We have argued repeatedly, for example, for additional investment in building projects such as schools and urban regeneration. The skills involved in building schools are similar to those involved in building houses. We have also argued that the Government should provide incentives to kick-start what might be a €25 billion industry, namely, insulating homes. That theme is also reflected by the EU Commission's stimulus plan which calls for investment in carbon reduction and green collar industries.

Some of those proposals have been taken on board, in theory, by the Government. It is flattering to hear the Taoiseach repeating them here today. What we need to see is action. My party has repeatedly called for innovative thinking in the field of education and training. We know that about 500,000 people need to upgrade their skills. Now is the time to do it. We need fresh, innovative thinking on how that can be achieved. The Labour Party suggested, for example, an earn and learn scheme. If a company is faced with reducing its workforce, why should it not move to having people working part of the week and learning for the rest of it? That is a far better solution than merely having people join the dole queue.

This is an emergency and we cannot get hung up on the rule book. We must think afresh. There is currently a cap on the number of places in further education which stops further education colleges from responding to the needs they themselves see. There is also a cap on vocational training opportunities scheme, VTOC, courses. The Taoiseach referred today to 30,000 places that will be available in higher and further education. However, he did not make it clear whether that refers to the existing 30,000 places or to an additional 30,000. If it is merely the existing figure that must be expanded in order that people who are coming out of employment will get the opportunity of re-entering the education system and upskilling.

Now is a time to invest in our people, who are the core of our competitiveness. What answer does the Government have, for example, for the thousands of young people who will graduate from college this year? Will they be faced in a few years with the old story of the 1980s, namely, one cannot get a job without experience, but one cannot get experience without a job? Rather than pay people to do nothing, can we come up with a work experience or job placement scheme? There is work to do in our country. This is a generation brimming with talent, energy and creativity, who are willing to give service to their country and their community. What is needed is the imagination and the energy to put their talents to good use.

For any recovery plan to work, however, it must be fair. It must be clear that the burden is being shared across society and not being borne by any one group. Here again, trust is vital. It is hard to see how a Government that presided over a frenzy of greed among property developers can now ask, with a straight face, for sacrifice from others. It has been suggested, for example, that a cut in public sector pay will have a demonstration effect for private sector pay and, in that way, will boost competitiveness. What that argument amounts to is a call for a simulated devaluation in our real exchange rate.

Charlie O'Connor (Dublin South West, Fianna Fail)
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The Deputy has one minute remaining.

Eamon Gilmore (Dún Laoghaire, Labour)
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However, this is a simulated devaluation that places the burden on only one section of society. We are told that workers should take a pay cut. If they do, will the fees charged for a doctor's visit also fall, or their health insurance bills? Will other interests in our society take a similar hit?

I have no doubt that we will see lengthy talks going on in Government Buildings in the coming days. We can be fairly confident that an agreement will emerge. We know that, when called on, the social partners will seek to do their part even if some of those social partners will insist on using the opportunity to beat their ideological drum. This is not a game of "deal or no deal". What matters is what is actually in the deal. So far, all the indications from the Government are that the over-riding objective of the talks is to cut public expenditure.

Will I have time to continue after the break?

Charlie O'Connor (Dublin South West, Fianna Fail)
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That is my understanding. I now ask the Deputy to call for the adjournment of the House.

Emmet Stagg (Kildare North, Labour)
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There is plenty of precedent if the House were to agree to sit for another five minutes.

Charlie O'Connor (Dublin South West, Fianna Fail)
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My understanding is that the Chair does not have that flexibility.

Emmet Stagg (Kildare North, Labour)
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The House has.

Joan Burton (Dublin West, Labour)
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The House has.

Charlie O'Connor (Dublin South West, Fianna Fail)
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The advice I am getting is that I do not.

Ruairi Quinn (Dublin South East, Labour)
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The advice is over there, on the Government benches.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is fine.

Emmet Stagg (Kildare North, Labour)
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The Taoiseach is agreeable.

Charlie O'Connor (Dublin South West, Fianna Fail)
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I hope it does not cause a constitutional crisis, but I will accept——

Charlie O'Connor (Dublin South West, Fianna Fail)
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The Taoiseach is allowing me to do that——

Eamon Gilmore (Dún Laoghaire, Labour)
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If it does, and we are both sent anywhere in retribution, Acting Chairman, we will share a cell.

Charlie O'Connor (Dublin South West, Fianna Fail)
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Thank you, Deputy. I am told I must have the agreement of the House, which I presume I have.

Deputies:

Yes.

Pat Carey (Dublin North West, Fianna Fail)
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I propose the extension.

Charlie O'Connor (Dublin South West, Fianna Fail)
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Deputy Gilmore should continue.

Eamon Gilmore (Dún Laoghaire, Labour)
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I repeat that the way to deal with the public finance crisis is to get the economy moving again. That is not to suggest we can ignore the state of the public finances because we cannot. What matters now is not the deficit this year or in any one year. What matters is whether we have a credible plan to address the problem over a period of years. We must send a signal that we are serious about putting our affairs in order. This must be done in a fair way, however. Those who have most should contribute most.

Michael D Higgins (Galway West, Labour)
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Hear, hear.

Eamon Gilmore (Dún Laoghaire, Labour)
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Let us be honest about it, let us be up-front with people and let us call a tax a tax. The Government will do anything to avoid using the word "tax". It has levies, user charges and contributions, all of which are taxes by another name.

It is clear there is a requirement to broaden the tax base. The wide range of reliefs and exemptions that grew up in the last ten years must now be rigorously pruned and curtailed to ensure the wealthy pay a fair share. That means a re-examination of the tax breaks for interest on rental properties, it means dealing with the loophole in respect of directors' pension schemes and it means looking afresh at the rules pertaining to tax exiles — an Irish passport should bring responsibilities as well as rights.

To get the economy moving again, we also need a different approach to the banking crisis. First, we need rigour, discipline and consistency from Ministers, which has been lacking. Second, we must look to the credibility of the banking system. This means, in reality, major changes in personnel across the guaranteed banks. It also means sending a clear message to investors across the world that Ireland is making a fresh start in its banks, and that wrongdoing will be exposed and illegality punished.

What has gone on in Anglo Irish Bank cannot be brushed under the carpet. There has to be full accountability to restore confidence, credibility and Ireland's reputation. While we did not wish to own a bank, we do now, so let us set that bank to work and draw down the money available from the European Investment Bank to lend to small businesses which are currently starved of credit.

Ruairi Quinn (Dublin South East, Labour)
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Exactly.

Eamon Gilmore (Dún Laoghaire, Labour)
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The world around us is changing very rapidly. Our current difficulties owe a lot to mistakes made by Government and to its lack of urgency in addressing the crisis. However, we must also realise that we are witnessing a major crisis in the structure of globalised capitalism. There is no certainty that we will return to the system as it existed before the credit crunch and the collapse of Lehman Brothers.

There were fundamental imbalances and injustices in that system which were always going to be unsustainable. In a recent article, Professor Joseph Stiglitz makes the point that the lifestyle of the developed world was in fact being financed by borrowing from the developing world. Sub-prime mortgages were financed by the trade surplus of countries such as China and were the flip-side of the US trade deficit. The sub-prime crisis was also driven by inequality in the US, where people in the lowest income bracket had not seen a real increase in incomes since the 1980s. Stiglitz makes the following point:

A few years ago, there was worry about the risk of a disorderly unwinding of global imbalances. The current crisis can be viewed as part of that, but little is being done about the underlying problems that gave rise to these imbalances . . . we need not just temporary stimuli, we need long-term solutions.

It was never supportable or sustainable that the US would have a carbon footprint of 20 tonnes per person while China's was 3.8, or that the average carbon emission for high income countries was 13 tonnes compared to less than 1 tonne in low income countries. Nor is it supportable that 1 billion people live on less than $1 a day, that the richest 500 people in the world earn more between them than the 416 million poorest, that two senior bankers could earn more in a year than Malawi spends on its health service or that the CEOs of the top 15 US companies earned 520 times the wage of the average American worker. That kind of structure was never sustainable and it was never right.

Globalisation has brought billions of people into the global trading system. That can be a major benefit to humanity but we need a world that is constructed in a sustainable and just manner. These are not academic considerations. The question we must ask ourselves is what will the new global order be and what will Ireland's place be in it. We were and still can be one of the richest countries in the world but what will the world look like? What industries will grow and which will contract? Where should Ireland position itself in the new global order?

In all of this, the EU has a vital role to play. For a brief moment last year, we saw Europe assume a leadership role in world affairs. That has faded, partly as the natural consequence of the change of President in the US but also because of reluctance among some countries about pushing ahead with the EU stimulus package. A recovery plan, based on confidence, credibility, and competitiveness, has a good prospect of success. It should be fair and should be seen to be fair. It should be focused on stimulating the economy, not shrinking it. It should follow the logic, set out by the European Commission, of using public investment to deliver short-term stimulus and long-term competitiveness. It should seek to create jobs and to train and educate people for new jobs. While this is a profound crisis, it is also an opportunity to re-gear our economy, to provide the schools our children deserve, to make our economy more sustainable and to create a new sense of fairness and solidarity.

What is happening in the economy is very frightening for some people. People are losing savings, jobs and businesses. They know these are difficult times and that there is more to come. However, they also need to be certain that the solutions put forward by those who represent them will help them weather the storm. They need to know that there is as much talk of security as there is of sacrifice. We can get through this. There will be an end to the recession. The solutions to this economic crisis need to reassure our fellow citizens and our young people that they will still be standing when the economy recovers. Standing and ready to contribute to a society that values fairness and the common good over self-interest and greed, and ready to grow an economy that is competitive, sustainable and fair.

Debate adjourned.