Kieran O'Donnell (Limerick East, Fine Gael)
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We will be opposing both these resolutions. Prior to the announcement of the budget, the Government gave the impression that it would be a fair one, would spread the pain across all income groups and that it would not be extremely unfair to families. Financial Resolution No. 1 proposes a doubling of the income levy for people on a moderate income. People earning below the minimum wage will now have to pay the income levy at a rate of 2%. A married couple in receipt of one income of, say, €50,000 a year, will pay a €1,000 extra a year in terms of this income levy. It is a punitive measure and lacking in innovation. It is a book-keeping exercise. It does not take into account people who are suffering and under pressure in terms of the cost this imposes on them.

Many couples and single people have mortgages. It is proposed that all mortgage interest relief will be eliminated after first seven years of the mortgage. These people would have bought their houses in 2002 at prohibitive prices as the building boom was getting under way. One of the reasons they bought them was that they qualified for mortgage interest relief. The Government is now pulling the rug from under these people and, effectively, abolishing any form of mortgage interest relief.

These two measures are outrageous in any person's language. If the Government had hit the very high income earners with the imposition of very high rates, they would have been the people who could have afforded such a hit. Under the income levy proposal, the Government is hitting a couple on an annual income of, say, €50,000 with a levy of €1,000 per annum and this measure will now cost them an extra €500 per annum. A couple in receipt of an income of €40,000 per annum, will be hit with an income levy of an extra €400 per annum. We will be voting against this resolution.

This budget hits middle income earners suffering financial difficulty. It also hits the lower paid across a range of measures. A person on the minimum wage will now have to pay the income levy. People will also suffer the loss of mortgage interest relief at a time when they are struggling to make their repayments, even those interest rates are decreasing. We will oppose both these financial resolutions.

Pat Rabbitte (Dublin South West, Labour)
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The first point I wish to make is that these measures are likely to have a major deflationary impact. We have to seriously consider in light of the current state of economic activity the implications of that. In the October budget there was an increase of the equivalent of 1.5% of GDP. In February 1% was taken out and now 2% will be taken out over nine months. In other words, the effective total GDP effect will be approximately 5%. International literature indicates that 2% is a heavy hit. In any western economy one cares to consider, 2% is a heavy hit. This is a hit of the order of 5% taken over the year. That is enormous in an economy projected to contract by 8%. When the Minister for Finance went to take out €1.8 billion in taxes, that was more than most sane economists recommended. I sincerely hope we are not around to pay the price for it as the year goes on.

In addition to that, these resolutions are opposed from these benches for the reasons that they pull back the threshold further. It is not only that the levy is being doubled, it is that the resolutions pull back the thresholds further. As a result, they are more punitive on lower paid people and the overall impact is more severe. Add that to the implications of the increase in the PRSI threshold and effectively for most workers the new PRSI threshold means that most of them will be caught in that spiral as well. The reduction in the thresholds at which the levies apply, the doubling of the levies, the increase in the PRSI threshold and the doubling of the health levy added together will have a huge impact on people in the PAYE sector.

There might be some relief in the criticism of the Government if, in fact, it had addressed some of the categories that traditionally had not been paying their fair share. For example, there is a minimum shaving with regard to the reliefs available to landlords. From memory, the estimated take is approximately €90 million as compared to a possible €800 million, so it is tokenism. The Government does not acknowledge the existence of tax exiles, and perhaps there is a certain symmetry in this, seeing that they do not exist in terms of contributing to the cost of running the services in this State. Out of sight, out of mind, they are not referred to or included at all.

If one looks at the effect of the measures today and add them to the effect of the October budget, one sees that extraordinary costs are being imposed on average workers. Somebody on the national wage, say, £15,500, will pay €1,154 per annum. Somebody on €30,000 will pay €1,680. Somebody on €40,000, the modest end of the middle income spectrum, will pay €2,600, or €50 a week more. Somebody on €75,000 will pay just short of €5,000 - €4,842 or €93 per week. These are very savage cuts. Those who wrung their hands and called for more savage measures on the taxation front have got them today. The balance has erred in terms of the amount taken out of the economy in further tax increases. It must inevitably have a further deflationary effect on an economy facing a steep downward trajectory.

The proposal from the Labour Party for a new rate of income tax of 48% for those on incomes of €100,000 and above would be a much fairer way to have addressed it. In making reference to the minimal gesture regarding landlord relief, I notice that, of course, commercial property is entirely excluded. Overall it means that those who are caught in the net are going to be squeezed until the pips squeak while the situation regarding those who are outside the net is for another day - in effect, they must wait for the report of the Commission on Taxation. We are one commission or committee away from facing it now. While we all seem to be agreed in this House that what is required is the broadening of the tax base, like St. Augustine it is a case of, "Not now, Lord", not yet. We tip the forelock towards broadening the tax base, but we inflict the optimum of punishment on that core segment of taxpayers already caught.

As soon as people have an opportunity to reflect on today's figures, they will be in disbelief at what they find, taken together with what they paid following the budget in October, what public servants paid in the pension levy, the 1% levy, now to become 2% and then 4% and with the threshold being brought down. This is a very serious development.

These are the more serious aspects of the resolutions before us. People may hold views with regard to the excise duties or whatever, but these considerations are relatively minor in the context of those before us. There are macroeconomic implications of the take here, which totals almost 5% of GDP in the fiscal year for an economy that is contracting at the rate that ours is. That is a very serious situation, it goes too far and I ask the Taoiseach to acknowledge that.

Seán Sherlock (Cork East, Labour)
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The statement by the Minister for Finance to the effect that the Government has taken care "to ensure that the measures are equitable and highly progressive" is incorrect. Based on an initial analysis of the figures, today's budget will create a larger demographic sector of the working poor. When the income levies and health levy are factored in as well as the fact that most people working in the private sector have had to endure pay cuts across the board, the real income they will be left with will be so marginal that it will not enable them to have an adequate standard of living. We all appreciate that measures had to be taken. However, they should have been taken on the basis that they would not be regressive. There is now a large demographic cohort of ordinary working families who will be devastated financially by the proposals within this document.

With regard to income tax, we were always told that the canons of taxation dictated it should be progressive. I do not see anything in the budget that ensures high net worth individuals will pay a proportionate amount of their incomes towards getting us out of the mess we are in. I do not see why the Minister for Finance could not have introduced a higher tax rate at this time so as to cushion the blow against middle and low income earners. It is completely regressive and when people wake up to the fact of what this document contains, it will make them even more angry at the Government than they already are. That is why I will not support this resolution.

Arthur Morgan (Louth, Sinn Fein)
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I have two problems with this resolution. The first is that the levy is too high on low income earners. The second is that it is too low on high income earners. That to me completely lacks fairness and reasonableness. I had understood that fairness was to be one of the cornerstones of what we are talking about here.

I am concerned that we are going to abandon people on low incomes to moneylenders. They simply will not be able to sustain this level of taxation at those level of incomes, that is, below the minimum wage. The very least I should have expected was an exemption on the threshold of €18,304, as with the income levy. The proposals we made in the past week would have offered an alternative source of income. We proposed additional income and savings worth €3 billion during the current year or €5 billion in a full year. Our proposals would have protected those on the minimum wage from the impact of this economic crisis. This budget has further implications with which I will deal in the context of the relevant Financial Resolutions.

Michael Noonan (Limerick East, Fine Gael)
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I wish to comment on the income levy and whether it is fair and equitable. A number of issues come together in this regard, including the doubling of the levy across all ranges of income and the change in the thresholds so that taxpayers who formerly paid 1% are now paying 4% once they earn more than €75,000. Add to these the health levy and the new arrangements for PRSI whereby the ceiling has increased from €50,000 to €75,000, and those who earn between €75,000 and €100,000 will suffer a heavy blow. Budgets present difficulties where separate measures impact on one group of taxpayers in particular.

The Taoiseach has been haunted by the spectre of individualisation, which was introduced by the former Minister for Finance, Mr. McCreevy. Under this budget, a family with one income of approximately €80,000 will be hit harder than a family on two incomes coming to the same amount because of the residual impact of individualisation. The tables provided by the Department of Finance do not provide comparative figures in this regard but I estimate the difference as being in the region of €2,500. It makes no sense under the principles of equity that two partners who each earn €40,000 should pay so much less than a family which is reliant on a single income of €80,000. One might ask why the non-earning spouse does not get a job but that option is no longer available. A family in which one spouse has been made redundant may therefore be hammered to the extent of paying €2,500 more than a dual income couple.

A married couple with no children on a single income will lose €1,500 on €50,000 or €3,092 at €75,000 excluding the health levy or PRSI. However, a married couple on one income with two children would lose €2,500 on €50,000 or just over €4,000 at €80,000. How is it equitable that a couple with two children should pay €1,000 more than a couple with no children?

This problem arose on foot of several separate decisions impacting on a specific income range. The new threshold of €75,000 for the 4% levy had a particular impact. This is not equitable by any standard. I cannot see how it can be argued that a dual income couple should pay considerably less than a single income couple on the same income. I acknowledge this is a consequence of individualisation but the issue was raised previously. I suggest this is an ideological issue given that it could be argued that mothers who decide to work in the home should not be penalised.

I do not know how the quirk has arisen in respect of increased taxes for couples with children but I presume it pertains to variations in the way payments are made to children through the social welfare code. It is an extremely serious issue, however.

On the general issue of affordability, it is reasonable to assume that the more one earns, the more one should pay. However, I believe a level should be set below which people should not pay anything because they are hit so often they simply cannot live on their incomes. It is not equitable to take a couple of hundred euro from people who are on the breadline. I do not believe the exemption limits are low enough and suggest that the appropriate level is approximately €25,000.

I am aware the Taoiseach went to inordinate lengths to proof the budget politically but the past nine months saw correction measures in July, a budget in October and the pension levy in January. To take one example, a school principle earning €80,000 paid a 1% levy last October, a 9% gross public service pension levy and now the original 1% levy is raised to 4%. This will have a devastating impact.

If there was a purpose to this devastation one might agree to it but the budget fails to set out an overarching plan that might inspire confidence in the Government either at home or abroad. The Minister did very well in the first three pages of his statement and I concurred with the six principles he set out as the basis for the budget. He had a shot at correcting the fiscal problems and he has announced his intention to do something about the banks in the coming weeks. However, he did nothing to address the principles of competitiveness and jobs and little in regard to equity. I cannot recall the sixth principle because it passed me by. If these principles had been followed through, the budget would have presented a coherent plan to deal with our problems between now and 2013. That is what the country needed, but given the way it is positioned now I do not think it will stand up to analysis.

This is a confusing budget to deal with from an Opposition viewpoint because at times the Minister's speech referred to savings in 2009, while at other times it referred to savings between 2009 and 2010, or between 2009 and 2011. Therefore it was very hard to compare like with like and to distinguish between the one-year effect or how it would play out over the Government plan that has been mapped out.

I appreciate the Government's difficulty and I do not want to score political points. The magnitude of the figures the Government is dealing with has not been appreciated publicly in the media. The Minister claimed today that he was taking out €3.75 billion in nine months. The 12-month effect of that is around €5 billion. One must also allow for negative buoyancy. The money one takes on an income levy is not available to be spent in the shops, so there is a reduction in excise and VAT. When the finance advisors were factoring that in, the gross take for 12 months must be somewhere between €6.5 billion and €7 billion, which is serious money.

It must be agreed that this is the biggest fiscal correction ever attempted by an Irish Government since the foundation of the State, both in real and percentage terms. I do not underestimate the difficulty of the task before the Government because while it is presented as a take of €3.25 billion, one must hit a lot higher and harder in gross terms over 12 months. However, the Taoiseach should have set that out from the outset, saying this is our difficulty, this is what we are trying to do, this is the magnitude of the problem and this is the extent of the hit over 12 months. In my estimation, the Taoiseach's job today - apart from the detail - was to establish his own credibility, so that people would say, "It was dreadful but at least we think they might be able to deal with the problem". If people said "Yes" to that at home and abroad then there would be confidence again for people to start doing things in this economy, and there would be confidence abroad to lend to Ireland. I do not believe he has measured up to it, although I hope he has done so because we all live in the same country and none of us wants to go down the tubes in some collective political paroxysm. I hope the budget measures are received positively internationally.

What was said about the banks was badly presented and it has frightened people. Once the Minister wrote €80 billion to €90 billion of impaired assets into his script, that became the figure for which taxpayers would be exposed in the vox pop. We know that is not the figure, however. Those of us who have examined the background literature - there is not much of it - know that this will be heavily discounted. As soon as one puts €80 billion or €90 billion out as a figure there is a big problem. Even if it is discounted by 50% there is still a very big problem in terms of the Irish taxpayer underpinning impaired debts in the banking system to the tune of €45 billion.

Many of the Taoiseach's Deputies and Ministers will be knocking on doors in connection with the local elections, as we will ourselves. I know he will get cross when I say this, and it is probably unfair to him, but there is a public perception that he is so closely allied to the developer classes in the country that he will bail them out through a banking system, and that the purpose of his bank rescue is to bail out his developer friends. I do not share that view, but I am telling the Taoiseach that he has a problem in convincing the public that is not the case.

Seán Power (Kildare South, Fianna Fail)
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Will the Deputy let us have his view?

Michael Noonan (Limerick East, Fine Gael)
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My view is simple. The Government should have taken up Deputy Richard Bruton's proposal to do what they have proposed in Germany, which is to divide the existing banks into bad and good banks. It could be worked out that way so that bond-holders, shareholders and those who cannot get credit lines would share the pain. That is my view, which is simple enough. It was explained in detail in Deputy Bruton's paper, so we are not hiding our views. We have been more forthcoming in our views than any previous Opposition and we have set them out before the House. This is a red-letter day. I knew the Taoiseach would not like that comment but as soon as he goes home and knocks on the doors he will find out.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Now that comment has finally emerged I had better deal with it. The purpose of trying to sort out our banking system is to secure jobs. If one talks to any business person in this country today about what is the biggest problem for Irish business, they will say it is about getting access to credit. It is about keeping jobs going, finding cash to pay debtors, having the ability to fulfil orders and pay employees. Many employees are prepared to make sacrifices to keep as many of their colleagues as possible in work during these difficult times, rather than going for a simple redundancy route. Therefore it is about jobs, it is not about looking after anybody.

Everyone in this House should accept that, for whatever length of time we are here, we are serving the public interest to the greatest possible extent. If we cannot accord each other that basic axiomatic fact then no wonder we have the distortions the Deputy is talking about. People are making those sort of arguments for no purpose other than to continue on with that sort of discourse, even given the seriousness of the problems we face. In every country people know that as a result of the biggest financial crisis seen in the developed world in 70 years, governments are grappling with the issue of how to capitalise banks properly, how to ensure credit is available, and how to ensure there is a functioning banking system in a modern market economy.

With regard to our own domestic experience, we also know that if the present situation were to continue without any policy direction or decision to deal with it, the problem itself would feed and exacerbate the difficulty of getting access to businesses. Let us be clear therefore that it is about jobs. When people ask what we are going to do about jobs, and at the same time go down this cul de sac of ascribing to the Government some malign motive in taking what is a hugely important strategic decision, it serves no purpose other than precisely the one mentioned by the Deputy - perhaps some semblance of electoral advantage in that people will listen to that as being the true motivation for what we are trying to achieve.

I do not mind people disagreeing with me or the Government on policy options or positions we bring forward. There was no support in all circumstances in this House for the State guarantee or recapitalisation, but they were necessary measures to effect some semblance of stability in a financial system that was in genuine distress in this country. That is indisputable. People can have whatever views they like after that, but those facts do not go away.

We are trying to ensure that banks in this country get back to their core franchise of looking after businesses that need credit, people who need mortgages, and depositors who can have a sense of security in their deposits in future. Families need to be able to get on with their business, using the credit system to effect the quality of life they enjoy. That is what it is about, and nothing else.

Let us have a debate on the merits of the budget. People can have different models and different views, which is fine. I do not mind that but we should not allow an issue that is so important for the economic future of this country to be brought down that cynical cul de sac. I am sure there are some people who may hold that view no matter what the evidence and will never change their minds on such things. There is nothing I can do about that either, but it should not be allowed to dominate this important debate. In respect of that issue, we are simply setting out in this budget the general policy direction we need to take, with a lot of detailed work to be completed in terms of legislative changes that are required and a whole range of issues that have been raised in a preliminary way this evening in the House. We can have those debates and that discussion but it is wrong to portray or characterise the motivation of Government as anything other than trying to protect the interests of the taxpayer.

The taxpayers and workers of this country are not best served by continuing to suggest that the present situation should continue regardless, or that there is a way of getting around this problem other than by dealing with the issue, that is, by acknowledging the impairment of assets and loss of value. On the Deputy's point, reference to book value is not to suggest for one moment that this will be the valuation of assets which will come across to the assets management agency.

Pat Rabbitte (Dublin South West, Labour)
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We do not know on what basis the valuations will be done.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Tomorrow, the National Treasury Management Agency will hold a press conference on this issue. People will be able to get an informed view and proper, technical answers to all types of questions related to this matter. We will take this step by step and in a transparent and open way and we will have our debates.

Deputy Noonan raised this issue in the proper context and I acknowledge what he had to say. Let us have a debate on the issue rather than on side issues. While one cannot ask anyone to avoid the opportunity for political attack, as this debate begins - it will continue in the coming weeks and months - I want to say clearly and openly that the motivation behind this initiative by Government is to protect jobs in this country and protect the ability of businesses, ordinary families and mortgage holders, those who do their business in banks, to secure access to credit to get on with doing business. That is what this is about. Whatever their business is with the banking system, whether it is a family or a commercial or private business, there is no other motivation or issue of concern. There is nothing else.

It will not serve the country or House well if we allow this debate to descend to the level at which debates sometimes take place. While this can be part of the adversarial nature of politics, it should not be the dominant part of it.

Michael Noonan (Limerick East, Fine Gael)
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I accept what the Taoiseach is saying but the Government needs to release details of the banking proposal very quickly. Otherwise, the proposal will go off the rails by the time the details come out.

Brian Cowen (Laois-Offaly, Fianna Fail)
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There will not be any question of anything going off the rails. As regards what would be the reaction of international markets, as the Deputy knows there has been much misinformation about the level and exposure of Ireland inc., let alone the banking system in relation to these matters, including in places where one would expect people to know a bit better. For example, in relation to the covered institutions a suggestion was made that the whole IFSC was covered. This then entered the equation on the total exposure and someone mentioned an absurd figure of 800% or 900% of GNP.

Deputy Burton referred to a remark I made at a speech last week about the exposure notionally being 230%. I made that remark in the context of the previous figure of 900% which was clearly absurd. The 230% figure on total exposure is also absurd because it suggests that every loan in every bank under the covered institutions is a bad debt. This is not in any way to suggest that these decisions are not important matters which have to be taken into the balance. It is for the purposes of accuracy and having an informed debate because unless we have the basic facts, it is very hard for anyone to get to the point. The whole purpose of this debate is to make sure we bring clarity, not to foment confusion. In other debates on referenda and other issues, we often give out about people who foment confusion. We are not too bad at trying a bit of that ourselves and some people cannot allow an opportunity to do so pass. We live in a democracy and we all have our own way of walking, as they say.

In relation to some of the points raised thus far, on the question of the progressive aspect of the budget, it is progressive in the sense that any Government-----

Emmet Stagg (Kildare North, Labour)
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On a point of order, other Members were entitled to speak before the Taoiseach responded.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am sorry, I will retreat.

John O'Donoghue (Kerry South, Ceann Comhairle)
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The Taoiseach is entitled to offer if he wishes.

Emmet Stagg (Kildare North, Labour)
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He is entitled to offer but he is not entitled to take the rest of the time.

John O'Donoghue (Kerry South, Ceann Comhairle)
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He is entitled to respond.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will sit down and listen to other Deputies.

John O'Donoghue (Kerry South, Ceann Comhairle)
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There are four other speakers before the Taoiseach replies.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am the Taoiseach but I will sit back.

John O'Donoghue (Kerry South, Ceann Comhairle)
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We have very little time left.

Brian Cowen (Laois-Offaly, Fianna Fail)
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A number of Opposition Deputies spoke and I was entitled, if I so wished, to contribute on behalf of the Government.

Jan O'Sullivan (Limerick East, Labour)
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I do not mind if the Taoiseach wishes to speak for another few minutes.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will defer to the Deputy.

John O'Donoghue (Kerry South, Ceann Comhairle)
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The Taoiseach was entitled to intervene.

Jan O'Sullivan (Limerick East, Labour)
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I return to the issue of the amount of money being taken out of the economy and the effect of the two measures under debate on hard-pressed low and medium income families. I concur with previous speakers who noted that these measures will cause a great deal of hardship and remove a large amount of money from local economies. People will not have any money to spend.

My constituency colleague, Deputy Noonan, referred to how various types of families are affected by the measures. I propose to focus on the family highlighted in example 6 in the Budget Statement, which refers to a married couple with two children on an income of €30,000 per annum. The family in question will lose €1,900 or 5.8% of their income and more than that again if they have a mortgage for seven years or more. A family on €30,000 per annum simply cannot afford to lose €36 per week. I have cited the example of just one family.

All but one of the Deputies from my constituency are in the Chamber. In recent months, I have referred many families in circumstances similar to those I described to the Money Advice and Budgeting Service, the Society of St. Vincent de Paul and various other agencies. Following the measures announced in the budget, I am certain many more such families will be unable to survive. My concern with regard to these two measures is that the Government was not sufficiently conscious of their effect on families such as the one I described.

Clearly, there are broader issues involved and the Taoiseach addressed a general issue on the budget. These two measures will, however, hit families very hard, particularly those on low incomes. In addition to the large number of jobless people who will not have money to spend in local shops, families in the circumstances I have described will not have any surplus money and will probably not be able to pay their bills. I do not believe the Government has thought through how these measures will affect such families.

John O'Donoghue (Kerry South, Ceann Comhairle)
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I ask speakers to be brief as we have very little time.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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It is regrettable that the budget does nothing to stimulate the economy. There is no support for small and medium size enterprises, many of which are going to the wall on a daily basis. I listened to Deputy Noonan make a point in relation to a reduction in excise duties and VAT but the real reduction we are witnessing is the continued haemorrhage of jobs among those directly employed in the retail and services sector. This does not make news because the job losses are not 100, 200 or 300 in single employment entities but a constant, continual loss of employment opportunities as retail and service sector businesses close every day before our eyes.

While there is a loss in excise and VAT in terms of people's ability to spend, that is a further by-product of these budgetary measures. This is compounded by the fact that we are losing the contributions of those people in those employments and one has a further drain on an ever contracting Exchequer position, as these individuals are entitled to jobseeker's allowance and other supports.

One has to take on board that there is an aggregate impact. All of the issues arising from these financial resolutions, be it the change to the income levy and health levy, the increase in the PRSI ceiling or the corresponding reduction in the entitlement to mortgage interest relief under the income tax provision in Financial Resolution No. 2, severely impact on their own. Taken together, they will unquestionably have a devastating impact on a significant swathe of individuals and families in this economy.

I do not have to go to the examples cited in the appendices circulated with the Supplementary Budget Statement. One only has to instance families, particularly those in the public service sector who are already crippled by the pension levy, the doubling of the income levy, the doubling of the health levy and no entitlement to mortgage interest relief after seven years. Many of those families have young people in third level education. The situation is very grave.

The Minister has done away with the potential to have any spending power and the opportunity to play any part in the rejuvenation of an ever deteriorating economy. This will lead to a further loss of jobs and a lengthening of the dole queue.

I will not speak for as long as the Taoiseach who, I am afraid, is not listening. These measures, in the absence of real initiatives to address the need to stabilise employment and create new employment, will add to our problem. This budget is very negative.

Damien English (Meath West, Fine Gael)
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I am very concerned about the reduction in mortgage interest relief. Property debt is a significant problem and the Government is turning its back on it by reducing interest relief. It was already reduced in the last budget. A typical couple might have seven or eight years paid off their mortgage and, more than likely, will have a couple of children because the mortgage gets dealt with in the early years. They could be down by up to €900 a year. Their health levy will be doubled, PRSI has increased and they have the income levy as well. It is a significant hit on such a family who, more than likely, have a couple of children.

The Government should not try to argue this is being done because interest rates have come down. If one got a mortgage seven years ago the interest rate was much lower than it was last year. It is wrong. People made a decision based on that policy. Property debt is a major problem in this country and this change is fundamentally wrong. It is an added pressure on people who cannot afford it and who are more than likely those with young families. It is a big mistake and I want the Government to look at it.

The Minister, Deputy Lenihan spoke about the banks and referred to €80 to €90 billion in loans. I want clarity on that. In his speech the Minister said, "the principal uncertainties in relation to asset quality in the Irish banking system lie in the banks' land and development loans". We have consistently been told by the regulator in committee meetings that those loans are approximately €40 billion. Yet, the figure in the budget is €80 to €90 billion. That alone needs clarity.

I accept all sides of the House want this matter to be addressed in some way. There are various ideas and the Taoiseach is willing to listen to them. Regarding making money available to local businesses, if moving these assets away from the banks frees up that money we need to make fast decisions and have a quick debate on it because the next six to eight months are serious for small businesses. After that, it is probably too late and many small business will have folded. We need to move on it because we cannot wait until next year for the banks to free up that money. It has to happen now.

Emmet Stagg (Kildare North, Labour)
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I appreciate the Taoiseach should have time to speak and I propose we take ten minutes from the next section to make sure he has that time. I will be brief.

I got to my feet to speak because the Taoiseach adopted a position on the very high moral ground in his response to what I regard as a very friendly remark from Deputy Noonan who gave him a piece of friendly advice. The quote "Methinks the lady does protest too much" and cocks crowing three times come to mind very quickly.

Does the Taoiseach seriously expect the House or the country to believe that there is not a very close association between Fianna Fáil and the building industry? There is. The main funders for Fianna Fáil for a long period of time were building contractors and developers. That is a reality. The people who now owe money to the banks are the same people who used to be the funders of the party. That is why there is a suspicion in the wider public. I fully accept the Taoiseach's words in this House but there is a suspicion that there is a relationship between the actions the Government is taking and the fact that the people who bankrolled it are now in serious trouble. That is the reality in the real world. I accept the Taoiseach's word that is not what he is doing today and has no relationship to it.

Deputy Noonan said it is very necessary for the Taoiseach to explain in detail, as Deputy Burton said, to the country and the House exactly what is happening and what is being done with the banks. The Taoiseach said somebody else would do it next week but I think he should do it.

John O'Donoghue (Kerry South, Ceann Comhairle)
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To allow brief interventions from Deputies Coveney and Durkan and in order to allow the Taoiseach to respond, with the agreement of the House I propose to extend the debate by ten minutes. Is that agreed? Agreed.

Simon Coveney (Cork South Central, Fine Gael)
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I wish to emphasise the point made by Deputy Noonan, in terms of the impact of what is proposed in the budget on single income families. The debate we had on tax individualisation a number of years ago when the former Minister, Mr. McCreevy introduced it and the debate which has developed since then comes back onto the table here.

If one looks at the annexes provided in the Supplementary Budget Statement, it can be seen that a family with two children and a single income of approximately €75,000 is losing more than €4,000 of its income. A double income family with exactly the same income loses just over €2,000. There are many families who are changing from having two incomes to one income at the moment because of the number of people who are losing their jobs. We are widening the gap between the unfairness of treatment in the taxation system between single income and double income families on exactly the same household income. I appeal to Government to look at that issue. I do not want to get involved in the other debate, which is more political.

I wish to raise another, more general issue which is linked to this. If one looks at table 7 in the budget, which contains budgetary projections from 2009 to 2013, one can see net current expenditure, as well as gross current expenditure increasing dramatically over that period. I cannot understand that rationale. Clearly, the major problem for the State regarding the current deficit is because we have allowed current expenditure to increase on the back of an unsustainable income that has now collapsed, in terms of taxation revenue. Yet, we are continuing to pursue a net current expenditure programme which increases from €46 billion this year to €54 billion in 2013.

In doing that we are requiring revenue to chase and overtake it to try and close the deficit problem. I cannot understand the rationale behind allowing current expenditure to dramatically increase over a five year period at a time when we are trying to close the deficit. The result of that will be increased pressure on the Government to raise more and more revenue through more and more taxation which will have knock-on impacts on everything from competitiveness to jobs, spending, confidence and all the other things. I ask the Taoiseach to try to help us understand the rationale behind current expenditure projections in the context of the major challenge we face to close the deficit and raise extra tax revenue.

Bernard Durkan (Kildare North, Fine Gael)
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A few years ago there was a headline in one of the daily newspapers which said, "It's payback time". I never knew what that meant at the time but I know now because this is definitely payback time. The Government has turned on the entire population and has issued a pummelling to it that has never been witnessed since the foundation of the State.

It is not one single measure that is causing the problem. This is not personal; the Taoiseach is a decent and affable fellow and I have no doubt he does not want to do this. The series of hits that the public will have to take would be bad enough if taken one at a time, but taken all together can only have one effect, namely, to damage the economy further. Any prospect of economic recovery is gone out the window. Nobody will want to spend money because nobody will have any money to spend. The Government will have taken it from them; it will have stuck its hands in their pockets and walked away with it.

I cannot see how this can improve the competitiveness of the economy. How will this create jobs? It will do nothing except assist the Government in paying the bills it ran up of its own accord over the last eight or nine years by buying two elections. Two elections were bought and paid for, but the public will now have to pay.

I am amazed the Taoiseach has not gone to the country with this. It deserves to be put to the people. The public do not approve of this kind of nonsense. If they had known about this two years ago they would not have voted for the Government, but they did. If they got an opportunity now they would not vote for them. The only reaction I can have to the proposals I have heard today is one of shock. In my time in this House I have never seen such a concerted and concentrated attack on the public. The result of this is likely to be more negative than anything we have seen so far.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I thank Deputies for their contributions. There has been a suggestion that the changes to the income levy are not progressive. The levy is progressive. Those with higher incomes pay the most and the burden on lower earners is much less. Around 30% of income earners - 670,000 people - remain exempt from the levy, as do medical card holders above the ceiling. That the principle of fairness was central to the Government's decisions is demonstrated by the fact that the top 1% of income earners - in other words, those with incomes greater than €175,000 - contribute 24% of the total income levy yield and those earning more than €50,000 contribute 70% of the total levy yield. The entry point to the income levy is still €750 higher than the entry point to the tax net in 2005.

I accept that these are impositions on people in various income bands. There is no question about that and it is not being disputed. However, from a wider perspective, the fact that one third of our tax base is gone means there is a structural issue that we must address. The progressiveness of the levy is demonstrated by the fact that people on €20,000 to €25,000 are going back to 2007 levels of taxation, while those on €50,000 are going back to 2005 levels of taxation and those on more than €100,000 are going back to 2002 or 2003 levels. There is a table in the documentation, showing average tax rates on annual earnings in percentage terms, which confirms this. People on €30,000 were paying an average of 12.9% of their earnings in tax in 2008. As a result of this supplementary budget this will increase to 16.9%, which equates to a 4% increase year-on-year. The average level in 2005 was 16%, and this was reduced to 12-13% over the following three years. Thus, there is a step back to a previous period, but that is what is required to make the correction. Given the constraints of a supplementary budget, the levy was the most effective way of doing this.

We will also consider what we can do in terms of tax rates in the future based on the findings of the Commission on Taxation. These will not dictate what happens, but it will give us an opportunity to have a systemic overview of our options for broadening the tax base. How can we achieve new sources of income? How can we ensure we remain pro-enterprise and pro-employment? As I said, the tax wedges still remain among the lowest in the OECD. In redesigning our tax system for the future - given the return to growth we expect, which will not be back to the levels seen in earlier years - we must have some increase in income tax contribution. In good times we see, rightly, continuing reductions in income tax, which means that more income is available for discretionary spending. However, as part of the redesign of our tax system, average tax rates must increase to those of three or four years ago for those on €50,000, while those on €25,000 return to the tax rates of two years ago and those on €100,000 return to rates last seen much longer ago. That illustrates the progressive nature of the income levy.

If we consider the levy itself we will see that the impact for people on low incomes of around €20,000 will be 1.1%, while the impact for people on more than €100,000 will be 8%. There is no question but that it is progressive. Second, it does not apply only to PAYE workers but also to those who are self-employed. It is calculated on the basis of their gross income, before any deductions, without allowing people to reduce their imputable income for taxation purposes. This has the effect of ensuring progressivity.

Deputy O'Sullivan mentioned that a family on an income of €30,000 would lose €1,900 per year. The table I have before me shows a reduction of €1,380 for such a family, although I am not saying that is insignificant.

Jan O'Sullivan (Limerick East, Labour)
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It includes the early child care supplement.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Yes, but if one of the children is between the ages of three years and three months and four and a half, the family will receive the benefit of the pre-primary school year, which is worth much more than the yearly early child care supplement per child - in fact, it is double the amount. This amounts to a more targeted approach which will ensure the benefits of pre-school education go directly from the system to eligible children. In the past, when child care costs were high and unemployment was low, people had to pay very high rates for crèche facilities and so on. The early child care supplement was the simplest method then, but this is a far more targeted approach.

I commend the Minister of State, Deputy Andrews, for coming forward with a proposal such as this which will cost less for the taxpayer but afford a benefit for pre-school children that is greater than that obtained from the direct payment. That is the sort of lateral thinking we need to see if we are to effect the savings necessary to achieve a budgetary policy that is sustainable while ensuring we do not cut services. In this regard we are developing a service which was not there previously. This area was dealt with by direct payment to families for the purported purpose of providing child care, but since it was paid to families directly it could be used for other purposes depending on the family's circumstances.

Deputy Ó Caoláin stated that he opposed the levy, but also made the point that we do not spend enough on services. The problem is that the Deputy does not have a sustainable budget strategy. He wants us to collect less tax, spend more and create jobs. That is his position.

Arthur Morgan (Louth, Sinn Fein)
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Collect more tax.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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We were advocating increasing tax long before the idea was triggered in the Taoiseach's poor head, God bless him.

John O'Donoghue (Kerry South, Ceann Comhairle)
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The Taoiseach without interruption.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Why does the Taoiseach not read and listen to what people advocate?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do listen.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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No, he does not, because he is going to do it his way anyway.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy can keep his patronising "God bless you" to himself. He does not have a sustainable budgetary policy. If he wishes to produce one during the course of the budget debate I would be glad to examine it and see if it adds up.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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We have already presented it.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The ability to bring to the House figures that make sense has evaded the Deputy for a long time.

Arthur Morgan (Louth, Sinn Fein)
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It is a pity the Taoiseach never read it.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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The Taoiseach is only confirming that he never looked at it.

Willie O'Dea (Limerick East, Fianna Fail)
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They have always produced figures out of nowhere.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Deputy Rabbitte made a point about the deflationary impact of the measure. Clearly, taking money out of the economy has an adverse impact in some respects, but unless we bring some type of order to the public finances, the drift in the deficit means our position is not sustainable. We have had to be careful to emerge with a deficit of 10.75%, taking into account the deterioration in the public finances since the beginning of the year. The mix we have brought forward in terms of tax take and expenditure, without unnecessarily decimating services, is the best way in which we could begin to address this process over a period of years. As people's tax take has increased as a result of these levies and their disposable income has correspondingly decreased, we are beginning to see costs coming down. By reducing costs, we are improving the relative position of those being asked to pay more tax in the present circumstances. It is a point that can and should be made in terms of assessing the ultimate relative position of taxpayers in regard to the measures we have introduced.

The introduction of these measures comes against a background of reduced tax take from workers in all income groups as a matter of policy during good times, which is the correct approach to take during periods of growth. Now that we are in recession and in a situation where the economy is quite fragile, we do not have the option of simply stepping back and making no decisions in regard to taxation and spending in this financial year. That would be an irresponsible approach which would allow the deficit to increase and would sap the confidence of the international community in terms of the determination of the Government to address the issues.

As I said, we have faced a difficult situation in recent months. However, on every occasion, even without the full support of the House, we have brought forward initiatives which have helped to bolster international confidence in the preparedness of the Government to take whatever decisions are necessary. We all agree that unless there is restoration of order to the public finances, the prospect of economic recovery lengthens further and further. As we saw in the late 1980s, corrective measures can have an adverse effect on an already difficult economic situation. However, this does not take away from reality that we must take the necessary steps, even in these difficult circumstances. Not to so do would weaken the economy to an even greater extent in terms of our ability to fund the widening chasm between taxation and expenditure that has arisen. There seems to be agreement in the House that the structural problem is of the order of 8% to 8.3%. We can at least have a rational debate about what should be the proper response to eliminate that structural deficit over the period of the plan. We all hope the recessionary cycle will go into a growth phrase over the course of 2007-13 and provide buoyancy in regard to the cyclical aspect of the deficit.

Deputy Noonan had a question on the impact of individualisation. To clarify, in respect of his reference to a person earning €80,000, the income levy rate of 4% applies in respect of income above €75,000 and not to the full €80,000. Assuming his calculation to be based on the 4% being beyond that-----

Michael Noonan (Limerick East, Fine Gael)
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It was based on the Department's tables.

Brian Cowen (Laois-Offaly, Fianna Fail)
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In regard to the tables, the question of the impact of individualisation is an ongoing issue. The aim of individualisation was to provide each person with his or her own non-transferable standard rate band. Individualisation involves narrowing the gap between the single and the married one earner band so that, at the end of the process, the single band was to be the same as the married one earner band and each spouse in a married couple would have the same non-transferable standard rate band. There have been many modifications of this system since its introduction and we have not gone down the road of full individualisation.

In regard to the question of the impact of individualisation in respect of the levies and other issues that arise, this is something I will reflect on in the context of the Finance Bill in order to ascertain whether anything can be done about that. As the Deputy said, it is part of the system we have. There are benefits to that system in terms of making sure that single people were not subjected to higher marginal rates than was necessary in terms of incentivising employment. I cannot give a considered reply to the detailed issue the Deputy has raised but I hope to do so during the course of the budget debate.