Dáil debates
Tuesday, 7 April 2009
Supplementary Budget Statement 2009
3:00 pm
John O'Donoghue (Kerry South, Ceann Comhairle)
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Sula nglaofaidh mé ar an Aire Airegeadais, meabhraím do Chomhaltaí go bhfanann na doiciméid atá á scaipeadh maidir leis an mbuiséad faoi rún go dtí go bfógróidh an tAire iad. Ní ceart iad a thógáil ná a chur ar aon mhodh ón Teach sula gcríochnóidh sé a ráiteas.
Before calling on the Minister for Finance, I remind Members that the budget documents being circulated remain confidential until the Minister has announced them. They should not be taken or sent by any means from the House before the conclusion of his statement.
Glaoim anois ar an Aire Airgeadais -----
James Reilly (Dublin North, Fine Gael)
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Does that statement apply to the members of the press also? They seem to have a copy of it.
John O'Donoghue (Kerry South, Ceann Comhairle)
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Glaoim anois ar an Aire Airgeadais, an Teachta Brian Ó Luineacháin, chun a Ráiteas Buiséid a dhéanamh.
James Reilly (Dublin North, Fine Gael)
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Surely, the freedom of the House and the freedom of the press should be the same
Kathleen Lynch (Cork North Central, Labour)
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On a point of order, I assume the Press Gallery will be locked also. Surely, the Ceann Comhairle is not saying we, as elected representatives of the people cannot take something from the Dáil, while those in the Press Gallery clearly had it in advance and can walk in and out as they please. Surely, he is not telling us that.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Chair has absolutely no knowledge of these things.
Paul Kehoe (Wexford, Fine Gael)
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On a point of order, this shows the sheer arrogance of the Government towards the Opposition. As elected Members of the House, they should be ashamed of themselves.
John O'Donoghue (Kerry South, Ceann Comhairle)
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That is not a point of order.
James Bannon (Longford-Westmeath, Fine Gael)
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What else could we expect from this Government?
John O'Donoghue (Kerry South, Ceann Comhairle)
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I must proceed with the business of the House. Order, please.
Michael Ring (Mayo, Fine Gael)
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Are there rules in this House or are there no rules?
Ruairi Quinn (Dublin South East, Labour)
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On a point of order, I am 32 years in this House. On every budget day I have attended, I have been informed by the offices of the House that no Member of the House can leave the Chamber with a copy of the budget speech. Am I to understand that the rules have been changed? Am I to understand that the same rules prevail with the Fourth Estate and that they are now, as my colleague Deputy Lynch said, locked into this Chamber or must leave the books here?
Ruairi Quinn (Dublin South East, Labour)
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On whose orders were this unilateral change of tradition and requirements made?
James Reilly (Dublin North, Fine Gael)
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Tá freagra ag teastáil anseo.
Michael Ring (Mayo, Fine Gael)
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The whole country probably knows what is in the budget now.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Chair has absolutely no knowledge of what the Members are alleging. In those circumstances, the Chair has no alternative but to call on the Minister for Finance, Deputy Brian Lenihan, to make the Budget Statement.
Enda Kenny (Mayo, Fine Gael)
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I echo Deputy Quinn's remarks. Can we have a response from the Taoiseach as to who made the decision to give the esteemed members in the Press Gallery-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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That is not in order.
Enda Kenny (Mayo, Fine Gael)
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-----this Budget Statement in advance of the Members of the House?
Emmet Stagg (Kildare North, Labour)
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The House is entitled to that.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Chair has no knowledge of that.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I must call on the Minister for Finance.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I apologise to Deputy Kenny. I do not have any knowledge of what the Deputy or other Deputies are alleging. I have absolutely no knowledge of it and I am obliged to call the Minister for Finance-----
Enda Kenny (Mayo, Fine Gael)
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Let me point out to the Ceann Comhairle that a Minister of State-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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-----in accordance with an order of the House of this day to make the Budget Statement. That is what I have to do.
Enda Kenny (Mayo, Fine Gael)
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Let me recall to you, a Cheann Comhairle, that a Minister of State had to resign from his office-----
Michael Ring (Mayo, Fine Gael)
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The person responsible should resign.
Enda Kenny (Mayo, Fine Gael)
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-----because the Budget Statement was given in advance to members of the press.
John O'Donoghue (Kerry South, Ceann Comhairle)
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That is a matter-----
Enda Kenny (Mayo, Fine Gael)
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A Minister of State was asked to step down by a previous Taoiseach-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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That is a matter that does not concern me.
Enda Kenny (Mayo, Fine Gael)
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-----because the information in the budget was given out in advance.
Bernard Durkan (Kildare North, Fine Gael)
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On a point of order-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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I am obliged to implement the order of the House of today. The Minister, Deputy Brian Lenihan is standing to make the statement.
Enda Kenny (Mayo, Fine Gael)
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Can we have a response from the Government?
Bernard Durkan (Kildare North, Fine Gael)
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On a point of order-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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I have heard Deputy Kenny. I call Deputy Stagg.
Bernard Durkan (Kildare North, Fine Gael)
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This practice is treating the House with contempt.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I call Deputy Stagg.
James Reilly (Dublin North, Fine Gael)
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As the person who raised the matter first, I wish to speak.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Deputy may speak shortly. I call Deputy Stagg.
Emmet Stagg (Kildare North, Labour)
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As members of the public, who are not Members of this House, now have a copy of the budget that was given to them outside the House, I presume the ruling you made, a Cheann Comhairle, can be safely ignored by Members.
Emmet Stagg (Kildare North, Labour)
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I certainly will ignore it.
John O'Donoghue (Kerry South, Ceann Comhairle)
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No ruling of the Chair may be ignored in that fashion.
Emmet Stagg (Kildare North, Labour)
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I want a copy as quickly as it can be got to me now.
Bernard Allen (Cork North Central, Fine Gael)
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What about the Minister of State who had to resign?
John O'Donoghue (Kerry South, Ceann Comhairle)
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The matter which the Deputies have raised-----
Michael Ring (Mayo, Fine Gael)
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Give it to the elected Members now.
John O'Donoghue (Kerry South, Ceann Comhairle)
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-----can be raised at a meeting of the Dáil Committee on Procedures and Privileges if Members so wish. In the meanwhile I am obliged to proceed.
James Reilly (Dublin North, Fine Gael)
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On a point of order-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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I call Deputy Reilly briefly on a point of order. I doubt if it is a point of order.
James Reilly (Dublin North, Fine Gael)
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It is a point of order.
James Reilly (Dublin North, Fine Gael)
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It was clearly an official decision to give the Budget Statement to the members of the press. By the way I have no objection to it. Freedom of the press is something in which I believe. Information should be made available. We should have transparency and accountability but it should not be limited to the press.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Chair has no knowledge of this and it is not a point of order.
James Reilly (Dublin North, Fine Gael)
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If we cannot get an official answer-----
John O'Donoghue (Kerry South, Ceann Comhairle)
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I ask the Minister for Finance to proceed.
James Reilly (Dublin North, Fine Gael)
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We need accountability.
John O'Donoghue (Kerry South, Ceann Comhairle)
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If this continues I will suspend the sitting of House.
James Reilly (Dublin North, Fine Gael)
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Who was responsible for this decision?
John O'Donoghue (Kerry South, Ceann Comhairle)
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I will suspend the sitting of the House if I have to do so.
James Reilly (Dublin North, Fine Gael)
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That is the least we are entitled to in the House.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I ask Deputy Reilly to resume his seat.
James Reilly (Dublin North, Fine Gael)
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I will not until I get an answer to that.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I call Deputy Gilmore.
James Reilly (Dublin North, Fine Gael)
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Let the Taoiseach answer, a Cheann Comhairle.
John O'Donoghue (Kerry South, Ceann Comhairle)
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I call the Taoiseach.
Eamon Gilmore (Dún Laoghaire, Labour)
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I appeal to Members that we need to get on with the business.
John O'Donoghue (Kerry South, Ceann Comhairle)
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That is what I am asking for. That is what I am trying to do.
Brian Cowen (Laois-Offaly, Fianna Fail)
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That is precisely the sentiment I wished to express. Also I wish to say that as I understand it, the arrangements that have been made are that once the Minister for Finance stands up to speak the statement is circulated to everybody. The arrangements for the press, as I understand it, are the same as before, where they do not leave the House.
Brian Cowen (Laois-Offaly, Fianna Fail)
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There has been no change in the arrangements. That is my understanding. I believe that the serious business the House should now proceed.
Bernard Allen (Cork North Central, Fine Gael)
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A Minister of State resigned at one stage over such a matter.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As Minister for Finance for the past ten months, I have submitted one budget and two rounds of expenditure adjustments to this House. Economic turmoil throughout the world and in Ireland dictated these measures. The measures that I am bringing forward today will complete this process for 2009. I assure the people that we have the capacity and the Government has the will to bring us out of this period of severe economic distress. We can work our way through our problems. We have faced adversity in the past and we have prevailed.
Many of the factors that made us an economic success story in recent years are still with us: social cohesion; political stability; a young, well educated, flexible workforce; and a pro-enterprise, export-oriented economy. All of this remains intact. What is wrong in our economy we can fix if we take the right course of action now and if each one of us signs up for that course of action.
The economic boom this country enjoyed in recent decades brought a remarkable rise in our living standards. Rapid growth in the early years was driven by exports. As in many other countries, the later stages were accompanied by a property bubble, fuelled in part by very low interest rates and the ready availability of credit. Some warned that the housing market was unsustainable. Plenty did not. The consensus view suggested a soft landing. That prediction proved wrong. With the benefit of hindsight, it is clear that more should have been done to contain the housing market. We became too reliant on the construction sector for growth and tax receipts.
Leo Varadkar
Tom Hayes4:00 pm
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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If all our difficulties related to the recent construction boom in Ireland, I would not be before the House this afternoon. We are the living witnesses to the most dramatic collapse in the world financial system since 1929. We are a small open economy with a huge exposure to international economic trends. Our confidence, our finances, our exports and our banks have been dented. The depreciation in the value of the currency of our nearest neighbour has compounded this adverse international picture.
Recent data show that the gross national product declined by 3% last year. A more substantial contraction of the order of 8% is in prospect this year. This is a serious decline in national living standards - the sharpest fall on record. Forecasts for 2010 are not as severe. However, we must place our performance in context. Economic activity is shrinking in almost all of our main trading partners. In the OECD area which covers most high-income countries, incomes will decline by 4.25% this year. The slowdown has been sharper in Ireland, reflecting the contraction of the property sector, and the openness of our economy.
Last October, forecast inflation for this year was 2.5%. Like many forecasts this prediction has seen radical revision. It is expected that consumer prices will fall by close to 4% this year. As consumers, we are accustomed to rising prices. However, prices of goods and services are now falling, moving back toward levels pertaining in other euro zone countries. This decline in prices mitigates the effects on real household incomes of falling nominal wages and higher taxes on incomes. With falling costs our economy is displaying remarkable agility. This will strengthen us in the euro zone. I am confident that sooner than many observers expect, we will position ourselves to take full advantage of a global upturn. This adjustment in our cost structure sows the seed for export-led economic recovery.
There are six steps we must take to restore and renew this economy. First, and most urgent, we must stabilise our public finances. Until we show that we can put our own house in order, we cannot expect those who have invested here and who might invest here in the future to have confidence in us.
Second, we must restore our damaged banking system to ensure credit flows to businesses and consumers. Credit is the life blood of the economy. Unless we take radical and bold action to resolve the crisis that has staunched the flow of credit, this economy will not recover.
Third, we must regain the competitiveness we have lost through over-reliance on domestic spending during the boom years. The future of our economy lies in exports. We must work harder to gain market share. We must drive down our costs and improve the quality of our products so that we are well placed to gain when the tide changes.
Fourth, we must protect the jobs we have and invest in retraining those who have lost jobs. Already this year, 80,000 additional people have gone on the live register. At the end of the last year, there were 2 million people employed in this economy but this is falling and we must take all possible and sensible measures to protect and support existing jobs.
Fifth, we must support and stimulate economic confidence as much as we can within the resources available. However, as I said earlier, stabilising our public finances is crucial to the recovery of confidence among investors, consumers and businesses.
Sixth, we must restore our reputation abroad. We have been badly damaged by the actions of some in our financial sector. We have been damaged by our rejection of the Lisbon treaty. We must show our EU partners that we, who have gained so much from the European Union, want to remain at its centre. We must show the world that our financial system is soundly based and governed by the highest standards of regulation. If we follow the six steps I have outlined we will be well on the road to economic renewal.
Fairness must be the cornerstone of all our efforts to achieve economic renewal. Everyone wants fairness but there is less agreement about what it means. For many, it means the next person should pay, but the reality is everyone must give according to their means. Those who have most must give most. However, before we ask anyone else to give, we in this House and in the Government must examine our own costs. Those of us in politics have been entrusted with a great privilege by the people. We must lead by example.
The Government has decided to introduce a number of additional changes to the remuneration of Deputies and Senators. There will be a 10% reduction in all expenses other than mileage rates where a 25% reduction has already taken place. Deputies will no longer receive long-service payments or increments. I know that Deputies do not enter this House as a career. It is an honour and vocation to be elected by the people, and all Deputies are equal. The arrangement whereby former Ministers are paid ministerial pensions while they are still Members of the Oireachtas will be discontinued. Oireachtas Members who are on paid leave of absence as teachers may no longer avail of the arrangement whereby they can keep the difference between their teachers' salary and the cost of employing a replacement. The allowances paid to Oireachtas committee chairs will be halved and the payments to whips and vice-chairs are to be abolished. The Oireachtas Commission has put forward its own proposals for a reduction in the number of committees and I am happy to leave that matter to the Houses. Some of these changes will require legislation which will be introduced shortly.
The Members of this Government reduced their salaries by 10% last October. Ministers of State made a similar reduction. The public service pension levy was applied to members of the Government and Ministers of State. As a result, Ministers have seen a reduction of one fifth in their incomes. I have asked the Review Body on Higher Remuneration in the Public Sector to undertake a fresh review of top level pay rates to take account of the changed budgetary and economic circumstances and the changed private sector pay environment and to benchmark rates against those of other EU countries of comparable scale. This review will be completed by July. I believe pay at leadership levels in the public sector should be more in line with pay in other countries rather than with top level private sector pay in this country which had become over-inflated in recent years and is now falling in any event. Yesterday, the Taoiseach announced that the number of Ministers of State will be reduced from 20 to 15.
In framing this budget, the Government has been guided by the principle that everyone should contribute according to their means. Tax increases are required and they will not be easy to accept but the measures I am announcing today are progressive. Those who can best afford it will pay most. For example, as a result of the changes proposed today, a person earning the minimum wage, which is approximately €17,500 per year, will be asked to pay €350 per annum or €7 per week, representing 2% of their wages. A person earning €50,000 per year will pay €1,500 or €29 per week, which is 4% of their income. A person earning €300,000 per year will pay €15,655 or €300 per week, or 9% of their income. Fairness requires that the real value of social welfare benefits should be protected as far as possible at this stage of the economic crisis. It is for the Government and this House to adjudicate on fairness, but we all have a responsibility to accept a proportionate share of the burden of adjustment needed in this economy.
STABILISING OUR PUBLIC FINANCES
The Financial Context
The pre-budget data published last week show a €5 billion widening from the budget deficit projected this January. A correction of this amount in a full year approximates to a €3.25 billion adjustment in the part of this year which remains. The Government recognises that part of this shortfall relates to the global economic cycle. It is reasonable to expect part of the shortfall to disappear as economic activity recovers here and abroad. However, part of the gap between spending and revenues derives from structural problems in the public finances. We must take firm actions to eliminate these problems within a reasonable period of time. Our approach is rooted in a determination to control our own destiny. We cannot control developments abroad, and we cannot control what others think of us, but we can take decisive actions to put this economy on the road to renewal and demonstrate that we have the ability to make the right choices for everyone in this country.
The problem is our expenditure base is too high and our revenue base is too low. If we fail, refuse or neglect to address this structural problem we will condemn this and future generations to the folly of excessive borrowing. Already, the share of tax revenues that goes to service the national debt has risen from 5% in 2007 to more than 11% this year. As we accumulate more and more public debt, this figure increases. This is dead money that should be used to improve vital public services.
Without this supplementary budget the general government deficit would have been 123⁄4% of GDP, reflecting the large gap needed to fund the difference between spending and revenue. In the prevailing economic circumstances, the natural preference would be to leave expenditure and taxation as they stand. This is not an option for the Government or this House because of the scale of the deterioration of the public finances. A difficult balance must be struck between the need to show a credible way forward on our structural problems and the need to protect our economy as far as we can this year. It is the considered view of the Government that a borrowing target of 103⁄4% strikes the correct balance.
To date this year, the Government has reduced public expenditure by €1.8 billion primarily through a reduction in the public service pay bill. Measures announced today will result in a further reduction of nearly €1.5 billion in gross public expenditure and additional revenue of €1.8 billion. The scope for additional expenditure reductions at this stage of the year is limited. Further immediate reductions in expenditure today would have necessitated additional pay cuts for public servants, reductions in the rates of payments for welfare recipients and the cancellation of all contractually uncommitted investment projects. It is important that Members of this House understand that in commenting on this budget.
The deterioration in tax revenues from €47.25 billion in 2007 to almost €41 billion in 2008 to an envisaged €34.50 billion this year is a far greater decline than the decline in the economy. This illustrates that in recent years our tax system became over reliant on fast growing, construction heavy economic activity. As we move to the next stage of our economic development, we must restructure our tax system to suit an export-led economy growing at a more sustainable pace.
Multi-Annual Plan
Last January, the Government proposed to the European Commission that we could fulfil our obligations to secure stability and growth over a five year period. I am glad to report to this House that following intensive discussions with the European Commission, agreement has been reached with the Commission that five years is the appropriate timeframe for addressing our structural problems. I want to express my gratitude to Commissioner Almunia and my colleagues among the eurozone member states who have been supportive of our efforts to stabilise the public finances.
To bring sustainability to the public finances, the Government is today announcing the necessary multi-annual consolidation plan. In 2010 and 2011, the plan envisages greater reductions in expenditure than increases in revenue. I want to stress that the expenditure figures are the minimum that must be achieved and the figures mentioned for tax are the very maximum that can be imposed.
Spending reductions that the Government has decided on for 2009 to 2011 will have a cumulative full year effect on current spending of €2.7 billion in 2010 and €4.2 billion in 2011. Reductions in capital spending will accumulate to €1.3 billion in 2010 and €2.4 billion by 2012. The policy decisions underlying these reductions are already in train. They entail further reductions in pay costs, programmes and numbers. There is no provision for extra social spending, other than that dictated by demography and unemployment. There will be a cap on capital spending and efficiencies will be found throughout the public sector. Savings on day-to-day spending will be made through more targeted welfare provision and further reductions in public service costs and numbers and the wider application of charges. Sharper targeting of programme spending and more efficient use of resources across the board will be required. Difficult decisions in all areas of policy are in prospect. In 2010, we will seek up to an additional €1.75 billion from taxation. In 2011, the target will be to raise up to an additional €1.5 billion.
Options to raise this may include the taxation of child benefit, the introduction of a carbon tax, a form of property tax and significant further base broadening through the elimination of unnecessary reliefs and a review of all areas of tax exempt incomes. Over the later years of the five year plan, further adjustments will be required. The scale and nature of these measures will depend to a great extent on the strength of the economic cycle. If growth is better than forecast, less will need to be done at that stage.
Public Spending
Public expenditure can be divided into four parts. The public sector payroll at €20 billion and welfare spending at €21 billion account for two thirds of all expenditure in the State. Non-pay programmes cost €15 billion and public investment will amount to €7.3 billion this year.
Public Sector Payroll
The Government has decided that a permanent reduction in the cost of the public payroll is an essential element of this plan. In February 2009, we introduced the public sector pension levy which resulted in an average deduction of 7.5% from the salaries of public servants delivering savings of €1.4 billion this year. This is a considerable contribution by public servants to the unavoidable economic adjustment. It is also necessary to control public sector numbers which have grown by 11% in the past five years alone. A key part of such a policy is the ban on recruitment and promotion, with certain exceptions, announced by me on 27 March last. Today, I am announcing a scheme whereby, in those areas of the public service where permanent reductions need to be brought about, staff aged 50 or over may retire from the public service without actuarial reduction of pension entitlements they have accrued to date. Ten per cent of the relevant lump sum will be payable immediately with the balance paid later at the normal retirement age of 60 or 65 without actuarial reduction and subject to current tax law provisions. This scheme will be open to applications from 1 May and will be subject to local management arrangements to ensure the scheme operates in an orderly manner. Those leaving under the scheme will not be replaced except in specific cases or circumstances sanctioned by my Department. The continued availability of the scheme will be reviewed in the budget for next year. The Government sees no scope for introducing other, more generous early retirement schemes in the present budgetary circumstances.
The Commission on Taxation is examining various aspects of pension tax treatment. including the treatment of lump sums and I expect to be dealing with its recommendations in the 2010 budget next December.
Social Welfare Spending
Over the past decade, we have been able to provide very significant increases in welfare payments. For example, the payment of child benefit has increased from less than €44 to €166 per month. The State contributory pension has gone from €113 to more than €230 per week. The weekly rate of long-term job seeker's allowance was raised from €93 to €204. These payments compare very well internationally, particularly with payments in the United Kingdom.
It was right that when times were good, we increased payments to those who are vulnerable. Now that we are in recession, we must look at how we can use the €21 billion welfare budget to afford maximum protection to those in need. The Government has examined very carefully how we might make savings in welfare. In the budget last October, we increased payments by around 3%. Notwithstanding the fall in consumer prices, which we expect to be close to 4% this year, we have decided not to reduce welfare rates in this supplementary budget. However, it may be necessary to review rates of payments in future years if reductions in the cost of living materialise.
However, we do need to make some savings in order to absorb the additional expenditure of over €2.8 billion due to the sharp rise in unemployment since December. For this reason the Government is not in a position to pay the December bonus which it has been able to deliver in previous years. We are also making limited changes in eligibility to certain benefits. Specifically, the job seeker's allowance for the under 20s will be halved to €100 a week so as to incentivise the young unemployed to participate in training programmes.
Emmet Stagg (Kildare North, Labour)
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Where is the standing ovation now?
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Payments under the rent supplement scheme will be reduced to reflect the fall in prices in the rental market. We will also intensify the campaign against welfare fraud by allocating additional staff to the Department and by targeting, in particular, the fraudulent claiming of child benefit and other payments by those who are no longer resident in this country. We will continue to target the available resources on those most in need. The Government does not think that it is fair to pay the same level of benefit irrespective of the level of income of the recipient. For that reason, the Government has decided that child benefit will be means tested or taxed in the budget for next year.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Programme Spending The scope for changes in expenditure programmes in mid-year is limited. Changes over the next three years will be informed by the report of the special group on expenditure and numbers, which is evaluating all programmes. We need to achieve better results with fewer resources. One example of how this has been done in this budget is the changes we have introduced to the early child care supplement. This scheme was introduced to help people with the cost of child care at the height of the boom. While appropriate to the time, it cost the State €480 million last year. The programme is now being replaced by a free early child care and education year for pre-school children at an estimated cost of €170 million.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Pre-primary education significantly enhances the subsequent educational achievement of students and in turn increases the return for State investment in education. The free pre-school year will start next January. The existing rate of early child care supplement will be halved with effect from 1 May and abolished at the end of 2009. More details are set out in the summary of budget measures. This is an example of how a programme can be reshaped and made more effective at a lower cost to the taxpayer. We need to see more such initiatives in the public sector.
The other elements of spending reductions are set out in the summary of budget measures. These reductions affect a broad range of Vote headings in order to spread the burden of adjustment as fairly as possible.
Capital Spending
The Government is determined to maintain high levels of public investment. However, spending cannot be maintained at the levels envisaged when the economy was in rapid expansion. We must progress projects that maximise economic and social returns. The Government has decided to set a total capital allocation at €7.3 billion for 2009, which is greater than 5% of projected GNP. The Government has also fixed the overall Exchequer capital allocation for public investment for the next four years at €6.6 billion in 2010, €5.5 billion in 2011 and €6 billion in 2012 and 2013. This represents an average of 4% of projected GNP over the period out to 2013.
Significant reductions in tender prices mean that we will be able to deliver a very large part of the national development plan programme within the envisaged timescale. The Government has already re-allocated money to more labour-intensive areas and will be putting in place further measures to prioritise the more productive and more labour-intensive elements of capital investment. Details of the revised capital envelope are set out in the summary of budget measures.
There is scope to access significant private funds for infrastructure projects in order to sustain as many construction jobs and as much activity as possible. Discussions are in train with the pension industry about an initiative that seeks, on a value for money basis, to unlock additional private capital to complement debt financing provided by banks and the capital markets. This would support existing PPP projects and other projects previously funded by the Exchequer.
We need to explore all options to fund our infrastructure needs, including the disposal of assets, sale and lease back arrangements, franchising arrangements and the proposal from the Irish Congress of Trade Unions, ICTU, for a national recovery bond. My officials have been asked to examine these options with the relevant Departments and agencies.
The total reduction in gross spending for 2009 comes to €886 million in current spending and €576 million on the capital side. This is equal to €1.8 billion in a full year. Further savings of €4.8 billion will be required over the period from 2010 to 2011.
TAXATION
We need to broaden our tax base so that everyone makes a contribution. We will remove unjustified reliefs and we will ensure that capital is taxed in a fair manner. We will retain our 12.5% corporation tax rate as a key aspect of our inward investment strategy.
A key structural weakness of the Irish taxation system is the narrow base. Too many people do not pay tax at all and there are too many ways in which those who have wealth could shelter their income. Many of these reliefs were abolished in 2006 by my predecessor, the Taoiseach. Today I will continue this process by reducing those tax expenditures that can have an impact this year.
I propose to reduce the level of tax relief investors can claim on the interest for mortgages and loans on residential rental properties to 75% of the interest with immediate effect. I propose to abolish the current 20% rate applied to the trading profits from residential development land and restrict the treatment of trading losses. The profits will be charged at the relevant marginal rates of income tax or at the 25% rate of corporation tax.
I will terminate the property-related accelerated capital allowance schemes in the health sector. This scheme covers private hospitals, registered nursing homes, convalescent homes and associated residential units as well as mental health centres. Schemes for palliative care units and child care facilities will remain in place.
The Government has decided that from 1 May, mortgage interest relief for principal private residences should only be available for the first seven tax years of the mortgage. I believe this move is justified given the significant recent reduction in interest rates and in house prices. The relief will now be targeted at those who bought their homes when prices were at their peak. It will also support those who now wish to move, improve or buy for the first time. As house prices fall, the provision of mortgage interest relief will be kept under review with a view to eventual abolition. In this regard, I look forward to the recommendations of the Commission on Taxation, which I will receive later this year. I would like to thank the commission for its work to date.
At this stage of the annual tax year it is not possible, for technical reasons, to restrict or abolish further reliefs. It is the intention of the Government to continue to remove reliefs and shelters from the tax system in successive budgets.
Capital Taxes and Savings
It is important that we treat all sources of income in a similar manner. I am increasing the rates of capital gains tax and capital acquisitions tax, CAT, to 25% with immediate effect. In light of declining asset values, I am reducing the CAT thresholds by 20%. The details are contained in the summary of budget measures.
I am increasing the deposit interest retention tax, DIRT, rate on ordinary deposit accounts to 25% and to 28% on certain other savings products. The existing 2% levy on non-life insurance premiums will increase to 3% and I am also introducing a new levy of 1% on life assurance policies.
Income Tax
In good times, it was possible for us to keep minimum wage earners outside the tax system. This is no longer sustainable. With up to 40% of income earners paying no income tax at all, we can no longer meet our fiscal needs. The challenge is to spread the burden in a fair manner to a wider range of income earners while avoiding economic disincentives. The scope for income tax changes half way through the income tax year is limited. To raise the necessary revenues, the Government must use the various levies and charges already established in the tax code. Accordingly, the Government has decided to double the rates of the income levy and to reduce the entry points for each rate. The new rates will be 2%, 4% and 6%. The new entry points will be €15,028, €75,036 and €174,980 per annum, with the weekly equivalents being €289, €1,443 and €3,365 respectively. Health rates will also double to 4% and 5% and the entry point for the higher rate will be reduced to €1,443 per week which is €75,036 per annum. Finally, the PRSI ceiling will be raised to €1,443 per week or €75,036 per annum.
These measures will reduce all our living standards. I am acutely aware of that. The Government has taken care to ensure they are fair, equitable and highly progressive. I would point out that, notwithstanding all the increases made today, Ireland will continue to have one of the lowest tax wedges within the OECD.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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All of these measures will take effect from 1 May 2009. I indicated previously that I was prepared to review the operation of the public service pension levy to address any issues of fairness. Taking account of the impact of the tax measures which I have announced, I am proposing a slight recasting of the structure of the levy to reduce somewhat the impact on the lowest paid public servants with a small increase at the higher levels. The net cost of this is €100 million in 2009.
Excise
From midnight tonight, excise on cigarettes will go up by 25 cent per packet of 20 and on auto-diesel by 5 cent per litre. These excise changes are VAT-inclusive. There is no scope for increases in excise duties on alcohol or petrol because of the substantial risk of loss of revenue by the purchase of these items in Northern Ireland.
Shane McEntee (Meath East, Fine Gael)
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We have already lost it.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Full details of all of these and other taxation measures are contained in the summary of budget measures. The total tax and levies measures will raise €1.8 billion in 2009 and over €3.6 billion in a full year. The measures I have outlined have necessarily concentrated on income. I am now giving notice that, in 2010 and 2011, I will turn to other areas of taxation to secure the necessary adjustment.
Restoring the Credit System
The global financial crisis has caused extensive and rapid government interventions across the developed world. Governments have intervened time and again to preserve financial stability and maintain their banking systems. Here in Ireland, through the bank guarantee, bank recapitalisation and the protection of public ownership, we have provided very substantial support to the banking sector.
Our sole objective is to ensure that householders can access credit for home loans and consumer credit, that small and medium-sized businesses can fund their enterprises, that deposit holders have confidence their money is secure and protected and that international investors are satisfied about the stability of our banking system.
A key pillar in our economic renewal is a well regulated financial system. This is essential for domestic and international confidence and credibility. The actions of those who have tarnished the reputation of Ireland will be dealt with through the appropriate processes.
Alan Shatter (Dublin South, Fine Gael)
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It is the reputation of the Government which has been tarnished.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The role of the Central Bank of Ireland will be reformed to place it at the centre of financial supervision and financial stability oversight, providing for full integration and co-ordination of the prudential supervision and stability of individual financial institutions with that of the financial system as a whole.
Michael D Higgins (Galway West, Labour)
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After the horse has bolted.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Central Bank of Ireland will in the future be headed by a commission, chaired by a governor. These important structural changes will be complemented by significant new resources and additional expert staff, to widen skill sets and enhance market-based knowledge. I have asked the former Deputy Governor of the Bank of England and former member of the UK Monetary Policy Committee, Sir Andrew Large, to advise on the process to select a new head of financial regulation within the new institutional structure. This search will be wide ranging and the person chosen will be of the calibre, reputation, experience and expertise to lead the reforms of financial regulation that I have outlined.
Michael D Higgins (Galway West, Labour)
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They will not have to work hard to raise standards.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Government also believes that further radical action is necessary to stabilise the banking system and ensure the supply of credit to the real economy. Cleansing and repairing the banks' balance sheets is fundamental to achieving a sustained recovery of the banking system and the sustained provision of credit for this economy. The Government has decided to bring forward measures to address the issue of asset quality in the banking system. A national asset management agency will be established on a statutory basis, under the aegis of the National Treasury Management Agency. Assets will be transferred from the banks to the new agency with the purpose of ensuring that banks have a clean bill of health, their balance sheets are strengthened and uncertainty over bad debts is reduced. This will ensure a sustained flow of credit on a commercial basis to individuals, households and businesses in the economy. The agency will have a commercial mandate and will have the central objective of maximising over time the income and capital value of the assets entrusted to it.
As it is clear that the principal uncertainties about asset quality in the Irish banking system lie in the banks' land and development loans and in the large aggregate associated exposures, these will be transferred to the agency. These assets pose the main systemic risk to the banking sector in Ireland and the most significant obstacle to the recovery and restoration of lending by credit institutions.
The agency will purchase the assets through the issue to the banks of Government bonds. This will result in a very significant increase in gross national debt, to be offset of course by the assets taken in.
Joan Burton (Dublin West, Labour)
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How much will it cost? Can the Minister give a figure?
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The cost of servicing this debt will be offset, as far as is practicable, from income accruing from the assets of the new agency. The debt will be repaid from funds raised through the realisation of those assets over time. The potential maximum book value of loans that will be transferred to the agency is estimated to be in the region of €80 billion to €90 billion-----
Simon Coveney (Cork South Central, Fine Gael)
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What are we exposing the State to?
Joan Burton (Dublin West, Labour)
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Is that what the taxpayer has to pay - between €80 billion and €90 billion?
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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No. The amount paid by the agency will be significantly less than this to reflect the loss in value of the properties. In the longer term, if the agency were to fall short of recouping all of the costs, the Government intends that a levy should be applied to recoup any shortfall.
All borrowers will be required to meet their full legal obligations for repayment. There will be a hardening of the approach to these borrowers. Taxpayers' money is at stake - not the private interests of banks - and the agency will be expected to protect it in a commercial way and with an independent remit.
It is important to note that the State will not assume all of the risk in the acquisition of these assets. The assets will be valued on a basis which is sustainable for the taxpayer. This will entail an assumption of losses by the financial institution whose assets are removed. The State has already capitalised the Bank of Ireland for a 25% stake and is completing due diligence at Allied Irish Banks prior to capitalisation for a similar stake. If the crystallisation of losses at any bank requires additional capital the State will insist on participation by way of ordinary shares in the relevant institution.
This initiative will be developed and implemented within a common EU framework detailed in the European Commission guidance on the treatment of impaired assets, working closely with the European Commission to obtain prior State aid approval. By drawing on the best advice and experience available internationally, and on the proven expertise and ability of the National Treasury Management Agency, we are committed to ensuring that this very significant measure will be an example of best practice and will meet all of the objectives that the Government has set for it.
Leaders throughout the world speak of the need to clean out the banking system of exposures and we, on our own initiative, are participating in the international trend, leading it with a distinctive solution which is tailored to our needs.
Michael D Higgins (Galway West, Labour)
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However, there are to be no changes in the boards of banks.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Government also intends, in line with its previous indication, to put a State guarantee in place for the future issuance of debt securities with a maturity of up to five years. This access to longer-term funding is in line with the mainstream approach in the EU; is consistent with State aid rules; and will assist the funding needs of the banks and secure their continued stability.
The Government is determined through these reforms to restore our banking system and the reputation of our regulatory and supervisory structures. We want to send a strong signal that the types of practices followed in some of our institutions are unacceptable, that the regulatory structures will be strengthened, that decisive action is being taken to repair banks' balance sheets and that Ireland remains committed to the continued development of a soundly based, well-regulated and competently supervised financial services sector.
Bernard Durkan (Kildare North, Fine Gael)
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That will be the day.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Restoring Competitiveness Our economy must return to being driven by sustainable export-led growth, rather than by domestic demand. To do so our price and cost structure must fall relative to our trading partners. Private sector wages need to adjust and are adjusting. I hear examples every day of companies and employees reducing costs and changing work practices in order to safeguard employment. It is this flexibility that will restore our competitiveness and provide the basis for future prosperity. With the introduction of the pension levy, the public sector has also lowered its costs but much more is required in terms of changing work practices and driving efficiencies.
One of the main drivers of growth in output and employment in Ireland from the middle of the 1990s was flexibility and adaptability in the labour market. The willingness of employees to embrace change allowed a rapid re-allocation of skills, expertise and knowledge to expanding economic sectors. Looking to the future, we must recreate the same commitment to embrace change in the public service no less than in private enterprises.
As Minister for Finance, I must allocate and redeploy staff in the Civil Service to areas of highest priority. I have already made additional staff available to the Department of Social and Family Affairs to meet the needs of the growing numbers on the live register. I will use the same powers to redeploy staff to other priority areas in the future. We must ensure that the redeployment of staff will be done with due consideration to geographical constraints and is consistent and fair in its implementation. I know that all those employed in the public service share the common goal of delivering excellent services.
We must also reduce costs in regulated sectors where we can. The Government expects to see reductions of about 10% in energy costs for electricity and gas consumers by September. The Minister for Communications, Energy and Natural Resources will be seeking ways to lower costs further on an ongoing basis.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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PROTECTING JOBS AND HELPING THOSE WITHOUT JOBS Minimising the level of joblessness is crucial to the Government's integrated approach.
Tom SheahanBrian Lenihan Jnr (Dublin West, Fianna Fail)
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Enterprise Stabilisation Fund The Government can help with the process of supporting employment by a redirecting of the NDP to support employment and enterprise. The broad cost of each thousand people who lose their jobs is now estimated at about €21 million. In order to support employment, the Tánaiste and Minister for Enterprise, Trade and Employment will set up an enterprise stabilisation fund worth €100 million over two years. In conjunction with the banking sector this fund will provide direct financial support to eligible, internationally-trading enterprises.
Smart Economy
The Government will also implement measures to support the smart economy through investment and incentives to reach a research and development target of 2.5% of GNP by 2013. We have already trebled our economy-wide R&D spend in the last decade. It is now about €2.5 billion of which some two thirds comes from the enterprise sector. It is not just a matter of saving jobs where we can but of re-orienting the economy to produce the export-led growth we must achieve.
Activation through Training, Education and Work/Employment Experience
Increased unemployment carries a heavy human cost for individuals and families and threatens the aspirations of all our citizens. We must support those who have lost their jobs through re-training and further education. As an initial response, the Government has already introduced a number of measures in these areas.
Notwithstanding the pressures on the public finances, I am now announcing a further range of activation measures which will achieve the following: support individual enterprise through enhanced access to the back to work enterprise allowance scheme, which will facilitate some 1,400 additional claims; encourage further education through earlier eligibility for the back to education allowance; facilitate work experience through a new scheme, to include placement of graduates, which will cater for 2,000 people; expand activation opportunities for over 14,000 people; support redundant apprentices to receive additional training in the education sector – for up to 700 people; enable participation in further and higher education for over 6,000 people; and initiate pilot training schemes for workers on a three-day week. The Tánaiste, the Minister for Social and Family Affairs, and the Minister for Education and Science will provide details on the initiatives in their respective areas.
The overall cost of this wide range of measures will be met through the re-allocation of current resources towards supporting unemployed people. The full year cost of providing close to 25,000 additional places will be in the order of €128 million. Within available resources, the Government will continue to pursue the introduction of further training and education services.
CONFIDENCE AND STIMULUS
The most effective way to build confidence in this economy is to show that we can restore order to our public finances.
Measures to help Stimulate the Economy
Notwithstanding the increases today, our tax system remains competitive and pro-enterprise in character.
Last October, I introduced a considerable enhancement to our R&D tax credit regime. I also mentioned the increased importance globally of intellectual property. Accordingly, I propose to introduce a scheme of tax relief for the acquisition of intangible assets, including intellectual property as a means of supporting the smart economy. The details of the scheme will be worked on by my Department, in conjunction with the Revenue Commissioners, and will be published in the legislation giving effect to the budget provisions. This measure will help to attract high-quality employment to this economy.
To address the overhang of unsold properties, I am proposing to establish a stamp duty trade-in scheme. This will enable persons purchasing a new house or apartment to trade in their previous property with the seller who will not be liable to stamp duty until they subsequently sell the traded-in property on at a later stage. Full details of this initiative will be contained in the forthcoming Finance Bill and the scheme will apply from the date of publication of the Finance Bill to 31 December 2010. I am also changing the way in which car dealers can account for VAT on second hand cars from July next.
RESTORING OUR REPUTATION
As a small open economy, our reputation abroad matters in terms of our ability to attract foreign investment. Recent banking scandals have sullied our good name and may have prompted some investors to think twice about investing here. Measures presented in this budget send a strong message around the world that we are determined to restore our reputation. The actions I outlined earlier to repair banks' balance sheets and the proposed reforms of our regulatory and supervisory regime are aimed at rebuilding confidence in our financial system. The resolute actions we are taking to reduce the budget deficit and to boost competitiveness by driving down costs, prices and wages are needed to restore the confidence of prospective investors, bankers and lenders. To reinforce these messages, I plan to visit financial capitals around Europe over the coming weeks along with representatives from the National Treasury Management Agency. These visits will give me the opportunity to communicate more effectively with foreign investors about our plan for renewal.
It was only last June when we surprised our EU partners by rejecting the Lisbon treaty. Looking back, it would appear that economic success had fostered a sense of invincibility. A lot has changed since then. Events over the past year have underscored how interdependent the world is and have reminded us that our fortunes are deeply intertwined with those of our European partners. We are a small trading nation on the edge of Europe, but our best interest is served by remaining at the heart of Europe.
CONCLUSION
A Cheann Comhairle, I want to acknowledge the serious and constructive documents put forward by the two main Opposition parties in advance of the budget. Both documents contained some good ideas, some of which we have adopted. While there are many differences between us, there is also some important common ground. That in itself sends out a powerful signal to the rest of the world that we can overcome our difficulties.
As the many interest groups prepare, as is their right and duty, to defend their sectional interests in this budget, I ask them to pause for thought. We are now facing the challenge of this nation's life. This is a time to set aside those narrow, sectional interests. Yes, we must be fair and I believe we have been fair. But now is the time for the common good to prevail.
Billy TimminsBrian Lenihan Jnr (Dublin West, Fianna Fail)
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In our short history as a nation, we have demonstrated our capacity to overcome economic adversity. We have worked together to build this economy into one of the most successful in the world. We must now work to save it from a downward spiral. Even with a crisis, opportunities arise. As we recast and restructure our fiscal policy, we can transform the way in which we do business in this country in the public and private sectors.
As I said at the outset, a Cheann Comhairle, we can work our way through this time of economic distress. More than that, we can be strengthened by it. Today, we have set out our plan for the renewal of our economy over the next five years.
Pat Rabbitte (Dublin South West, Labour)
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Get ready lads, get ready.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We are asking this House and the people we represent to work with us in its implementation. I commend these measures to the House.
Bernard Durkan (Kildare North, Fine Gael)
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That surely deserves a standing ovation. They are afraid.
Richard Bruton (Dublin North Central, Fine Gael)
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There is some realisation on the benches opposite that this budget does not deserve a standing ovation. I am not surprised. On 14 October last, when a huge round of applause and a standing ovation greeted the Minister's statement, this is what he said:
The budget I put before you today is our plan of action for economic renewal. It will bring order and stability to our public finances. It will enhance our productive base. It will protect and support those most in need.
As if. The reality in the months since that statement was made is entirely different. The projected borrowing rate has doubled, 130,000 more people have joined the unemployment list, the unemployment rate will have doubled within 12 months of that statement and the economy is on a perilous edge, with the most vulnerable people at greatest risk.
This is a budget in which the people are once again being asked to rescue a failing Government. They hope the Government will wake up to reality and recognise how it has left them savagely exposed. However, today's statement pays not even an ounce of recognition to the calamitous mistakes that have been made by this Government in its handling of the public finances.
Dinny McGinley (Donegal South West, Fine Gael)
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You must be joking.
Richard Bruton (Dublin North Central, Fine Gael)
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The cruel choices faced today are not the product of bad luck, rather, they are the product of bad government.
Richard Bruton (Dublin North Central, Fine Gael)
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People see in this budget and the history of the past several months that the banks bailed out developers before being themselves bailed out by the Government. Today, the taxpayer is being asked to bail out the Government once again. Who is going to bail out the taxpayer given that today's budget will add almost €2 billion to the tax bill that has to be paid by every family, on top of the €2 billion and the huge increases in charges introduced last October? The net effect for many families is an additional burden of €2,500 as a result of this budget and its immediate predecessor. Even those on very modest incomes will face huge increases in their tax bills.
The Minister repeated the claim that we have been hit by a tsunami of pressure from overseas. I do not think even a handful of Fianna Fáil Members believe this Government pursued sound and sustainable strategies which were swept aside by some unfortunate event that transpired overseas. Even the Government admits that the bulk of the black hole in our public finances is due to mismanagement by Ministers. The structural deficit about which it speaks was created over the past seven years by the previous Ministers for Finance who occupied the seat opposite. We are now paying for that tragedy. A huge structural deficit of €13.8 billion has been totted up through mismanagement by Fianna Fáil Ministers for Finance. That is the problem which we face today.
This is not merely the result of difficulties overseas. I recognise that we have been buffeted by unprecedented challenges but those in Government who disregarded their responsibilities and who spent like there was no tomorrow left ordinary people exposed to the risks of a downturn. They lived on easy street, with money for everything. The cosy consensus surrounding them allowed no questioning of value for money or what we could afford and no questions were raised about the quangos piled one on top of the other with little accountability. The largesse of Government was widely distributed but now we see that it will be paid for by ordinary families, by pensioners who were expecting the Christmas bonus and by young unemployed people who will be told they can only get €100 per week. Those people will carry the brunt of the Government's mistakes. During those good times, problems were bought off rather than confronted. There was no willingness to introduce reform but the money merely papered over the cracks. Our Ministers became the highest paid in the world, as if they were managing a successful economy. The reality that we now face is very different.
I ask Members to observe how other countries are coping with these difficulties. No other country in the world is responding to this international crisis by seeking €4 billion in additional taxes in the space of six months or refusing to offer genuine stimulus and support for their small businesses. We stand alone in thinking that cutting spending and raising taxes are the solution to the problems we face. It is only the solution because the Government has eroded all the options available to other countries.
It is deeply depressing that, even at a time of huge crisis, the one issue pushed aside is any effort to introduce reform. Report after report is published by group after group. A group is studying taxation but its influence has not been reflected in this budget. Similarly, the group investigating public spending has had no influence on public service reform in this budget. If in a crisis a Minister fails to focus on the need for genuine reform, we are lost. That is the trouble with the way in which this budget was put together.
I am most worried about something that has been slipped in without much debate, namely, the Government's decision on banking. This is a massive gamble. We are told the Government will ask the taxpayer to shoulder €90 billion in toxic loans. Conservatively, that represents an additional 50% on a debt burden which the Minister has admitted is heading towards 70%. We will be back to the old days of a public debt of 120% if that materialises.
What has been set out in the document before us in regard to protecting the taxpayer who will have to shoulder these toxic loans? We have no information on the price which will have to be paid. These are assets which the market refuses to touch yet we are expecting the taxpayer to purchase them. No indication is given on whether taxpayers will recover their money if this plan becomes a disastrous mess. We are vaguely told that the Minister might consider introducing a bank levy. Where is the contractual agreement that banks shall make up any losses that accrue on these portfolios? We need to be given firm commitments rather than vague talk that the money will be recovered over time.
Why are bondholders, who walked into the risks with their eyes open and whose assets are valued in the markets at one tenth of their face value, not making a contribution to addressing the banking problems? These risk takers helped to pump up the property bubble with which we are now trying to cope. According to the Minister's proposals, however, they will walk away without compromising their position. I cannot understand that. It is not the right way to proceed. We are mistaken to follow this strategy because if it goes wrong, it could dwarf everything else that has hit us in recent times. Did the Government put forward a convincing case for what it is doing? Can we have faith in the oversight that it says will protect the taxpayer, knowing our experience over the past several years of oversight by regulators and the Central Bank? Have we any basis for an act of faith when many of the people now managing the banks brought us to this deep crisis? Serious concerns arise about the undertakings the Minister has made in an aside to the budget. These are more than an aside, however, because they are of massive proportion.
Today's budget admits that 250,000 jobs will be lost by the end of 2010. Fine Gael believed this budget would be all about employment. We accept that we have to correct our public finances during a time of crisis but the balance of the measures we would have adopted would be designed to protect employment at every opportunity. Where, however, do we see such an aim in this budget?
In the measures proposed over the five years of the Government's plan, 68% of the adjustment will come from higher taxation. That means higher taxes for businesses and people at work. The Government took the soft option because it is not willing to address the spending it pumped up over several years. Since 2005, it increased spending by 35% excluding social welfare. Where is the commitment to reducing the cost of running the Government? If we do not reduce the cost, we will have the tragedy of people paying with their jobs. We have choices. We are facing a 20% cut in our national income. People who are secure and protected in their positions can put up the barriers and refuse to make changes. Who will pay then? It will be the unemployed. What we needed to see in this budget was the Government taking a definite course, cutting the cost of running Government, and living within what can be afforded by competitive businesses and people striving to hold their jobs. That balance has not been struck, however. The Minister is insisting on correcting this predominantly by tax increases, which is not the remedy. It is not the route that will protect our job bases. We need a budget that is designed to protect our employment to the maximum possible.
Of the taxes that are to be collected in this year's budget 74% will be taxes on work, which will directly hit people who are working. If one wanted to design a budget to protect people at work, one would shift the balance the other way - a predominance of tax would come from areas that did not penalise those at work. The Minister has struck the wrong balance, however, even within his tax package, and he has relied on taxes instead of spending. It is not the correct approach. We need a Government that is willing to get out from its sheltered environment and join the battle for survival among our companies. There is a battle for survival to keep viable companies ticking over and get them through this period, but they are not able to get credit and cannot cope. A measly €50 million is in a so-called enterprise fund, as if that sum could resolve these things. Other countries are being genuinely imaginative about what needs to be done. They are bringing in well tailored packages to bring credit to viable businesses that are struggling, they are showing flexibility in the welfare system as employers struggle to cope with pressure on their workforces and they are reducing the burden of taxation by pushing out payment dates. Our Government, however, thinks it is better that struggling businesses should pay their taxes earlier than they used to. The whole emphasis in this budget has not been about protecting employment, which is the mindset that should have informed it if it was to be appropriate to the needs involved. This is too much of a bookkeeper's budget. The Minister is hauling in tax because it is easy to get, but he is not addressing underlying reforms to alleviate the struggle encountered by people in ordinary businesses who are trying to hang on to their jobs.
It is disappointing that this year we will see €600 million taken off the capital investment programme and double that next year to €1.3 billion. The following year, nearly double again, €2.4 billion, will be taken out of the investment programme. That is not laying down the foundation for employment. I would not have minded if the Government had adopted what we had recommended - a way of getting equity and borrowing into investment in public infrastructure, such as our water services, electricity grid and telecommunications network. We showed how that could be done in the coming years without costing the Exchequer one red cent, but that proposal was not adopted. I appeal to the Minister to look afresh at that solid proposal.
I welcome the fact that the Minister is willing to raise money from pension funds for PPPs. To be brutally honest, however, I thought the Minister would have a lot more work done on that proposal than he has. It merited just a throwaway sentence, saying that he is examining it and hopes something will come of it. If he has not been striving on this matter in recent weeks, what has he been doing to create incentives for investment in this country? It is the core to a strategy that will get us out of this hole, yet it is still very underdeveloped.
I worry about the share out of the burden. We believed that this budget would be about a fair share out of the burden, yet there is no capping on the huge amounts that well off people can put into their pensions. A sum of €150,000 with a huge taxpayers' subsidy of nearly 50% can be put by very wealthy people into their pension funds year after year. What is the justification for that continuing at a time when we are seeking €2,500 in extra taxes from ordinary people?
Bernard Allen (Cork North Central, Fine Gael)
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They are the untouchables.
Richard Bruton (Dublin North Central, Fine Gael)
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Those sort of problems had to be addressed. Those tax expenditures are unjustified. Why should we be giving tax breaks to artists? Some 60% of the money goes to just 28 artists. They are not a deserving case when we are asking ordinary people to take up the slack.
Richard Bruton (Dublin North Central, Fine Gael)
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Why should we be giving huge subsidies to building nursing homes and schemes like that? Why should we even be giving subsidies to trade union subscriptions? At a time when we want to protect employment, the Minister should not continue with those tax-based expenditures that are well past their sell-by dates and need to be done away with.
There is a lack of focus, too. I can understand why the Minister is examining child care and mortgages but, as he works on the budget for next year, let us not forget those who are really taking the strain. The people who are really taking the strain in this society at the moment are those who were lured into paying huge mortgages. They are now in huge negative equity, have young families and are worried about their jobs. We cannot pile mortgage relief cuts and child support cuts on the generation who are taking the strain for the mistakes that were made in Government. We have to be sensitive to the needs of those people as the Minister starts to reform these areas.
Easy options have been hit. There will be disappointment that overseas development aid has been hit once again; having been hit in October, it is now hit again.
Richard Bruton (Dublin North Central, Fine Gael)
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This was a solemn commitment of the Government, but we are now reducing the proportion of our national income that we will commit to this area. It was a soft target and that is the underlying theme. This was a time not to look for soft targets, but to make hard decisions that should have been faced up to now.
I welcome a scrappage scheme for five Ministers of State, but it is a half-hearted effort in my view.
Pádraic McCormack (Galway West, Fine Gael)
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He should have got rid of them all.
Richard Bruton (Dublin North Central, Fine Gael)
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Daily, we hear Ministers from the Green Party, and there is one of them here today, saying that those who led us into these difficulties in the banks cannot be the ones to lead us out. Many members of the public would like to see a much more extensive scrappage scheme than five Ministers of State.
Alan Shatter (Dublin South, Fine Gael)
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An entire scrappage scheme would be a good idea.
Richard Bruton (Dublin North Central, Fine Gael)
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Many companies that are now struggling expected to see reforms that would ease the tax burden. The Minister himself said that it was a mistake to raise VAT, yet when it comes to dealing with some of these things there is a deafening silence. Surely there was an opportunity to look at some areas where taxes could be reduced, as well as areas where they could be increased. The airport tax is telling visitors that we do not want them to come here, although the tourism industry is on its knees. The low VAT rate is focused on home holidays and home improvements. Surely there was an opportunity to give a boost to tourism and other such labour intensive activities. Surely the Border countries, which are under pressure from the VAT increase, deserved some consideration in this budget at a time when the Government is trying to protect employment.
Phil Hogan (Carlow-Kilkenny, Fine Gael)
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The Minister, Deputy Dermot Ahern, let them down.
5:00 pm
Richard Bruton (Dublin North Central, Fine Gael)
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I also worry about the Minister's approach to those who have lost their jobs. We need to think much more outside the box about protecting the unemployed and finding opportunities for them. I welcome the Minister's back to education scheme, which will be available to people three months earlier than was previously the case, but people will still have to be unemployed for nine months before they can take up a third level course. That is not appropriate at a time like this. We need to get people to move quickly and not have a long period of idleness. Cutting the enterprise support scheme from four years to two does not seem a sensible suggestion at a time when start-up businesses will be working in a very difficult environment. It seems a short-sighted saving that is not motivated to getting small enterprises going by those who have lost their jobs. It seems unfair and niggardly in its approach. It is a slide-rule approach to making savings, instead of a helpful one. Meanwhile, the ordinary back-to-work scheme has been axed altogether, which is a strange decision at a time when we ought to reach out to those who have lost their jobs in order to offer them opportunities.
The underlying problem, which we have always refused to face up to, is the dysfunctional nature of this budget. The budget's composition is always the same. There was no advance scrutiny of the options and no efficiency targets or targets of any sort. It is based entirely on last year's money and whether we will reduce it by 1% or 2%. There is no root and branch examination of what is being done. We, in Fine Gael, advocated turning that system on its head. We argued that budgets in future should not be about the demands of agencies but about the needs of clients and ordinary people, that agencies should be forced to bid for their money and that if they are not performing, managers should be expected to shape up or ship out. We need that sort of transformation in the way we think of our public services.
Delivering a public service is a great honour but we have trapped people in the public service in a system that is failing them. The budgetary system and a soft option approach to politics, one which we saw in decentralisation, are failing them. We need to release the talent in our public service and reward those people of ambition who want to make change and drive standards. Our system does not do this. It tells people that when money is short, one closes hospital beds and wards and turns away patients. What enterprising and ambitious public servant wants to respond that way? People who want successful organisations want the opportunity to run more patients through their system, be more efficient and be rewarded for the extra patients they treat.
We are stuck in the old budgeting system that has trapped talented public servants, whose talent we now need more than ever, in a straitjacket that is not rewarding or encouraging their talent. That has to change but, again, there is no sign of change in this budget. There is no talk of a new deal for moving staff to areas of need or of rationalising quangos which remain as numerous as ever. Work on the programme the Minister offered last year remains as slow as a snail. We are not seeing a Government that is willing to shape up to the huge need to reduce the cost of running government, run government more efficiently and squeeze out and encourage performance. That should have been the clarion call underpinning the budget today. At a time of crisis, this nettle should have been seized. People will suffer because it was not seized, because it means that as budgets go scarce, we will see the old approach again. Schemes such as the home help service and nursing home support will be squeezed for want of money as the year ticks on because the reform agenda has not been boldly seized.
The problem we have in this country is that we have a Government which simply would not heed the warning signs. Time after time, it was told of the dangers that were occurring. Our competitiveness entered the red zone in 2002 when it started to deteriorate. The housing market entered the red zone in 2005 when the IMF issued warnings. The reliance of banks on short-term money entered the red zone in 2005 when we could see them sucking in huge amounts of short-term money not supported by the deposit base. The public finances started to go into the red zone when Ministers pumped spending before elections and benchmarking was paid without looking for anything in return. All of those who issued warnings to the Government that the position was not sustainable were cast aside and contemptuously dismissed. We were told time after time that the property bubble was built on sound economic fundamentals, competitiveness was fine and we did not have to worry about our banks. How wrong that was and how much Irish people have paid for the refusal of Ministers to heed the warnings that were given.
I saw a film recently with Anthony Hopkins called "The Edge" about a man in the wilderness struggling to survive. Hopkins's character made the comment that most people who die in the wilderness die of shame. We have been led into the wilderness by this Government. There is a creeping sense that it does not know how to fix what it has broken and the risk is that we are seeing a Government that is dying of shame as it tries to face problems and that is not carving out the solutions which will resolve these problems and help the country regain its independence. Will the Government die of shame and take our economic independence with it? That is the worry that is on people's minds.
It seems this Government believes it will be the first administration in the history of the world to work its way out of a depression and recession by taxing and more taxing. We stated clearly that the response in this budget had to be built on jobs, jobs and more jobs. It had to be about how we could protect, create opportunities and make sure the tax changes we made were sympathetic to employment as well as how we could make sure the burden between cutting spending and increasing taxes was on the side of more cuts in spending rather than more tax increases. Those were the challenges we faced and that was the framework which should have informed the budget.
We were told just two years ago that 97% of workers would be better off under Fianna Fáil. I do not think many of those workers would agree now.
Jim O'KeeffeRichard Bruton (Dublin North Central, Fine Gael)
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People put their trust in Fianna Fáil which promised it could manage in bad times as well as good. We were told it had a plan and had built a strategy on sound foundations. All those plans have proved hollow and the foundations have collapsed. Ireland is not working under Fianna Fáil. Our public services are not working under Fianna Fáil and people are seeing through that.
What is true of the banks is just as true of the Government. It was said by the Minister, Deputy Eamon Ryan, and the other Green Party Minister whose name momentarily-----
Ruairi Quinn (Dublin South East, Labour)
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It is hard to remember someone who is never here.
Alan Shatter (Dublin South, Fine Gael)
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He is not part of the green shoots of recovery.
Richard Bruton (Dublin North Central, Fine Gael)
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Time and again, we were told by the Green Party Ministers that those who led us into these problems should not be the ones to lead us out of them. Today, this budget has proved that this Government cannot lead us out of these problems.
Joan Burton (Dublin West, Labour)
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This is the budget from hell, particularly for families in the middle income bracket who have two or three children. I want to summarise, particularly for families who may be listening in, what the Minister is expecting them to pay for the banks and all the other mistakes of 12 years of Fianna Fáil misrule. The tables at the back of the Budget Statement include one relating to a couple called Lorraine and Colm. Colm earns €60,000 a year, Lorraine works in the home and the couple has two small children. Colm and Lorraine are not the bankers who turned up their noses at a cap of €600,000 but a couple earning one tenth of that sum. The health levy they and their children pay will rise from €1,200 to €2,400, an increase of €1,200 per annum, while their income levy will increase from €600 to €1,200 per annum, an increase of €600. They will pay an extra €1,800 each year in income and health levies.
That is not the end of it, however, because this couple is special. As Colm's and Lorraine's two children are small, they will lose approximately €1,000 each year through the measures announced on the early child care supplement. Let us suppose they have been married and living together for ten or 15 years. Having bought an apartment when they first got together, they decided when they got married to trade up to a nicer house with bedrooms for the children, as they were told to do by former Taoiseach, Deputy Bertie Ahern, and former Minister for Finance, Mr. Charlie McCreevy. Guess what? Their mortgage interest relief is gone as well, even if they traded up in the past seven years when the market was going up and up and up, spurred on by Fianna Fáil's reckless stoking of the property market.
This budget is really the payback budget because Colm and Lorraine and their cousins, sisters and brothers will have to pay back for what Fianna Fáil has done to this economy over 12 years. They will have to pay back their early childhood supplement. I remember the Minister, Deputy Lenihan, at the time of the last general election and his supporters in Fianna Fáil who, when former Taoiseach, Deputy Bertie Ahern, announced the early childhood supplement, which was a clear bribe to people to vote for Fianna Fáil, went to the post office in Blanchardstown and stood canvassing the queue. I do not know if he remembers it. I remember it because I arrived, saw the Minister and left. He arrived on the day that there was a queue outside the post office where people were waiting to collect child benefit. His people worked all the post office queues to make sure that people knew about this supplement. Will he have a little leaflet for the queues next month to tell them he is taking it away?
Joan Burton (Dublin West, Labour)
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They can tell the Minister, Deputy Lenihan, it was one of the worst designed bribes ever given to young families. It did absolutely nothing except drive up crèche fees. He is now adopting a Labour Party proposal, which is that we should have an early child care system. Fianna Fáil had 12 good years when threw it all away and spent it on electoral bribes such as those we saw when the Fianna Fáilers were working the queue.
We are paying again for the banks. This Government started life this time last year with a fair wind. The Taoiseach enjoyed his own county's adoration, amazing media support and tremendous goodwill from the whole country. He had political capital in abundance and threw it all away. Today the Taoiseach, the Minister for Finance or Fianna Fáil do not have much capital left to ask the Irish people to endure sacrifice and be as resilient as they always have been in the face of danger.
Not so long ago there was a shocking foot and mouth scare in Ireland but everybody responded to it. The whole country united in the common name of Irish men and women to see off a danger that threatened our country's prosperity. There was no quibble about cost or inconvenience; the job had to be done.
However, the Government does not have the vital political capital to call the country to unity today and that is why there will be little or no public consent to today's measures. Of the €3.2 billion this supplementary budget will take out of the economy, some €1 billion will be in tax, of which €754 million is in income tax, mainly from the PAYE sector. Another €799 million is in levies, PRSI and the health levy, again, mainly from the PAYE sector. Of that €3.2 billion package, €1.5 billion, or approximately half of it, will be paid in taxes directly from the PAYE sector. As the Taoiseach well knows, the PAYE sector did not cause the bank crisis or greed that this budget is paying for. They did not cause it but he is making sure they will pay for it.
It reminds me of the First World War generals who called for wave after wave of sacrifice from ordinary families and soldiers, which gave rise to a very famous phrase, "Lions led by donkeys". This is the perfect description of the plight of the people today. The hopes of one more generation of young Irish people were dashed today in order to pay for the dismal failures of Government policy for over a decade.
For a time the Government could blame the international background. Now that excuse looks even more threadbare. Even the Central Bank recognises the roots of our current crisis lie overwhelmingly in domestic policy. Every aspect of policy was geared towards promoting the property bubble. It is stated in the budget that 12.5% would have been the deficit. The Central Bank report last week stated 10% of the deficit was structural and is, therefore, attributable to Fianna Fáil and the property market which collapsed. The other side of the House fanned the flames of a reckless lending spree for 12 years and now it has the nerve to offer its services as firefighters to the people.
In terms of the headline figures on GDP, if the economy continues to contract from today's decisions, it will be very difficult to get the percentage deficit right. The real effect of today's budget, tragically, could be to drive the economy deeper into recession. It could erode confidence more and could undermine the efforts of business to put some life into the economy. Every action of the Government has made a bad situation worse. The increase in VAT last October was folly in the extreme, an act of wild madness and the wrong decision at the wrong time, and I notice the Government has no strategy to reverse it. Many of today's decisions come from the same stable and are just as suspect.
Last week, I heard groups of Dublin stockbrokers had come together to give their tuppence worth of advice to the Minister. Their principal recommendation was to reduce social welfare. These are people who are always first in the queue to get public contracts and consultancies. Most of their consultancies cost €1,000 to €2,500 per day. Did they get their way? The Minister took away the Christmas bonus, which costs €156 million, from people on social welfare.
I am sure the Minister, Deputy Lenihan, remembers an important lesson from his old school, which is to beware of Greeks bearing gifts. He should have been wary of stockbrokers bearing recommendations that would reduce income for people who are quite poor and increase poverty in this country.
Joan Burton (Dublin West, Labour)
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One lesson which should be learned is that there is a misguided obsession with the budget deficit that can compound the very disease it wishes to control. Deficits can melt away like the snow when the economic spring comes and this can happen remarkably fast. The core issue is to combine prudent budgeting with economic stimulus so the actions we take to get the books to balance do not worsen the problem.
Much of what the Labour Party has emphasised in recent weeks refers to job training and job retention. We endorse the idea of a national bond, as first suggested by the Irish Congress of Trade Unions and later by the construction industry. I was disappointed that the Minister, Deputy Lenihan, made no more than a passing reference to it because there is an appetite among savers for secure, State-backed investments. Even yesterday's Financial Times mentioned the fact that the German Government is hatching a similar plan to tap into people's savings and into the capital of pension funds to finance important projects that can sustain jobs and prepare the country for long-term recovery.
There is also scope, surely, to seek support for such a bond among Irish people in the US and elsewhere, who are our own diaspora. We have a gap in our funding capacity to build schools and hospitals and this could go some way towards meeting this need. There must be a stimulus element in today's budget. It cannot be all cuts and tax increases because that will mean only more job losses.
The Americans have a phrase, "shovel-ready projects", which they use to describe construction projects that are labour-intensive, such as public transport projects, and that are already well advanced in terms of planning but cannot be funded in the normal way due to the public financial crisis. The Minister does have access to another possible source of funds for these projects, but he is staying strangely silent about it. I refer to the €1 billion that is to be paid in fees this year and next year by the six financial institutions that were guaranteed by the State last 29 September. This is kept in reserve in a special account in the Central Bank. It is sitting there, and I hope it is not being kept for the next general election campaign. Why is this money not being made available now for job training initiatives-----
Joan Burton (Dublin West, Labour)
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-----or school building projects? I am not a fan of public private partnerships but I recognise that they offer some advantages in securing finance for the capital budget. Why is the use of this mechanism limited this year to four schools in the Taoiseach's constituency? We need more outside-the-box ideas to keep the capital programme ticking over. By this I mean projects that are fully assessed by robust cost-benefit analysis and perhaps sanctioned by the EU for funding outside the headline public deficit constraints. In other words, they would be off balance sheet for EU purposes.
The Labour Party has suggested the establishment of a national development bank that can focus on the many sensible proposals for the smart economy that allegedly form part of the Government's strategy. I am afraid I saw little commitment in today's announcements to making progress on that agenda. Access to broadband and investment in public transport, water supply and low-carbon energy all form part of the agenda, but for these we will need access to capital, which must be sourced in new and imaginative ways. The Labour Party's proposed development bank could be used for this purpose. It would be set up on a commercial semi-state basis. Capital projects it supports would be considered by Brussels to be off balance sheet and thus would not affect the general Government balance, except where the Exchequer transfers funds directly to the bank. The national development bank could support some €3 billion of capital spending over the 2009 to 2011 period. The bank could be capitalised in several tranches over a number of years through the National Pensions Reserve Fund on a once-off basis, through private investment in a recovery bond, through providing the credit union sector with a stable investment vehicle, which it is currently looking for, and through borrowing under Government guidance. I am disappointed that the Minister has shown so little imagination in his statements today.
I said already that the PAYE sector, which is paying more than €1.5 billion in extra income tax and health and PRSI levies, is the main target of this budget. I have talked about tax justice until I was blue in the face. A recent case highlighted how easy it is to set up a perfectly legal tax scheme whereby one can avoid a modest 20% tax on a €25 million profit by simply sending one's spouse to Italy for 183 days. A whole industry has developed among tax accountants and lawyers to facilitate this. In today's statement there was precious little to show any serious intent to end this outrage. All the tax exile rules, all the tax shelter schemes, and all the cosy arrangements to allow tax losses to be brought forward indefinitely and even back for a year should end now.
I do not think the word "pension" even crossed the Minister's lips. We are talking, for example, about the pension pots of €5 million to €20 million accumulated personally by a number of our large bankers and other captains of industry. When they retire they get a quarter of their funds tax-free. That equates to a tax saving of €1 million when they exit the funds. I thought the Minister would seek to cap that. There will be no consent from taxpayers to the €1.5 billion hit to the PAYE sector when they see that the culture of tax avoidance and evasion continues to flourish. Tax justice must be done and must be seen to be done. I told the Minister to write down the words "Tax justice" and put them on his desk, as the former American President Harry Truman did with the words "The buck stops here." There is a fallacy about that the Revenue Commissioners have changed the culture of tax evasion. The former chairman of the Revenue Commissioners, Mr. Daly, and the current chairman have done sterling work, but there is more to be done. The new campaign on offshore trusts shows that there are still mechanisms in place to dodge and weave around the rules.
The Taoiseach will remember Lord Justice Denning's notorious "appalling vista" remark with reference to the Birmingham Six. I will give him an appalling vista with regard to the tax-back schemes that will be implemented shortly. A property company, Company A, has stock consisting of development land and buildings. In view of the crash, it will have major write-downs in the value of this stock. The result will be massive losses for tax purposes. These losses may be carried forward, but they can also be written off against tax already paid currently - that is, in 2007 - which will allow it to claim a refund from the Revenue Commissioners of tax paid recently. There is more. The bank that lent the money to Company A to fund the purchase of land will also write down the value of the loans, and this too will give rise to a claim for tax refunds by the bank. This is a double whammy for the Revenue Commissioners. It will have tax refund claims from both the company and the bank. The losses on these refund claims are likely to be quite astronomical. I have heard suggestions that they could be as much as €1 billion between this year and next year. This is not fancy speculation. As the Taoiseach is aware, the Office of the Revenue Commissioners is bracing itself for major refunds to developers and banks, including the very institutions that have been bailed out by the taxpayer.
If the Taoiseach engaged an accountancy consultant to examine this he would be charged a handsome fee. I am giving him this advice free. I do not think the Government can stand idly by and tolerate this. It would mean a double whammy for the taxpayer. The very banks we are helping are fleecing us with bail-out demands and they will shortly be fleecing us on the double with tax refund demands based on write-downs of their dodgy loans. There will be a sos later. It is open to the Taoiseach and his colleague the Minister for Finance to write further emergency legislation to close this loophole tonight. We will vote for it. This is an offer to the Taoiseach that makes a lot of sense.
Ruairi Quinn (Dublin South East, Labour)
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They can add the detail in the final budget provisions.
Joan Burton (Dublin West, Labour)
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He can close this loophole tonight if he so wishes.
The overhang of the banking crisis affects our nation's international creditworthiness as much as the budget deficit. Of the adjustment of €3.2 billion announced today by the Minister, I reckon at least €500 million - but possibly up to €1 billion - will be used to meet the higher interest charges that must be paid by Ireland on the money it borrows internationally because of mismanagement by this Government. PAYE workers are paying €1.5 billion in extra taxes, much of which will go towards the extra interest costs racked up by the Government by its damage done to our reputation.
I read with some astonishment a report by Stephen Collins and two colleagues in last Saturday's edition of The Irish Times regarding the events of 29 September 2008. According to this report, the State's two largest banks, Allied Irish Banks and Bank of Ireland, left the overnight negotiations on the guarantee scheme on 30 September believing the Government would nationalise Anglo Irish Bank the following weekend, after the introduction of the scheme. The Minister has been strangely silent on this report in contrast to the fuse he blew over Professor Morgan Kelly's very similar proposal some months ago in The Irish Times.
Had Anglo Irish Bank and the Irish Nationwide Building Society been nationalised immediately, and Mr. FitzPatrick and Mr. Fingleton shown the door, we would not have endured quite the fallout we are now suffering. What was it about this pair - Mr. FitzPatrick and Mr. Fingleton, our home-grown Bernie Madoffs - that they were able to persuade a gullible Fianna Fáil, a gullible Central Bank and a gullible regulator that they could resolve the difficulties at their respective institutions? There has been no explanation or apology in this regard. We were already in serous trouble because of the situation with our banks, but the introduction of the guarantee scheme was a disaster for the country and for our reputation. The decisions made on 29 September were flawed and left the country open to a very hostile international reaction. The Taoiseach told the Irish Management Institute in recent days that the risk exposure from the guarantee was "just" 230% of GDP. Of all the understatements I have ever heard, this beats Banagher. We have a situation where "just" 230% of the nation's entire wealth is hanging on the bank guarantee. The man who made this statement is charged with leading the country at this moment of crisis.
The financial institutions guarantee scheme was followed by the nationalisation of Anglo Irish Bank and the allocation of €7 billion for recapitalisation. Now we have come to the grandest act of all in the saga of banking policy with the introduction of a national asset management agency. The Minister is drinking in the famous last chance saloon. He has been very sketchy on the details of how control of debts and toxic assets will be taken from the balance sheets of the banks. One policy issue is central to this scheme, namely, the question of how to handle the valuation of these debts. As long as these toxic debts remain on the balance sheets, our economy will be hobbled by these dead banks walking or zombie banks. These problematic loans must be dealt with in order that ordinary banking and credit flow will resume, thus allowing small, medium and large enterprises, commercial operations and sole traders throughout the State to retain people in employment. As I said, today's budget will see our citizens taking a severe hit in living standards for years to come, with additional taxes of all types, reductions in public services, decreases in social welfare payments and limitations on entitlements, all for no other purpose than to save these financial institutions from the consequences of their own folly and greed.
The Minister mentioned a figure of €80 billion to €90 billion as the likely level of problematic loans. However, he does not indicate what will be the write-down of that figure. Many of these loans are in respect of development lands - the fields outside Dublin city and outside towns throughout the State. These were fields of gold for which the owners may have paid €20 million, €100 million or €200 million. However, they are no longer fields of gold but simply fields. One would be lucky to get a farmer to pay for grazing on some of them, so low will be the demand for construction on them. What value will be put on these former fields of gold? If €80 billion to €90 billion of assets are at issue, a 50% write-down would leave taxpayers with a burden of €40 billion to €45 billion to take onto their backs and those of their children and grandchildren. Why should we pay anything in respect of these loans? What is wrong with either taking a majority stake or nationalising the institutions in question?
In annexe 1, which provides questions and answers relating to the national asset management agency, NAMA, one of the questions asks whether land and development loans outside of Ireland will be transferred to the NAMA. The answer suggests that toxic debts held by our banks outside this State will be eligible for transfer to the NAMA.
Brendan Howlin (Wexford, Labour)
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As if there were not enough toxic debts in this country.
Joan Burton (Dublin West, Labour)
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The reply states:
Yes, land and development loans outside of Ireland will be eligible for transfer to NAMA, subject to consideration of the legal issues involved. This is essential to ensure that the banks are completely cleansed of their exposure to their identified riskiest loan category. UK exposure is a significant part of the bank's total land and development portfolios and therefore needs to be included in the transfer of NAMA as part of the overall solution.
It is scandalous and outrageous that taxpayers - hard-working PAYE earners - will be burdened with the cost of property speculation in the United Kingdom. How can the Government stand over this? Who will be responsible for the valuation of these United Kingdom assets? In addition, I am aware of the existence of smaller portfolios in the United States, Spain, Dubai and elsewhere. Is the taxpayer to pick up the tab for property portfolios throughout the world? From 1 May, Lorraine and Colm, the fictional couple used by the Department for illustrative purposes, will be liable for an additional €100 per month in health levies and an additional €50 per month in other levies in order to pay for the global speculation of some of the greediest people on the planet, those who have also shown themselves to be some of the most stupid people on the planet. Why should we pay for their greed and stupidity?
Joan Burton (Dublin West, Labour)
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It is truly scandalous and outrageous that we should be presented with a scheme such as this without being offered any costings. I understand the development in Dubai to which I referred relates to the purchase of the island of Ireland in the world of islands complex. We are not just paying for speculation in places such as the fringe around the M50. We are not just paying for unsold apartment blocks on the banks of the Shannon or in Cork and Kerry. Rather, we are paying for speculation in London, Dubai, Chicago and New York. The website of the former Taoiseach, Deputy Bertie Ahern, details his travels to various locations around the world to deliver lectures, for a fee, on how he built the Celtic tiger. Perhaps he is dropping in to these construction developments in foreign lands, the cost of which has been loaded on the backs of another generation of young people, their children and grandchildren.
Kathleen Lynch (Cork North Central, Labour)
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The invasion of the world by the Irish.
Joan Burton (Dublin West, Labour)
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Both Deputy Gilmore and I have asked whether the Bacon report will be published in full. A short report has been published by the European Commission outlining the reasons for the success of the Swedish banking bail-out. There are six or seven critical reasons the Swedish scheme worked, the first of which is transparency in terms of the amounts involved. The Minister used the word "tough" in regard to some of these loans. I imagine some of these tough developers will not know whether to laugh or cry when they read tonight about this arrangement.
The Labour Party welcomes, in so far as they go, the proposals to curtail Deputies' and Senators' expenses and, in particular, the suggestion that Deputies who have been Ministers will no longer receive pensions. The Taoiseach will be aware that Deputy Gilmore and I surrendered our pensions to the Minister for Finance some time ago. We also proposed that top salaries in Government, Government agencies and Departments be capped at €200,000 for the duration of this financial emergency. This should be done.
The Taoiseach will have seen the international articles and reports in regard to his salary. We are a country of under five million people. I accept the Taoiseach inherited the current situation in terms of remuneration from his predecessor. However, he is up there with Obama, a leader of a major country, Chancellor Angela Merkel and President Nicolas Sarkozy. If we want the international bond markets to take us seriously we cannot continue to pay people these extraordinary amounts of money. The L'Oreal advertisement "Because I'm worth it" comes to mind. We can no longer afford to pay people these extraordinary amounts of money. The move to address this situation is tepid and disappointing. The Taoiseach and Minister for Finance could have shown leadership today and provided that, for the duration of this emergency, all top salaries would be capped at approximately €200,000. I believe most people in receipt of those salaries would be happy to make that sacrifice, which would not leave them on the breadline as will be the young person under 20 years of age whose social welfare allowance has been reduced from €200 to €100.
Kathleen Lynch (Cork North Central, Labour)
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That allowance has been cut in half.
Joan Burton (Dublin West, Labour)
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This would have shown leadership in an international sense. One of the big talking points internationally is how we can afford to pay our Taoiseach and Ministers so much money. There are many cartoons of Ireland depicting the Taoiseach being paid the same amount of money as leaders of some of the largest, most populated and wealthy countries in the world.
The Labour Party supports the proposed reductions in Deputies' pay and long service allowances and so on. Perhaps the Taoiseach will state the reason the Minister for Finance turned a blind eye to the €45,000 allowance paid annually, tax free, to Independent Members of the Dáil-----
Tommy BroughanJoan Burton (Dublin West, Labour)
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-----most of whom are supporting the Government? Is it because the Independent Members threatened to walk if their allowance was hit in the budget? If we are to clean up the legacy of the Ahern years, this payment, a tax free, unaccountable, unvouched special arrangement for Independent Members, must go. It is wrong and has been always wrong. It was a sweetener introduced by that master politician, former Taoiseach, Deputy Bertie Ahern, to ensure that a wide coalition of Independents continued to support him and it worked. However, this country can no longer afford it. It is wrong that the Minister for Finance did not address this issue.
Perhaps the Ceann Comhairle would indicate at this point how much time I have left.
John O'Donoghue (Kerry South, Ceann Comhairle)
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The Deputy has seven minutes remaining.
Joan Burton (Dublin West, Labour)
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I will conclude with some general observations. The financial deficit is important. I am, as much as anybody else, a deficit hawk. We must establish our credit worthiness as a country. The Government should not underestimate the Labour Party's commitment and willingness to implement sound public finances and to meet agreed targets on time. However, this must be done in a planned way that avoids panic measures, thus worsening the situation.
Today's package involves €3.5 billion to €4 billion. The suggestion is that it involves €3.2 billion before the bank guarantee, which has not been costed, is taken into account. Last week, the Bank of Ireland received a cheque for €3.5 billion from the Irish State. It is amazing that the Minister for Finance gave €3.5 billion to the Bank of Ireland, the biggest cheque in the history of the Irish State, and that there exists no photograph of the Minister handing over that cheque. No photograph of the Minister holding up the cheque was provided for publication by all the newspapers and carried on the RTE news. We all know there are some Ministers who, it appears, have chequebooks in the back of their cars and who, when they turn up at community events, write cheques for up to €50,000 which are subsequently held up and photographed. There is no recorded photograph for posterity of that €3.5 billion cheque.
Ruairi Quinn (Dublin South East, Labour)
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Did the Minister get a receipt?
Joan Burton (Dublin West, Labour)
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In a few weeks, Allied Irish Banks will also receive a cheque for €3.5 billion. Will that cheque be photographed? I suggest we obtain a photograph of it for posterity. It is quite possible other financial institutions will want the same sum and that they may get it because they are guaranteed, which is one of the worst measures ever introduced by Government.
The Bank of Ireland has received €3.5 billion and Allied Irish Banks will shortly receive €3.5 billion. The taxpayer did not today get €3.5 billion, it gave €3.2 billion.
Joan Burton (Dublin West, Labour)
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This is the crazy economics of Fianna Fáil.
I want to return to the comparison I set out at the beginning of my contribution in regard to the First World War. I am sure the Minister of State is aware of the Siegfried Sassoon poem of a cheery general meeting two soldiers on their way to battle who states: "But he did for them both by his plan of attack." General Lenihan has well and truly done for us all by his plan of attack today. Anyone can slash and burn. One does not need courage or wisdom to do so. One can of course save money by making men and women redundant.
I was desperately disappointed that SR Technics, in terms of a plan to save high level jobs at that plant, did not merit mention by the Minister.
Joan Burton (Dublin West, Labour)
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We are saving landbanks in Dubai and London but are not able to save the cream of technological skill at Dublin Airport. Half of the 1,100 to 1,200 men employed at SR Technics received their notice last Friday. Members may have heard read out on the "Today with Pat Kenny" programme a sad letter from the wife of one of those workers. She spoke of her husband retching over his breakfast as he faced his last day at work after 30 years service. I am disappointed this issue did not merit mention by the Minister.
A true leader is one who pauses to say capital invested in job training and earn and learn schemes can pay dividends quickly and use welfare money more efficiently. I do not mind so much the proposed reduction from €200 to €100 in social welfare payment for young people because I do not believe a person under 20 years of age should be on the dole. I do not believe that is the place for them.
Ruairi Quinn (Dublin South East, Labour)
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They should be in school.
Joan Burton (Dublin West, Labour)
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They should either by in school or in training. They should not be on the dole. Simply conceding that one can save money not by educating or training them-----
Joan Burton (Dublin West, Labour)
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They are not many places they can go. Jonathan Swift in Gulliver's Travels said a long time ago to people with the slash and burn mindset: "...whoever could make...or two blades of grass, to grow upon a spot of ground where only one grew before, would deserve better of mankind...than the whole race of politicians put together." This is where this budget has failed. There are no two blades of grass. There is no growth in SR Technics. I do not see anything much for Limerick or for Waterford Crystal. When the Government was on its high horse - when its hubris and its arrogance were evident - it could not bring itself to make a basic credit guarantee arrangement for Waterford Crystal.
Joan Burton (Dublin West, Labour)
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It wanted to hang tough. The Government did not do anything at the time, which was before the bank crisis. The amount that would have been involved in the Waterford Crystal guarantee was approximately €40 million. An iconic Irish industry has pretty much gone down the tubes. The people of Waterford are happy that it will be restarted in a small way with a tourism facility. They understand that something is better than nothing. The banks that are being looked after today will get between €80 billion and €90 billion. There is a poverty of ideas about how to maintain the real jobs, in companies like SR Technics, Dell and Waterford Crystal, which keep families at work. People will be hurting tomorrow as a result of today's budget, which was supposed to turn this economy around, reform the system and bring fairness to it. Tax exiles and those with pension pots worth €20 million will sleep easy tonight because they will not be affected by this budget. At the same time, many ordinary families will be counting the large cost of this budget to them. The pain caused by this budget, which the Government has deemed necessary to bail out the banks, will last for a long time. Shame on the Government.
Jan O'Sullivan
Arthur Morgan (Louth, Sinn Fein)
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I welcome the opportunity to contribute to this budget debate. Never before has a budget been so anticipated and so talked about, even among those who do not normally consider politics to have any relevance to their lives. This is a stinking budget because it takes a completely wrong approach to the crisis facing the State.
Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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That is true.
Arthur Morgan (Louth, Sinn Fein)
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There is no justice in the budget. Fianna Fáil and the Green Party have cynically targeted workers who survive on a little over €41 a day. They have targeted young families who are struggling to meet their child care costs and pay their mortgages. They have targeted teenagers who receive jobseeker's allowance. The removal of the December bonus that is given to those in long-term receipt of social welfare will force vulnerable families into the hands of moneylenders.
6:00 pm
Arthur Morgan (Louth, Sinn Fein)
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The Government should have removed the PRSI ceiling, thereby eliminating the need to bring those on the minimum wage into the tax net. It should have introduced a 48% tax rate for those earning more than €100,000 a year, ensured that all discretionary tax reliefs are claimed at the standard rate, done more with regard to capital gains tax and capped pension fund contributions. Such measures would have ensured fairness and helped the public finances. Some 372,800 people in this State are unemployed. The retraining measures that have been announced today would not help all of those who lost their jobs in January and February, never mind the hundreds of thousands of other people who are unemployed at present.
The Government is taking €200 million from the environment budget, principally in respect of social housing and water infrastructure. It is cutting €54 million from the school building programme at a time when it should be doing the opposite. It should frontload such projects. Educational centres need to be built if we are to have the workforce that will be needed in the knowledge economy of the future. Some €13 million is being taken from sustainable energy and energy research programmes. A further €300 million is being cut from the public transport fund. This has been a slash and burn budget, by any measure.
If the Government is serious about addressing the unemployment crisis and improving competitiveness, it should do the opposite of what it has announced today. The Minister for Finance, Deputy Brian Lenihan, referred to the smart economy and the need for competitiveness, but this budget will make it harder for businesses to engage in research and development and innovation, which are supposed to be key elements of the Government's strategy. The Government has walked away from enterprise. It has given the banks a "get out of jail" clause, after years of reckless property lending, and saddled the taxpayer with a €90 billion debt. It has again nationalised debt but privatised profit. Those watching and listening to this debate are desperate for real political leadership and a positive change in direction.
Sinn Féin has set out proposals aimed at saving and creating jobs and progressive tax and spending measures. There is a fairer and better way, but the Government has decided not to take it. Instead, it is pursuing a policy of regressive taxation, unfair spending cuts and countless job losses. The Minister's attempt to cite the rejection of the Lisbon treaty as one of the causes of our economic difficulties was deceitful. The seeds of economic decline were sown by the Minister's colleagues long before the electorate rightly rejected what was a bad deal for Ireland.
People have waited in fear and hope of what this day might mean for them. Workers in companies like Waterford Crystal, Dell and SR Technics have lost their jobs. Small businesses across the land have been forced to let thousands of workers go. Such people have waited to see whether this budget would do anything for them. They hoped it would contain a stimulus package for the economy, involving the creation of new jobs that would allow them to apply their many skills. They will be disappointed with this budget, particularly its lack of support for job protection and creation measures. Those working in companies that are in receivership and industries that are under threat have waited to see whether measures would be introduced to save their jobs, keep them in employment and protect them from the lengthening dole queues. They will be disappointed when they learn that regressive flat taxes, such as the income levy, have been increased. Families have been struggling to cope since the last emergency budget, which involved the introduction of levies on wages. In that budget, children were targeted through education cuts and elderly people were targeted through medical card withdrawals. As families have waited, they have worried about what the Government will hit them with next. They have wondered how much more they will be expected to sacrifice to clean up a mess that was not of their making. They will be disappointed when they learn about spending cuts and flat tax increases. All of these groups, and many more, have waited impatiently.
At the start of last year, it was apparent to everyone that the economy was facing serious contraction. While the Government was late in coming to the table, it saw fit to implement some budgetary measures in the form of savings last May. By the time of the Budget Statement in early October 2008, the Government had walked us into a recession. I accept that there were significant international events in the global economy, including the fall of iconic institutions like Bear Stearns and Lehman Brothers. It was revealed that certain people at the head of Ireland's financial institutions, including the Brothers Grimm, Mr. Fingleton and Mr. Fitzpatrick, had behaved in a scandalous manner that, some would argue, put this country's economic survival at risk. The criminal behaviour of those charged with managing our financial institutions, which almost brought the country to its knees, required the taxpayer to provide an underwriting of €440 billion.
The terms and conditions put in place by Fianna Fáil and the Green Party when they gave the bank guarantee were so weak that they allowed Irish Nationwide to offer Mr. Fingleton a €1 million bonus. The terms and conditions were so short-sighted that the State had to nationalise Anglo Irish Bank, which was the right idea but in the wrong bank. They were so ineffective that the State is now recapitalising the banks to the tune of €7 billion, which is the right idea but in the wrong banks. We should keep that €7 billion figure in our heads when we talk about this budget. Would we have needed income levies, excise increases and cuts in various sectors, particularly education, if that €7 billion was still on the State's balance sheet? The Minister spoke today about allocating additional funds to monitor social welfare fraud, but what about dealing with bank fraud? The "get out of jail" clause that has been given to the banks after years of reckless lending will saddle the taxpayer with a toxic debt of €90 billion. More public money will be spent on toxic debts as long as the likes of Mr. Fitzpatrick and Mr. Fingleton get off scot free.
Sinn Féin has consistently called for measures that benefit the public rather than the bankers. We need to nationalise the good parts of the banks, ensure that credit is made available to our small and medium-sized enterprises and reduce mortgage repayments for struggling families. The Government cannot maintain its policy of protecting bond holders. It cannot continue to nationalise debt while privatising profit. Its short-sighted policy was evident when, after bringing last autumn's budget forward by six weeks, the Government did not see fit to implement the sweeping measures that were needed to help the economy to enter into 2009 in a fit state.
The Government can make all the claims it wants about the global downturn having its effect on the Irish economy, but the global downturn is not responsible for the Government's failure to do enough in October, which led to savage emergency measures being taken in January to save €2 billion on the year's budget and now this emergency budget - another exercise in short-sighted accountancy.
People cannot suffer much more under this Government. We desperately need leadership and a positive change of direction. By leadership, I mean taking responsible measures that are motivated by a social conscience, that are fair and just as well as effective, and that are taken in the national interest. We need a very different approach. We need something other than Ministers preaching to us that we all caused this mess and we all must all fix it, and something other than the plethora of economists who called it wrong every step of the way and are now back on the airwaves revising their forecasts from last year and telling us, cold-heartedly, the savage steps they believe the Government must take to bridge the deficit. The Government is, of course, foolishly listening to them.
We also need something very different from that offered by Fine Gael, the party that last week managed to blow economic orthodoxy out the window by launching a jobs creation paper that called for 15,000 redundancies. We accept that the public service requires a root and branch audit to identify any inefficiencies but public servants took more than their fair share of the pain with January's pensions levy - a pay cut by any other name. The public service has become the whipping boy of right-wing economists for several years. To take an axe to 15,000 public service jobs is not the way to deal with this problem.
We have enough people losing their jobs in this country. To give people hope, we must show them we have the answers. As unemployment figures have soared – simultaneously destabilising tax receipts and increasing the social welfare budget – the human toll of the job losses has been horrific. In all of the speeches here we have been addressing statistics but these are real people. They are our neighbours, these are families in their own right.
While this country grapples with the apparent truth that this Government's jobs strategy is emigration, individual workers in factories, shops, building sites, and offices across the State are being brought in by management to be told their jobs are gone. Some are being dealt a double whammy. They are being informed that their pension funds, many of which would have been contributed to for 40 years, are also gone.
That this has been allowed to happen systematically for almost two years is shameful. It is shameful that the Government did not see the need to put job retention measures in place. It is shameful that it did not think to bring about a jobs creation strategy sooner. It is shameful that these people have been forced to watch as this Government spends billions saving the banks, but will not lift a finger to save their jobs. It is a disgrace that the people who lost their jobs over the past couple of years bore witness to the news that the head of the State jobs agency, tasked with training them to start their new lives, was allowed resign amid a myriad of financial corruption allegations. He should have been sacked. I cannot remember the last time anyone was sacked by this Government.
The cronyism and corruption that pervades this State's political elite has never been more despised or unforgivable than it is now. There is a sense of déjÀ vu about Fianna Fáil telling us to tighten our belts – we all remember former Taoiseach Charles Haughey telling us to tighten our belts while he was swilling champagne on a luxury yacht and ordering from France yet more Charvet shirts each of which cost the average industrial wage at the time.
All is not lost, however. Despite this Government's best efforts, we still have an opportunity to save people's jobs now, and to create more to replace those that are being lost. As dejected and distressed as people in this State are, they have not lost their fight. We are the same people who have battled through countless centuries of oppression and poverty. We are the same people who were able to go out into the world, help build it and send home every spare penny to help family and country.
In March of this year, Sinn Féin launched its job retention and creation strategy paper, which contained almost 80 proposals to save existing jobs and develop new ones. It is unfortunate that the Government did not at least read the document and take some of those proposals on board. Putting Irish people back to work is the essential first step to resolving this crisis.
Within our document on jobs, my party has set out a range of measures to keep people in employment. These include establishing a €300 million jobs retention fund to subsidise workers in viable SMEs which are struggling in the current crisis, the setting up of a task force to actively pre-empt job losses by going into companies where jobs are in jeopardy to troubleshoot and offer advice, ensuring small businesses can access credit by establishing a proper State bank that would have this as one of its main aims, reduce the costs of doing business by examining stealth taxes and further reducing utility bills, guaranteeing access to high-speed low-cost broadband and boosting the agri-food sector by introducing an improved country-of-origin labelling system and helping producers reach economy of scale.
Our logic in putting forward these proposals is that it is far less costly to keep people in work than it is to allow them to languish on the dole – both financially and socially. Nobody disagrees with us on this - so why are these measures not being taken? It also makes sense from an emergency public finance position. So far, the tax receipt losses have been most noticeable in the property taxes and VAT, due to the State's unbalanced reliance on these indirect taxes. As job losses have increased, we have seen income tax start to take a hit. That will only increase if something is not done now to stabilise jobs numbers.
Recognising that not every job can be saved, Sinn Féin has also produced a range of proposals to create new jobs. These include frontloading labour-intensive national development plan projects and increasing the number of school-building projects to provide both jobs and centres of learning for our much needed educated workforce of the future. The Government has done the opposite. The decision to cut capital allowance this year to save money will only damage further the potential for both employment in this State and the State's ability to turn itself around. We need more investment in infrastructure, not less.
We have also called for the creation of one-stop-shop enterprise points to be set up, for the establishment of Eolas Glas Éireann, a new green technology body, and for the creation of a sales Ireland strategy to help Irish firms access export markets outside the United States and Britain and to help Irish firms looking to set up manufacturing businesses with the potential to compete with our largest imports, including research and development funding. It is not lost on our exporters - it appears to be lost on the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Coughlan, who launched the export report, Catching the Wave, last year - that currently, almost 90% of exports from this State come from foreign-owned multinationals. In addition to that startling figure, foreign-owned firms import over 86% of the materials they use, bypassing Irish firms.
These are just a couple of our 80 proposals aimed at stimulating employment. Alongside these innovative ideas, we spelt out the need to stimulate consumer spending. I spoke against the 0.5% increase in VAT in the October budget and I and all of my colleagues voted against it. I met with groups such as ISME and various chambers of commerce over the preceding months and I could see from quarterly figures that VAT returns were falling. I also met with many traders from both sides of the Border. It seemed entirely counterproductive to me, at a time when consumer spending was crying out for stimulation, that the Government would make it more expensive to shop. The Government's VAT strategy is a complete failure and one that was avoidable. We need to harmonise VAT across the whole island, not to mention work for an all-island currency. Work on this needs to begin immediately.
The total cost to implement our jobs package over a full year comes to just over €2 billion. Most of the measures are cost neutral, they just require a change in direction of Government policy. They need the Government to accept that we are not a strong performing export market, that we have a trade deficit that is strangling us, and that we are far too dependent on the multinational manufacturing sector. If we are going to attract FDI to this State, we should be targeting their headquarters, and offering their research and development sections partnerships with Irish universities. We must be more than mere outposts from which they can pull out at will and send those jobs to cut-cost economies. Some €2 billion is not much to pay if it means saving and creating jobs, and ultimately, stabilising the public finances.
That brings me to the issue of tax and expenditure. In the run up to this emergency budget, we stated the only way to secure the economic future of the State was to retain existing jobs and to create new ones, reduce the trade deficit and stabilise and better regulate the financial sector. We also said the public finances had to be stabilised so as not to further harm our borrowing capacity. We stated this could, and should, be done through fair, progressive measures that would not, as has been the traditional method of this and Fine Gael-led Governments, target those who could least afford it. We called for a line to be drawn between increasing revenue intake and not taking so much out of the economy to contract it into a depression.
In the financial aspect of our pre-budget submission last week, we set out measures that would have raised and saved €3 billion in the current year and €5 billion in a full year. These included fair measures such as standardising all discretionary tax reliefs, which would save the State approximately €1 billion a year; levying the existing and remaining property tax reliefs, which would return between €200 million and €300 million on average a year; introducing a new third rate of tax for high earners; and increasing the health levy on high earners and PRSI by 1% while abolishing the ceiling to ensure the social insurance fund can continue to meet its obligations for unemployment, maternity and pension payments. We laid out savings in the public sector, but none that would affect front line services. Our savings targeted areas such as the private health care sector, which has been financing itself on the back of the public health care budget and people's fear because public services are run so badly by this Government and the HSE.
In bringing forward proposals to bridge the gap in the current budget deficit, Sinn Féin sought to protect those on low to middle incomes and those in receipt of social welfare. We could go over old ground all night about how the Government did nothing over the past ten years to broaden the tax base or to make it more fair and progressive and how the Government oversaw the shift from an export-led economy to a bubble economy dependent on property and consumption taxes. In its simplest terms, the Government believed four walls and a roof, and the furniture bought for that house, constituted the solid foundations for an economy, which is ludicrous.
However, the fact is that we need to deal with where the country is right now. The dramatic contraction in the economy is nothing less than a national emergency. There is much we can do in the long term to fix the public finances and my party has advocated a complete overhaul of the taxation system to include a sophisticated system of multiple bands and rates for both income and business tax, an end to tax reliefs except when they are for society's benefit, an end to tax shelters and loopholes and putting a stop to wastage and duplication in public expenditure. In the immediate term, measures can be taken, and I listed some earlier. My party believes our approaches are sensible. We are not using the recession to push an agenda that will ultimately serve only the few.
For example, we are completely against selling off, for short-term gain, profitable State companies or companies that could be made to turn a profit again. This policy, articulated by some in the House, is ideologically partisan, economically naïve and, ultimately, counterproductive for the future of the State and its economy. I refer to the case of SR Technics, formerly FLS Aerospace and Team Aer Lingus, which emerged from the mechanical and engineering section of a public sector company, Aer Lingus. This is a classic example of where the privatisation agenda takes us and how it leaves workers on the dole.
We have also been adamant that those earning the minimum wage must be kept out of the tax net and that those on social welfare cannot be targeted. With the abolition of the Christmas bonus for those subsisting on social welfare, it appears that Fianna Fáil and the Green Party disagree that nobody earning €204 a week should be asked to carry the can for the mess that the Government, bankers, developers and the business elite have conspired to create. Unfortunately, the Government has chosen, once again, to take a series of measures that are neither fair nor just and that will not be effective.
The income levy is not progressive. A levy of 2% on somebody earning €15,000 a year is more disproportionate than levying 2% on someone earning €70,000 a year. The Government's line about not being able to change tax rates and bands in the middle of a tax year is dubious and does not explain why the tax system was not changed last October when the levy was introduced. It also very convenient that the Government claims it cannot tackle the multi-billion euro tax relief scheme in the middle of the tax year. There was nothing to stop it ending these unfair reliefs last October. Bringing people into the tax net is outrageous. Nobody earning €350 a week can carry the can in this budget.
The cuts to social welfare are vicious. The early child care supplement is paid in recognition of the fact that the State does not provide universal early child care, as is provided in most other progressive European states. Even if the proposed child care scheme comes on stream in January next year, how are parents supposed to pay for child care this year following this payment cut? Perhaps the Government's unemployment strategy ties in well with the slashing and eventual abolition of this payment. Means testing or taxing child benefit next year is also punitive. The Minister should target the tax rates of parents, not their children. The reduction in rent allowance is a disgrace. The housing market has changed but not to the extent that rents have collapsed. The measure to reduce jobseeker's allowance for the under 20s is an attack on young people, who are the most vulnerable in seeking a job in this economy now. It is an emigration tax, as it will force them to leave the country and travel elsewhere where the economic crisis will probably be as bad.
Those on the right argue that, in a public finance crisis, the last place a government should look to raise money is the tax system. They argue cuts are the only way to solve an economic crisis. It is easy for these Washington School students to advocate spending cuts, which invariably comprise cuts to services on which the better off never have to rely. If one is rich enough, one does not need a public health service or education system nor does one need social welfare payments. What differentiates Sinn Féin from those on the right is that we believe all these important services such as health, education and social welfare are rights. That is what one pays one's taxes for. One does not pay them so the top rank of civil servants can earn upwards of €150,000 per year. One does not pay them so the heads of State bodies can take first class trips to Florida and stay in five star hotels. One pays them for the Government to give them back to their developer friends through billions of euro in tax reliefs.
Sinn Féin's priority at this time is to get Ireland back to work and to build the knowledge-based economy that we so often talk about. The conscious decision by Fianna Fáil and the Green Party to make cuts to education spending and to increase class sizes is detrimental to both of these crucial goals. Deputy Paul Gogarty talks a good talk when it comes to these education cuts. I call on him to show his hand now. Will he stand over this targeting of the most vulnerable in our society or will he actually stand up for what he says he believes in and walk away from this Government?
Likewise, cuts to health have been affecting the delivery of health and personal social services since the autumn of 2007. The "national emergency" the Minister for Health and Children declared in 2006 because of the numbers of patients waiting for many hours, and in some cases, days, on trolleys and chairs in accident and emergency units has been forgotten not because the situation is better but because the so-called emergency is now the norm, despite the Minister's much vaunted but ineffective plan of action. While she ploughs on with her precious and ideologically driven co-location of private for-profit hospitals, the provision of life saving units are being denied. It appears an issue has to be aired on the Joe Duffy show for a week before it is sorted by the HSE. How Deputy Harney can hold her head up is a mystery to me and how Government backbenchers can stand behind her is something they will have to explain to the electorate at the next election.
The recession is being used as an excuse to make cuts to the public health service but no real action is being taken to tackle the waste in the health service such as the use of brand drugs instead of generic drugs, the co-location plan and the subsidising of the private sector through the private beds in public hospitals. The list goes on. Everyone else is expected to take a pay cut but the consultants' contract is untouchable. In the meantime, we face the non-renewal of contracts for up to 1,400 so-called temporary workers in the health services. Under the guise of reorganisation, the Minister and the HSE are slashing services in our small hospitals across the State, worsening the overcrowding in large hospitals such as Our Lady of Lourdes in Drogheda, the Mid-Western Regional Hospital in Limerick and the big Dublin hospitals.
Health and education are just two areas where the cuts have hit the most vulnerable the hardest but there are many more. A government that can bail out the banks to the tune of €7 billion, but cannot protect its most vulnerable in their time of need is not a government that anyone in their right mind would want to be in power.
Today's budget will not restore our international reputation. Our reputation internationally has been damaged by this Government's failure to manage the economy and regulate the financial sector, and by its over-reliance on construction and shambolic handling of the public finances. The Minister for Finance, Deputy Brian Lenihan, spoke today as if his party had not been in government for more than a decade, as if he and his colleagues were not responsible for the crisis which the country faces.
The Government has made several attempts to fix the State's finances. Each time it has fallen short and this was its last attempt. This budget is not even a first tiny step in the right direction. I doubt anyone is convinced that Fine Gael could do a better job. If the past is anything to go by, not to mention its policy documents of the past few weeks, Fine Gael's solution will be as punitive as it is negative, cuts and privatisation will not sort out this economy. Fine Gael believes it will be elected to govern next time around because of Fianna Fáil. I believe, however, that people are starting to look for something different. The old two-party system is teetering on the edge of history and an alternative is starting to emerge. My party leader made a call at our Ard Fheis to the parties of the left to form an alliance of the left. I ask my colleagues on this side of the House to consider this again. No party that claims to be of the left should prop up a right wing government. I call on the Labour Party today to go back to its roots and to abandon its policy of abolishing tax reliefs for trade union membership. If ever there was a time when people need to be members of unions, it is now.
People want change. They want a new model of development for the economy, not one that relies on the boom and bust method, which economists can sit back and comment on, but with which real people must live. Nobody in the two main parties believes in shared pain for everyone. They will protect the well off and target the less well off, as has been seen here today.
We can go forward in this State, we can turn this economy around but we cannot do it by clinging to the politics of the past. It is time for real change. This budget has been far more depressing than even I had expected with cuts in education and all public services at a time when injecting funds into labour intensive projects was needed to stimulate the economy rather than this slash and burn approach.