Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I move: "That the Bill be now read a Second Time."

In the past number of weeks there have been some glimmers of hope that an end may be in sight to the deepest and most widespread recession that the world has experienced for over a half century. Given the turmoil we have seen in the global financial markets and the dramatic contraction in economic output world-wide, there is a natural caution and reticence about forecasts of recovery and there is considerable uncertainty about the sustainability and strength of that recovery at this stage. At present, global economic output is continuing to contract and it is accompanied by falling world trade. According to the IMF, the advanced global economies - which constitute Ireland's major trading partners - are predicted to contract by 3.75% this year, which will weigh upon our export performance. The depreciation of sterling has been unhelpful for our indigenous exporters.

However, policymakers around the world have responded to the financial crisis with marked determination. There are signs now that these efforts are beginning to bear fruit. In the past week, the world's leading central bankers have noted improvements in business and consumer sentiment while some important indicators in key economies have shown tentative signs of stabilisation. When it emerges, the recovery will, in all likelihood, be slower in Europe than in the US. Nevertheless, these tentative signs of stability underscore the importance for this country of continuing to pursue the policy path set by the Government to guide the economy and position it to benefit from a global recovery.

GNP is projected to contract by 8% this year. A more moderate decline is expected in 2010, but as the international recovery gains momentum and the sharp shock in residential housing output passes through, our economic growth rate is expected to turn positive by 2011. Though the challenges are great, we should not forget that our economy has many strengths on which to build a recovery. Our labour force continues to be highly skilled and flexible. We are continuing to invest in education at all levels in order to ensure we have the skills demanded by our knowledge-intensive economy. The Government remains committed to providing a pro-enterprise environment and to maintaining our relatively low tax burden on business. We are ensuring capital spending remains at a high level by international standards. This will allow us to maintain our investment in productive infrastructure which will help enhance our competitiveness.

Our economy also remains flexible and resilient. Labour costs are falling in both the public and private sectors. This adjustment is painful and I do not for one minute underestimate the difficulties it is causing workers and their families. However our capacity to make these adjustments in labour costs and work practices is critical to our recovery. The sacrifices we make now will reap large economic gains in the near future. Our agility in responding to this most difficult of economic crises has been acknowledged by Mr. Jean-Claude Juncker, the head of the eurozone Finance Ministers. Just two weeks ago, Mr. Juncker said Ireland is "making some very brave efforts and we very much welcome the feeling of national consensus that we detect in Ireland and we take our hats off and pay tribute to the Irish people in rising to the challenge and bearing the sacrifices that the Government is asking them to make".

Both Mr. Juncker and Commissioner Joaquín Almunia endorsed our recent supplementary budget as the correct approach to our economic and fiscal difficulties. The purpose of the supplementary budget was to restore order and stability in the public finances so that we can protect existing jobs and generate the essential economic confidence that will lead to further employment creation and a return to prosperity.

This Finance Bill, in giving effect to the supplementary budget measures, addresses the two important requirements of showing a credible way forward on our structural problems while protecting our economy. Our approach must be rooted in a determination to put the economy on the road to renewal. We must demonstrate that we have the ability to make the right choices for everyone in this country, choices that will not only determine our immediate economic future but also our long-term future.

We must never lose sight of the principle that economic and fiscal renewal cannot be achieved at the expense of fairness. It is essential that each of us contributes according to our means. Tax increases are required. They are not palatable, nor are they easy to accept, but the measures detailed in this Bill are progressive and fair.

I note the comments of the ESRI in its recent quarterly review about the redistributive impact of the budgetary measures we have taken since my appointment as Minister for Finance. The institute's study shows that those on the lowest income levels fare best from the combined effects of the October and April budgets. The Government will continue to protect the vulnerable in this difficult period but in doing so it must be borne in mind that we all have a responsibility to accept a proportionate share of the burden of adjustment needed in this economy.

If we are to address the fiscal challenge we face it will be necessary to significantly broaden our tax base. To advance this I announced in my supplementary budget speech that I was terminating property-related accelerated capital allowance tax relief schemes in the health sector to help broaden the tax base. As Deputies are aware, all such schemes are now being terminated with the exception of the specialist palliative care units and child care facilities.

This Bill sets out the transitional arrangements for the pipeline projects affected by the termination of property-related capital allowance schemes announced in the budget. The schemes being terminated cover private hospitals, nursing homes including associated residential units, convalescent homes and mental health hospitals. The estimated annual saving from the termination of these schemes is approximately €60 million in a full year.

I am satisfied that the transitional arrangements strike a balance between the requirement for the Minister for Finance to terminate remaining property-related capital allowance tax reliefs and a recognition that the schemes cover large-scale projects which have a long lead-in period involving design and planning work which can be expensive. The Bill also gives effect to the budget day announcement of the abolition of the special 20% tax rate applicable to trading profits from dealing in or developing residential land. The income will now be charged at the individual's marginal income tax rate or at the 25% rate of corporation tax. There will also be a restriction on the relief of trading losses incurred from dealing in or developing residential development land. The proposals relating to dealing in or developing residential land represent another significant step by the Government in ensuring everyone makes a contribution toward raising additional revenue and broadening the tax base in our efforts to address the difficulties we are experiencing in the public finances.

It is important, notwithstanding our straitened circumstances, that we continue to support enterprise. I made the point in my budget speech that, despite the recent increases, our tax system remains competitive and pro-enterprise in character. Accordingly, I renewed the Government's commitment to our 12.5% corporate tax regime. This is essential to economic renewal. We cannot stand still. I undertook in the supplementary budget to introduce a scheme of tax relief for the acquisition of intangible assets as a means of supporting the smart economy. This measure will help maintain employment in our existing industrial base and will help attract sustainable high quality jobs in the future into the economy.

The budget also sought to support the hard-pressed motor industry. However, since the supplementary budget, further discussions have taken place with the motor industry. While the Society of the Irish Motor Industry, SIMI, was appreciative of the Government's efforts to try to assist the industry, it considered, in view especially of the difficult financing situation facing the industry, that on balance it would not be in its overall best interest for the VAT margin scheme to be introduced at this time. There will be further dialogue with SIMI, especially in regard to dealing with the large stock of second-hand cars held by dealers.

The Bill before the House runs to 28 sections and is structured by tax headings. I will outline some of the main provisions, in the time available to me. Section 2 makes provision for the doubling of income levy rates and reducing of the rate thresholds from 1 May 2009, as announced in the supplementary budget. A rate of 2% will apply on income up to €75,036, 4% on the balance up to €174,980 and 6% on any income above that amount. The exemption threshold is also reduced from €18,304 to €15,028. Those with an entitlement to the medical card remain exempt from the income levy. For those over 65 years, the exemption remains at €20,000 for single individuals and €40,000 for married couples. Social welfare and similar type payments also remain exempt from the levy. The income levy is a progressive measure, with those most able to pay paying the most. The most vulnerable are protected by exemptions.

The composite rate provision, applying to 2009, included in this section is intended as an anti-avoidance measure which prevents individuals who can control their income from front-loading their yearly income to avoid the higher rates. This section also clarifies that redundancy payments made in the first four months of the year will only be subject to the income levy rates in force during this period.

Sections 3 and 4 make provision for the supplementary budget announcement that from 1 May, mortgage interest relief will be limited to the first seven years for qualifying home loans. This measure focuses resources on those most in need and provides a saving to the Exchequer. The relief remains available to first-time buyers and those taking out a new qualifying loan for the purposes of trading up or improving their principal private residence.

Section 5 gives effect to the budget announcement whereby the level of tax relief investors can claim on the interest for mortgages and loans on residential rental properties is reduced to 75% of the interest accrued from 7 April 2009. I am introducing this measure at a time when mortgage interest rates are at historical lows and the repayment burden on investors has been reduced significantly. The interest component of repayments is now less than 50% of the levels that obtained as recently as two years ago. I am aware that rents are falling after a number of years of strong growth. This fact was taken into consideration when I framed the supplementary budget and decided to reduce rather than abolish this relief. Ordinary workers on relatively modest incomes are being asked to make additional contributions to help with the recovery in the public finances, and it is fair and equitable and ensures that residential investors contribute a proportionate share of the burden of adjustment needed in this economy.

Section 6 abolishes the 20% incentive rate of tax for income arising from dealing in residential development land with effect from the 2009 tax year. Such income will be taxed under normal income tax rules. The incentive rate is being abolished in recognition of the fact that the relief has served its stated purpose of releasing development land. The measure also introduces new arrangements for dealing with losses which ensures that where profits were taxed at 20%, losses cannot be relieved at 41%. Any such loss will now be converted into a tax credit valued at 20% of the loss and can be offset sideways against income tax which would otherwise be payable on the person's other income.

Section 7 extends the period during which applications for certification can be made to the mid-Shannon tourism infrastructure scheme board from one year to two years so that the latest date for the submission of applications is 31May 2010. Second, to cater for any projects that may avail of the new date for the submission of applications for approval, the period within which expenditure must be incurred for capital allowances is being extended from 31 May 2011 and will now end on 31 May 2013. It is my understanding that a number of significant projects are in the pipeline which have not yet been submitted formally to the board for approval. A feature of the projects identified is that they are nearly all being promoted by experienced tourism operators who have the capacity to create sustainable businesses with a clear customer focus, rather than being solely driven by investors. If the existing deadline for submission of projects to the board for certification is retained, none of these projects will be able to proceed.

Section 8 amends sections 268 and 316 of the Taxes Consolidation Act 1997 in respect of expenditure incurred on the construction or refurbishment of certain health-related facilities in order to provide for the termination of these capital allowances schemes and for transitional measures for pipeline projects. The facilities covered by this section are registered nursing homes, convalescent homes, qualifying hospitals and mental health centres.

The amendments to section 268 provide that certain schemes that were previously open-ended with regard to incurring qualifying expenditure for capital allowances purposes now have a termination date of 31 December 2009, unless certain qualifying criteria are met. The amendment to section 316 ensures that in respect of these types of facilities, the normal rule about capital expenditure being incurred when it is payable is disregarded and, instead, expenditure is treated as incurred when it is properly attributable to construction or refurbishment work that has actually been carried out.

Section 9 increases the rate of tax that applies to interest on deposit accounts and income from certain other savings products. The normal rate of tax is increased from 23% to 25% with effect from 8 April. For more long-term savings products, the rate of tax which applies is increased from 26% to 28%, also with effect from 8 April. Although the rates are increased by 2%, it remains the case that this income is not subject to the income levy.

Section 10 increases by two percentage points the rate of exit tax on life assurance policies and other investment funds, with effect from 8 April. Products previously taxable at 23% are now taxed at 25%, and those previously taxed at 26% are now taxed at 28%. As an anti-avoidance measure, where the investment is held in a personal portfolio investment undertaking or a personal portfolio life policy, the tax rate that applies with effect from 8 April is the standard rate plus an additional 28 percentage points. Likewise, where such a payment is made in respect of a foreign life policy or an offshore fund and is not correctly included in the investor's tax return, the rate of tax that applies with effect from 8 April is at the investor's marginal rate plus an additional 25 percentage points.

Section 11, in tandem with arrangements made in section 6, abolishes the effective 20% rate applied to trading profits from dealing in residential development land with effect from l January 2009. An accounting period that straddles that date is treated for this purpose as two accounting periods. Profits or gains on dealing in residential development land will now be charged at the general rate of corporation tax that applies to dealing in land, which is 25%.

Section 11 also introduces the new section 644C to the Taxes Consolidation Act 1997. This section restricts the allowance of losses on residential land incurred before 1 January 2009 and carried forward to accounting periods beginning on or after that date to allowance on a value basis. This is to ensure that the effect of the tax treatment of trading losses is commensurate with the effect of the increase in the tax rate on trading income from 20% to 25%.

Section 12 is a technical amendment to ensure that, where an Irish resident company makes a gain on the disposal of shares deriving their value from exploration or exploitation rights, the gain will not be exempt from tax under what is known as the "participation exemption". By closing off a potential loophole, this measure means that such shares are treated the same as shares deriving their value from land or minerals in the State.

Section 13 provides for a new scheme of tax relief for capital expenditure incurred by companies on intangible assets, as announced in the supplementary budget. A new section 291A is being included in part 9, chapter 2, of the Taxes Consolidation Act 1997 for this purpose. The scheme provides for capital allowances against taxable income on capital expenditure incurred by companies on the provision of intangible assets for the purposes of a trade. The scheme applies to intangible assets which are recognised as such under generally accepted accounting practice and which are included in the specified categories listed in the new section.

Allowances provided under the scheme will reflect the standard accounting treatment of intangible assets and will be based on the amount charged to the profit and loss account of the company for the accounting period in respect of the amortisation or depreciation of the specified intangible asset. However, companies can opt instead for a fixed write-down period of 15 years at a rate of 7% per annum and 2% in the final year. The allowances currently available for capital expenditure on the provision of computer software under section 291 of the Taxes Consolidation Act are being retained and the new scheme does not therefore apply to computer software. As patent rights and know-how are being included in the new scheme, the existing reliefs for capital expenditure on patent rights and know-how are being discontinued for companies, but with provision for companies to opt for these reliefs for a further two-year period. The new scheme applies to expenditure incurred by a company after 7 May 2009.

Section 14 increases the rate of capital gains tax from 22% to 25%. This change applies with effect from 8 April 2009. Sections 15 and 16 confirm the supplementary budget increases as follows: in mineral oil tax of 5 cent per litre, inclusive of VAT on auto-diesel; and in excise duty of 25 cent on a packet of 20 cigarettes, inclusive of VAT, with a pro rata increase on other tobacco products.

Section 17 provides the necessary legislative change for my decision, announced on 25 February, to exempt small peripheral airports from the air travel tax. It amends the definition of "airport" used for the air travel tax to exclude from the scope of the tax airports from which fewer than 50,000 persons departed on aircraft in the previous calendar year.

With regard to section 18, the Finance (No. 2) Act 2008 introduced an unjust enrichment provision in respect of VRT to limit the repayment of VRT claims by dealers, primarily to the amount that a dealer would pass on to the first registered owner of a vehicle who, in effect, would have paid the VRT. This section amends the formula that is used for the calculation of a repayment of VRT on a pro rata basis, where the first registered owner of a vehicle which is eligible for the repayment of VRT has disposed of the vehicle prior to the date of repayment. It is a technical amendment.

Section 19 is an interpretation section for the stamp duty provisions of the Bill. Section 20 provides for a new exchange of houses scheme, under which a person selling a new residential property can take a second-hand residence in exchange or part-exchange and will not have to pay the stamp duty on the second-hand property until he or she either sells on the second-hand property or, in any event, by 31 December 2010, when the scheme ends. The purpose of the scheme is to give impetus to the residential property market by freeing up the overhang of completed but unsold new property, with consequential impact on employment.

Section 21 is a technical follow-up from section 13 which deals with intangible assets. The definition of intellectual property has been amended in the Stamp Duties Consolidation Act 1999 to align it broadly with a similar definition being inserted into the Taxes Consolidation Act 1997 by section 13 of this Finance Bill. It should be noted that this change applies to instruments executed after 7 May 2009.

Section 22 provides for an increase from 2% to 3% in the existing levy on non-life insurance products. The non-life insurance levy does not apply to voluntary health insurance, re-insurance, marine, aviation and transport insurance, export credit insurance and certain dental contracts. The section also provides for a new 1% levy on life insurance premiums.

Section 23 provides for an increase in the rate of capital acquisitions tax from 22% to 25%, and for a reduction by approximately 20% in the thresholds below which a gift or inheritance can be taken free of tax. Although this is the first time that the CAT tax-free thresholds have been reduced, I consider this reduction is justified in light of recent economic conditions. The tax-free thresholds remain generous. They now stand at €424,000 for gifts and inheritances from parents to children, €42,400 for gifts and inheritances between siblings, from aunts and uncles to nieces and nephews, from grandparents to grandchildren, and €21,700 for gifts and inheritances not subject between individuals not covered by the first two categories. The changes to the rate of capital acquisitions tax and to the tax-free thresholds both apply from 8 April 2009.

The rates of deposit interest retention tax, capital gains tax and capital acquisitions tax are all now 25%. This is part of the Government's base broadening measures and ensuring that all forms of income contribute to the fiscal correction. The increases in the taxation of capital and savings will ease the taxes which would otherwise have to be imposed on labour and consumption.

Section 24 is an interpretation section. Section 25 reduces the statutory rate of interest applied by Revenue to delayed payments of taxation and to underpayments by taxpayers engaged in business activities. The current daily rates will be reduced by approximately 20%, giving respective annualised equivalents of some 8% and 10%, from 1 July 2009.

Section 26 covers miscellaneous technical amendments in relation to tax. These proposed amendments to the Taxes Consolidation Act 1997, the Stamp Duty Consolidation Act 1999 and the Finance Act (No.2) 2008 correct some minor drafting changes and cross references which were overlooked during the drafting of the original legislation.

There is still a small number of matters under consideration that I may bring forward on Committee Stage. I will, of course, also give consideration to any constructive suggestions put forward during our debate today and tomorrow.

Richard Bruton (Dublin North Central, Fine Gael)
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I do not have to tell the Minister or the Ceann Comhairle that Ireland is facing frightening challenges on every front. The ESRI brought people up with a sharp jolt when we realised that 300,000 jobs might be lost before the end of next year, potentially bringing unemployment figures on the live register measure to over 600,000. That is an appalling prospect and has been brought on by a series of catastrophic policy failures in this country. We now have the worst public finances in Europe, collapsed competitiveness - where we once were very strong and competitive - banks that are totally frozen and a property meltdown. The first lesson we must learn is that we must understand the policy failures that were made so that we can plot a course that is based on addressing some of them. I find it dispiriting that the recent budget has not properly faced up to the reality that this Government and former Ministers for Finance pursued irresponsible public spending policies.

They were irresponsible in terms of the business cycle and the way money was expanded into the teeth of booming conditions, and in the quality of spending and the willingness to ramp it up, regardless of results. Then there was the refusal to pursue genuine public service reform. The notion was abroad that change did not have to be delivered for money that was given out. Benchmarking was the highpoint of that, money dished out and nothing asked in return. Decentralisation was out of the same stable. It was saying to committed public servants, in effect, "We do not care about the quality of your work or the institutions you are working in. We will move you around, to meet political needs, like pawns on a board". That, again, destroyed the commitment to reform and professionalism in the public service.

We have persisted in running a budget system which, as I have said repeatedly, is not fit for running a corner shop. We take no account of capital costs in the way we fund agencies, allowing them to be financed on the basis of last year's budget, not on any commitment to deliver results. Year after year in the Estimates debates I appealed for change with the Minister's predecessors with regard to the manner in which we were spending our money and putting budgets together, and was met with blank refusals.

Public policy irresponsibly destroyed our competitiveness. That is what happened in the last five years and it was driven by public policy, the cheerleading of the property bubble, the excessive public spending commitments, the willingness to buy out problems instead of confronting them, the cosy relationships that meant regulators did not turn over the stones and did not demand standards from those they regulated. Then there was the inability to confront failure in public commitments or waste in public spending, or rip-offs coming from public sector bodies. These all enormously coroded the basis on which our country managed its affairs, and have to be confronted. The cost of running Government in Ireland is simply too high. We are not effective at doing what we are charged with overseeing. That has to be addressed and should have been at the core of this budget. Unfortunately, that has not been the case.

Equally, we emerge from a legacy where those who challenged were frozen out. They were described as being "suicidal" or ought to be committing suicide, as the former Taoiseach said of those who questioned the soundness of our model. That was another element of irresponsibility in the face of serious issues which were coming our way, the denial and refusal to face up to things, and now we are paying. Ordinary families, who were crippled in the recent budget, are paying. They are being asked to give up early childhood supplements for the under-fives, mortgage relief and to shoulder the levies. They do not see the corresponding strategy, however, that says this pain is getting us somewhere. Neither do they see reform in the way we spend our money or in the public services. They do not see a strategy to protect employment at a time when it is haemorrhaging at an extraordinary and appalling rate.

People are despondent because the essence of what is needed from Government is a coherent strategy that confronts all our problems. This budget solely looked at one narrow public finance problem, and addressed it in just one way - by hiking up taxes to fill the gap. Some 75% of the adjustments that were made on the current side to fill what the Minister called his structural deficit were achieved by demanding people to pay extra taxation - only 25% came from the Government cutting the cost of running its own affairs, and that was the wrong balance. On top of that, of course, we cut capital spending, and thereby hangs another tale.

Having looked at all that and the pain that is being imposed, it was particularly disappointing to find what the Minister had achieved as regards the 10% structural deficit he said had to be adjusted. Only 16%, less than one sixth of the structural deficit he said had to be corrected was done in year one. On his strategy for next year he will get a quarter of it, so even at the end of this year's tax increases along with the other €2.5 billion he has pencilled in for next year, we shall only be a quarter of the way towards dealing with the structural deficit the Minister says has been caused by our poor policies.

There is insufficient confrontation with the problems we face in the manner the budget was put together. We must look at strategies that protect employment. What can we do better to protect it? What can we do to cut the costs of running Government - particularly the costs that impact on jobs, but also those that affect what we are doing on a day to day basis? We have to find new ways of investing. Fine Gael put forward a strategy on how to invest in infrastructure we need for the future and the response from the other side of the House was just to scoff. That was a robust approach and one we ought to be seriously looking at. At this time we must look at where our opportunities still lie and work those relentlessly. Instead, this Finance Bill is persisting with the very narrow agenda that was in the budget, and that is not good enough.

The impact on ordinary families is enormous, as I do not need to tell the Minister, since I am sure he hears this on the doorsteps. Someone on the average industrial wage, €36,400, is on a marginal tax rate of 51%, which is extraordinary for a country where the Government up to now prided itself in keeping the tax on work low. It proclaimed that keeping direct taxes low was the key to Ireland's economic success, and now someone on the average industrial wage must pay a marginal rate of 51%. For a married person who is the single earner in the family, the princely sum of €45,400 puts him or her into the 51% category. That is not, by any means, fulfilling the strategy the Minister said he was going to address.

I find it very dispiriting in the Finance Bill that even after the publication of the ESRI report, with the 300,000 jobs it saw disappearing over the next 20 months, it offers no new initiative as to how we shall protect the employment that is now so vulnerable. Other countries are doing the opposite to what we are doing. They are looking at how they may tweak the tax code to postpone the payment of some taxes, to relax the payment dates. In the UK they are looking at how companies in some form of trouble might be helped by having their taxes postponed. Other countries are trying to rejig the social insurance mechanism to make it easier for people to protect employment. They are looking at the welfare rules to see whether employers may have a system whereby they keep their people close even when order books are very low. They are tweaking their rules, trying to be imaginative, by helping companies and people to get through.

Other jurisdictions are looking at their VAT rates, and as we suggested, cutting them temporarily. In the UK I am aware this did enormous damage as regards the North-South trade, but we could have examined cutting the low rate of VAT, which applies to labour intensive activity. This would have meant a big boost for domestic tourism and home improvements, the types of initiative that need to be kickstarted at this time, with employment under such threat. That dimension has been missing from the way in which the budget was put together. We need to consider initiatives taken by other countries and see if they have relevance for us. That should have been done in the preparation of this Finance Bill but there is no imprint of such thinking.

The danger in focusing on tax correction, to which I have alluded, is that it will destroy confidence in the country. The ESRI report showed that ordinary consumers were hoarding. They have decided that now is not the time to spend. Businesses are hoarding because they are not willing to invest. Banks are hoarding to protect their skins. Everyone is hoarding money. It is a self-fulfilling prophecy and we must find a way of cutting into it.

The core of the Fine Gael proposal is to look at the investments which can and should be made. We should invest in an electricity grid and a telecommunications network. Whatever happens in the next few years we will need these services to be better than they are. This is the time to provide them. Fine Gael showed how this could be done without increasing Exchequer borrowing by one cent. Our proposals have greater attraction than the Construction Industry Federation model which similarly seeks to use pension fund money but does not look at investment in areas which will improve our competitiveness as we struggle out of this economic difficulty. The Fine Gael proposals look at the infrastructure we will need in two years time when, I hope, the green shoots of economic recovery will begin to appear. We can then start to seize opportunities. We must correct the infrastructures which have gone so badly wrong. This has become the most expensive country for electricity and waste management services. In huge areas where the public sector has had responsibility we have become uncompetitive. We are at the wrong end of all league tables of vital infrastructures. We need fresh thinking.

The State must box smarter. The Minister spoke about the smart economy in the document he published before Christmas. In this time of crisis what we need is a smart State. I accept that we are constrained by the state of the public finances and can do far fewer things than we would like. Nevertheless, there are still things we can do, but they are absent from Government thinking. I am dismally disappointed by the lack of restructuring of Government activity. The Minister recognised the need for this when he established the special group on public service numbers and expenditure programmes, under Mr. Colm McCarthy, to engage in a zero budget exercise and recommend genuine restructuring of the way we spend public money. There is not a single fingerprint of such thinking on the emergency budget. It is not good enough to postpone serious restructuring because of the current crisis. We need to see it now. Not only do we need to make the savings it will generate but we must also show that the State is thinking afresh. There is no trace of such fresh thinking in the Finance Bill.

We have a destructive budgeting model that is destroying initiative. I am appalled by what hospitals do when their budgets come under strain. They close down theatres and wards and turn patients away. What budgeting system encourages huge institutions, in which we have invested billions of euro, to behave in this way? Such institutions should try to treat more patients, sweat their assets and deliver a more effective service in order to get through periods of constraint. They should earn their way out of crises by getting more patients in, treating them more effectively and having a greater turnover. Our budget system does not allow this to happen. That is why Fine Gael is hugely attracted to a complete change in the health funding model. We must switch to a system in which the money would follow the patient and a patient who comes in the door of a hospital would be seen as a revenue source. Similarly, in such a system patients would not stay in a hospital "blocking beds". The Fine Gael system would allow them to move to convalescence and free up beds. A hospital, a hugely expensive asset, should not be used as a nursing home. There are 164 blocked beds in the three hospitals on the north side of Dublin, the equivalent of one small hospital taken out of commission, because of our dysfunctional budgeting system. There is no incentive for anyone to move patients and use assets more effectively.

We must rethink the way we budget. This change is a core issue which Fine Gael has been articulating. If the Government will not confront these necessary changes now in a time of crisis, they will never be confronted. In the past the Government bought out problems instead of confronting them. That has done untold damage to the public service culture. We have public servants with real commitment but they feel trapped in a system which is not working. They are trapped in hospitals and schools. We must empower school principals. It is unacceptable that a teacher who is not up to scratch could blight the future of children. This is not a reflection on the principal. We must empower people who are managing public money to address these problems and live up to the professional standards to which they are committed. We can do this if we start to change the budgeting system.

We must expect performance to be reported upon and take performance failure seriously. This does not happen. Last year Departments failed to meet 40% of their targets, but nothing happened. The Minister for Finance did not take this failure seriously, neither did the Departments. One cannot have a system which routinely tolerates failure to deliver. Failure is tolerated from year to year on Estimates and, even more, big strategies such as that on climate change. Our climate change strategy was supposed to change the world but after eight years it has made no impact on our carbon footprint. No one takes responsibility for that failure. We cannot accept this any longer, either from Ministers or from the managers they appoint to do their work for them. When these changes occur, we will see a different approach to the use of public money. This was the time to make these changes.

The Government has focused on tax increases rather than job protection and creation or on cutting the cost of government. We can see the threads of this failure in the Budget Statement. At present, 12.5% of income tax is needed to pay the interest on Government debt. Under the Minister's projections, by 2013 interest repayments will need 60% of income tax. If we add to this the debt which will be engendered by buying the assets from the banks, 75% of our income tax receipts will go in interest payments. This will close off huge blocks of tax revenue from potential spending and investment. We are going down a dangerous road. We went down this road before and cannot afford to slip down it again. In this budget I see the threads of an approach which will take us down it. This approach does not confront our problems.

One does not get many chances to cry "Wolf" and make changes. How many times has the Minister brought a so-called emergency budget to the House and hyped everyone up with promises of great changes which did not happen? We have not seen great changes in the way we spend public money or in the demands we place on electricity companies or those who manage waste facilities. When one such opportunity is missed, it is very difficult to recreate the intensity required for major change. That opportunity was missed in the budget.

I return to the main element of the budget, that is, the NAMA measure. I am concerned that it is a time bomb. It is important to put some questions on the matter and the easiest are the simple ones. Will it get credit going? Is this the least expensive way of doing so? If it does not work, will it be possible to pull out without incurring too much cost? Is it possible that we will become too committed by taking this route?

Recently, I read a book entitled 20/20 Foresight. The author discussed the different forms of uncertainty one may face. Sometimes it is a case of facing a prong on the road and choosing the first or the second. Sometimes the uncertainty is so vast that one does not know where in the spectrum the ball may fall. The thesis of the book is that one may still analyse choices and what may happen, even in a very uncertain world. By and large, one does not take a large bet in such an uncertain space. One does not say because one does not know enough about it, "This is the time for all or nothing. Let us gamble the house on this option." I am concerned that the Minister is gambling the house on this NAMA notion and I do not know from where it has come.

I realise Professor Bacon has his view, but he is a single economist and it seems there are a heap of others arraigned who do not agree with it. I presume the Minister also has advisers. However, many of these advisers were supposed to be riding shotgun on the banks. All we have seen in the public domain is a short summary of a larger document in which we are supposed to have faith. People simply do not have faith. I do not have it and I try to keep myself as well informed as possible on what is taking place. I do not believe the wider public has faith either.

It is very much a case of festina lente. This is a small country and we should not pioneer Big Bang solutions to problems of this nature. We should examine the changes we can make now, examine their impact and consider the next step. That is why I am very attracted to the idea of a wholesale bank which would provide credit for good activities, which would be willing to buy the good elements of the loan book, which could stimulate refinancing and provide liquidity for the good elements of banking activity. We need a State wholesale bank which could still be called a national management asset agency because it would buy good assets instead of bad ones and begin to generate liquidity for the banks. It could provide a source of funds and if banks were offering mortgages or business credit, they could sell these on, in turn, and securitise them to the wholesale bank.

My first question was if such an enterprise could get credit going and the answer is yes straight into the vein. It could begin to provide liquidity. This would allow time to consider what to do with the bad assets. One should not become a world pioneer in providing a Big Bang solution and establish a State company owning assets worth €90 billion, or approximately 70% of GNP. Vast tracts of land, empty houses and God knows what else would be owned by such an agency, according to the proposals made. It is a very large throw of the dice. The Taoiseach recently quoted Professor Honohan who stated the proposal was Napoleonic in scope. However, the Taoiseach was somewhat economical in quoting Professor Honohan.

Joan Burton (Dublin West, Labour)
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Absolutely.

Richard Bruton (Dublin North Central, Fine Gael)
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The full picture of his remarks was not so generous.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Professor Honohan's comments were very fair.

Richard Bruton (Dublin North Central, Fine Gael)
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They were but the Taoiseach's quoting of Professor was not entirely fair.

Joan Burton (Dublin West, Labour)
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It was very unfair.

Richard Bruton (Dublin North Central, Fine Gael)
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There are substantial up-front demands associated with the proposed strategy. It involves buying the assets and recapitalising the banks; a great deal of cash is demanded up-front. The alternative would not require as much. Significant incentives may still be needed if the banks continue to shrink their balance sheets. They are shrinking their balance sheets to maintain independence from the State, which is natural. They will try to save the skins of their investors and are doing so. As the State invests money they will seek to shrink their loan books to preserve their independence and there is an incentive for them to do so.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is because there are so many bad loans.

Richard Bruton (Dublin North Central, Fine Gael)
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It is a pity we cannot have proper dialogue on the matter, which is another difficulty facing this side of the House. There has not been an arena to examine the matter seriously. We appear to be rushing headlong down the road without seeing anything.

The proposal also plunges the State into letting professional investors off the hook. If we go down the NAMA route, shareholders will burn because of the haircut but professional investors will not. We are moving to a situation where we are effectively underpinning professional investors. I realise that many take the view that Ireland cannot afford to burn professional investors. However, if we allow some time, we will see many countries take the view that they cannot save everyone because the taxpayer's shoulder is not broad enough to bail out professional investors. Such people invested money knowingly in banks which engaged in securitisation in other countries and property lending in this country at a time of much economic activity. They were big boys and knew what they were doing. Why should ordinary families and taxpayers shoulder the burden? I understand the Government might state it does not wish to pioneer the burning of these investors. However, we should allow time, take the approach of refinancing what it is we wish to get going but take our time in respect of what will take place in the rest of the banking sector and who will take the hit. We should allow ourselves time to see what other countries will do.

I refer back to the idea of 20/20 Foresight in this impossibly uncertain world. If we take small steps, we can begin to see the landscape ahead of us more clearly. I am genuinely concerned that the Minister may expose the taxpayer to very substantial losses and that we do not know enough about the matter. Theoretically, it is an attractive proposal and I understand how a professor of economics would be delighted to have it as a tool on his or her desk which he or she could wind up, let off and produce results. However, we are living in the real world in which the decisions we make may hurt families and businesses and we must be very careful. It is not a question of being partisan; I am genuinely concerned that this is not the correct roll of the dice for us. We should be more prudent. Some elements may work but I would rather begin with an agency buying good loans. Let us see if we can get liquidity moving in the banks and let us give them an outlet for new lending such that they will not be so cautious about shrinking their balance sheets for fear of what may appear on the balance sheet of a wholesale State bank.

There will be plenty of time, probably too much time, on Committee Stage to discuss the other sections of the Bill. However, I have made some general comments concerning the challenges we face. I hope our debate on the Bill will be successful. I will put questions concerning the extension of the property based scheme for private hospitals to 2013. It seems once such a hospital has applied for planning permission, there will be a window up to 2013 in which to build it, which is a flawed policy. The building of a private hospital on the grounds of Beaumont Hospital is not what that hospital needs. This is a legacy of a failed policy which should be jettisoned at a time when we are examining new sets of priorities.

Joan Burton (Dublin West, Labour)
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I refer to the Taoiseach's peevishness during Taoiseach's Questions and later during Leaders' Questions in which he seemed very out of sorts. Presumably, this was the result of meeting voters in various constituencies. This will go down in Irish history as the crony capitalism period that destroyed much of the prosperity achieved during the Celtic tiger years. Whether the Taoiseach likes it, the phrase "crony capitalism" which was coined by the Financial Times was used specifically by Dr. Bacon in his proposals. One argument he has made is that NAMA might help Fianna Fáil, I presume, to come to grips with its builder and banker friends. The unholy trinity of bankers, builders and Fianna Fáil has brought the economy to this point.

I am disappointed the Minister for Finance is possibly leaving. It is difficult for me and Deputy Bruton to have any meaningful time in the Dáil with the Minister, but it is important that we do so, particularly on an issue as fundamental as this to the future of the country, our children and grandchildren. We are discussing the proposal for NAMA to take assets with a reduced book value of €50 billion. That is bigger than any hedge fund that would operate out of Ireland. As has been pointed out, NAMA's assets will amount to an extraordinary figure in the context of Irish history.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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NAMA is not mentioned in the Bill.

Joan Burton (Dublin West, Labour)
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I will address the Bill also. This debate is perhaps an example of the princelings of Fianna Fáil who have inherited seats and office not being able to be in attendance in the Chamber to discuss important issues. I say to the Minister that I get up early in the morning and spend hours trying to read this material and think about it. I occasionally-----

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I have a mandate in the same constituency as the Deputy. I am sorry, but this is democracy.

Joan Burton (Dublin West, Labour)
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I occasionally get to meet the Minister in the Chamber. His two predecessors, whom I-----

John O'Donoghue (Kerry South, Ceann Comhairle)
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I ask Deputy Burton to confine her remarks to the contents of the Bill.

Joan Burton (Dublin West, Labour)
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The Minister's two predecessors did attend finance committee debates.

I return to the issue of the banks. Put simply, in the run-up to the budget, the Minister for Finance announced a recapitalisation programme that he said would work. For a period of four months, he was confident that recapitalisation would work. The sums involved were €3.5 billion for the Bank of Ireland and €3.5 billion for Allied Irish Banks. Today, on the eve of its meeting tomorrow, AIB announced its bad debt writedown was actually €4.3 billion. I will tell the Minister what that means to ordinary people. It means the €3.5 billion of public money that he took for the recapitalisation of the two banks has been used and is gone. Not only that, AIB requires another €800 million to meet its bad debts this year and acknowledges that this does not take account of the debts that will accrue next year and the year after. We are in a truly terrible position.

The reason for the Government's lack of flexibility is the incredible guarantee of about €440 billion the Minister gave the six covered institutions last September, which hangs like the sword of Damocles over the head of every single taxpayer now and in the future. The Minister has been unable to say whether NAMA provides a mechanism for exiting the guarantee. It has been suggested by people such as Willem Buiter in the Financial Times that it would be possible to exit the guarantee through something like the proposal Deputy Bruton mentioned, but how can we exit it cost free, given that we have given the guarantee? That is the problem. As the banks would tell us, if the guarantee was withdrawn and not renewed, short of nationalisation, the options would be limited. All four parties represented in the Chamber, including Sinn Féin, recognise this dilemma which is at the core of the difficulties. We can do what Willem Buiter says if we welch on the guarantee, but that might put us in the position of Argentina.

We have to talk this out seriously. The Minister and the Taoiseach must acknowledge that Members on the Opposition benches are putting a huge amount of time and effort into trying to think this out and get decent advice. When the Taoiseach quoted Professor Honohan, he chose to do so selectively. I will read what Professor Honohan actually said:

We have brief statements and indications from Government sources and a very brief report from Peter Bacon which, as the Deputy [me] said, does not deal with how NAMA will work. Maybe I am being naive in hoping that at some stage all of this issue will become clear and will be brought out into the open. Transparency is key but it has not happened so far. I share the Deputy's concerns that this will not be done very well.

For what it is worth - my opinion is probably not worth very much - I am not against nationalisation at all costs. We come to the point in our discussion and in our calculations that we are in the territory of 90% State ownership and I do not disagree with that. The question now is whether there is a reason to hesitate to go to 100% ownership or a reason to look for a way of avoiding the 100%.

In his balanced contribution Professor Honohan recognised that the differences between the positions were paper thin.

On the Finance Bill 2009, let me be clear that it is the ordinary family with two parents and two or three children and an income of €40,000 to €90,000 that is bearing the brunt of the Government's mismanagement of the banking crisis. In an answer to a parliamentary question I received this afternoon the Minister acknowledges formally that a single individual earning about €80,000 will have a marginal tax rate of 50% for 2009. This is a combination of income tax at 41%, an income levy of 4% and a health levy of 5%. An individual earning €175,000 or more will have a marginal tax rate of 52% for 2009. This is a combination of income tax at 41%, an income levy of 6% and a health levy of 5%. When tax credits and so on are taken into account, an individual on €80,000 will have an effective average tax rate of 36%. These tax rates have not been seen since the early 1990s.

The Minister should bear in mind that since the early 1990s we have also had an attempt through a Progressive Democrats led taxation strategy to reduce nominal rates of income tax, to increase VAT rates, including the Minister's disastrous increase in the VAT rate to 21.5% in the October budget, and to massively increase direct charges and levies for services originally paid for out of income tax receipts, particularly the direct payments people have to make at the point of use for medical services. We now have a marginal rate of 50% and an average effective tax rate of 36%. These are very high rates. It is extremely problematic in that the Minister also promised to continue an assault on families with children in his next budget.

I want in particular to refer to the Minister's several proposals in regard to families with children which are in the pipeline for his next budget. It is unfortunate he has not been prepared to talk about the impact of his budgetary proposals on families with children. First, as I understand it, he is proposing to possibly introduce an individual house tax of approximately €1,000 on all houses. Second, he is proposing, as I understand it from his budget speech, to either tax or means test child benefit with a view to, in effect, significantly reducing its benefit to people who work in the PAYE sector and who earn between €40,000 and €90,000, whether it is a single income family or double income family. Third, as I understand it, the Minister is proposing to significantly increase the charge for families with children who intend to go to university. He is increasing the registration fee to €1,500 in September, and I understand from the Minister for Education and Science that he is considering various proposals with regard to the reintroduction of fees.

Families at work with two or three children, whether paying an expensive mortgage, on a fixed rate mortgage or with a loan that has gone over the seven year limit, will lose their mortgage interest relief under this budget. As a consequence, such families will suffer a very high impact on their capacity to look after the needs of their children but this has not received enough attention from the Government.

I want to say the following as a woman Deputy. There are very few women in this House who take part in budget debates. Why, whenever there are difficulties in regard to budgetary matters, is the principle of child benefit attacked by the legions of male politicians who form the overwhelming majority in this House? Why is it the first item up for attack? The Minister was true to form in the recent budget in that the first measure that will be up for attack is child benefit.

Let us put aside all the fairy stories, war stories and tales of "dúirt bean liom go ndúirt bean lei" from those who know that when child benefit day comes around, the mothers of Ireland somehow go out and spend it on themselves - they get their hair done, have lunch with a friend or something like that. The reality with regard to child benefit is, I suspect, that of the families who receive it, the rate of abuse is less than 0.1%. For most women who manage child benefit, it is the income over which they actually have control. In some cases, they may be married to somebody who is well-off but that person may not give them much income. They manage child benefit extraordinarily well. It pays for children's clothes, shoes, books, dentistry and, in some cases, families are now starting to save a portion of the child benefit for fees when the children go on to college and third level.

The Minister was wrong when he spoke in his budget speech as though child benefit and families with children were a soft target. If he analysed this, he would find that, going all the way back to when child benefit was introduced, whenever there has been an economic difficulty, the soft touch has been to suggest that all of the Mrs. Millionaires who are in receipt of child benefit would be better off without it. The answer in regard to Mrs. and Mr. Millionaire is that in a fair taxation system they would contribute their fair share of tax so that they could get the one universal benefit this State offers.

We should remember that before child benefit was introduced in the 1940s and 1950s, men, who then comprised the bulk of the workforce, got direct tax allowances in regard to children. The move to child benefit was to direct a payment to families with children and to the caring parent, which was normally, until relatively recently, the mother, most of whom in those days were women who spent their lives in the home taking care of dependent children, and dependent adults in many cases.

It is wrong that the Minister's budget should have floated the boat that child benefit is a soft touch. This issue is extraordinarily important to women in Ireland. I hope we can get more women into this Chamber who can talk about what this area of Government funding means to them and their children, and to the many fathers who have opted to stay at home for some years to parent their children.

I want to ask the Minister in regard to a number of items in the Bill. I want to return to the issue of the Minister's changes in regard to profits on land dealing. On budget day, I raised a related issue, namely, the fact that in the current climate, losses in regard to any trade or profession can be carried forward indefinitely but they can also, in effect, be written back against the tax that has been paid in the current year. This means there is a huge refund bill awaiting the taxpayer in regard to developers and builders which is probably running to a couple of billion euro. Even more importantly, the taxpayer is facing refund demands from the banks, particularly the covered institutions, which also run to huge sums.

On budget day, if I recall correctly, the Minister promised me he would address this issue in the Bill. It seems inconceivable that the taxpayer is spending vast sums of money guaranteeing the banks and putting in recapitalisation funds, and that the whole of the National Pensions Reserve Fund is earmarked for NAMA. When he came before the committee last week, Professor Honohan, while he did not disagree with the IMF and its figure of €24 billion, wondered whether €50 billion was a more appropriate figure for the cost of NAMA. When the Taoiseach is quoting Professor Honohan, he ought to take the trouble to quote him fairly.

I would like to know whether the Minister proposes to introduce a restriction in the Finance Bill that will restrict the writing off of losses, creating vast refunds in respect of developments where we have already given huge tax breaks which meant that many of these developers got a very good deal. It seems we are about to give future refunds and we will pay on the double when the banks write down their loans and carry those loans as losses against whatever they may have paid in the 2007 and 2008 period, because that is the way loss legislation is framed. As the Minister will know, if some of the companies go into liquidation, an even more favourable issue in regard to the recovery of losses can arise. I do not believe the taxpayer should be hit for another hidden couple of billion euro charge as a consequence of the Minister not addressing this loophole.

I have a question to raise about tax exiles. Why did an ordinary family with two children take a significant hit in the budget and persons making capital gains, earning income from other sources or inheriting property were all listed to make a bigger contribution? Given the dire situation facing the economy, people understand if cuts are applied fairly and everyone contributes; this may make the sacrifices they are being asked to make less painful. However, how is it that in both the Budget Statement and the Bill there is no mention of the estimated 6,000 tax exiles - the number estimated by the Revenue Commissioners - and their significant capacity to avoid making a contribution proportionate to the income they earn in this country?

In the same context, I will ask the same question everybody else will ask on the doorsteps about developers and many of the people involved in the business of finance. Where did all the money go and where is all the property? How much of it is overseas? On budget day, the Minister gave an estimate of €80 billion to €90 billion in respect of toxic distressed loans. Did he carry out an examination to ascertain how much of this was collateralised by other assets held overseas? Is he going to conduct an inquiry and follow the overseas collateral that should, rightly, be used to meet the obligations of developers and financiers on their loans here?

I listened with amazement to the Minister's colleague, the Minister for Justice, Equality and Law Reform, Deputy Dermot Ahern, on a "Questions and Answers" programme a few weeks ago. He suggested NAMA would take over the homes of property and construction developers. This was the Minister hanging tough. As this is a country that has had the Family Home Protection Act in place for a long time, the Minister who is a solicitor must have been just playing to the gallery. Nobody wants to take anybody's home from them. Is Fianna Fáil, having hung out with developers in the past ten years and given them everything they wanted, now sending the Minister for Justice, Equality and Law Reform to appear on "Questions and Answers" to imply we are tougher than anybody else and that we will take people's homes? Let us have a real debate about what the Government intends to do.

Let us return to what has happened in various economies. One of the key issues for the Swedes, the Finns and others around the globe when rescuing their banks was transparency. There is no transparency here. All we get are short statements from the Minister - as there is no debate in the House - and leaks to the newspapers. At first, NAMA was to be a vast agency, but now it is to be a little agency and the loans will stay with the banks to be managed by the bankers who gave the loans and will now manage the recovery of debts. I do not have the foggiest idea of what is to happen because the Minister's briefing of the media suggests one day it is this and another day, the other.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There has been no briefing of the media at all.

Joan Burton (Dublin West, Labour)
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Perhaps it is people in different offices within the Minister's remit who are at war with each other. The Department of Finance, the regulator, the Central Bank and the NTMA all have a different scéal to tell about what is happening.

I received a reply to a parliamentary question last week that informed me that PricewaterhouseCoopers was paid €3.8 million for the initial work it did in examining the banks' portfolios, but it did not come up with the figure of €80 billion to €90 billion. I understand that figure probably came from the Bacon report. I noted also from the response to my question that Merrill Lynch had been paid a retainer of €2 million and, perhaps, up to €6 million for its advice. What advice did the Minister receive from Merrill Lynch? It was that company which advised us to ape the British response, either by introducing an insurance scheme, a proposal it would have been madness to adopt, or some kind of guarantee. Who in the Department decided the initial ballpoint figure to be paid to Merrill Lynch would be €2 million? I understand also that several millions of euro was paid or committed to various legal firms for advice and that various external people were also hired by the Minister. The Minister paid an initial €3.8 million to PricewaterhouseCoopers for its work and it has carried out further stress-testing. Will he publish the report in order that we can see whether the so-called stress-testing amounts to a hill of beans? Stress-testing is risk analysis, a mathematical formula. I have asked several mathematicians to examine the formula and they have said it is mathematical mumbo jumbo. Last week, when I put this point to Professor Honohan, he agreed that it was mathematical mumbo jumbo to try to find a figure. Why does the Minister not level with the people on what he is getting them into? We know the Minister is in a difficult position in trying to find the best solution, but there should be transparency. As the Swedes said, transparency is the key. If we had transparency, we would be in a position to see whether what the Government proposes is reasonable. The reason people are so angry is they see themselves with a bill for €80 billion to €90 billion or for 50% or 60% of this. We do not know how much. It has been suggested the bill will be approximately €50 billion. The people know this is a weight that must be borne by them, their children and, possibly, their grandchildren when they become taxpayers.

Another issue is that jobs are hardly mentioned in the budget. With the freezing of credit by the banks and the banks being pretty much like the Japanese zombie banks - just not lending - we have no Government strategy on jobs. The former Minister of State at the Department of Enterprise, Trade and Employment, Deputy John McGuinness, spoke on the record when he left the Department. He said that, as a business person, he was shocked by the Department. I served with him on the Committee of Public Accounts and I am aware he does not particularly admire the public service. However, on some of what he had to say it sounded like a voice of experience.

The challenge for the public service is to be productive. Public servants should be well paid, but they must produce the goods. This means they must produce enlightened policies that will help the country to retain jobs and acquire more. The Labour Party has brought forward proposals in respect of a graduate internship system, under which graduates and apprentices would be taken on and given work experience instead of being put on the dole, at an estimated cost of €200 per week. We have heard only very modest proposals from the Government. It does not seem to realise that 380,000 people on the dole is a tremendous shock to the fabric of society. Parents worry about the future of their children who are highly qualified but cannot find a job, and their children's children. The Government has no response to the crises in three areas, banking, public finances and most of all, unemployment which affects every family, town, village and street. The jobs crisis is the most tragic of all the problems that have afflicted this late stage of the Celtic tiger, the crony capitalist economy the Minister's party created.

Billy Kelleher (Cork North Central, Fianna Fail)
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I wish to share time with Deputy Frank Fahey.

I welcome the opportunity to speak on this issue. To judge by the commentary inside and outside the House the Punch and Judy school of politics is alive and well.

I take umbrage at some of Deputy Burton's comments on child benefit to the effect that some people are incapable of representing families or people with young children because they are male. I find that offensive. I am the father of three young children and have a view that should be taken into account in any discussions about children or child benefit. I received child benefit and the early childhood supplement until recently. It has been always said that Ministers and Ministers of State are well remunerated for their work, and the Government has decided to reduce our salaries by 10%. If the public and the Opposition feel I am well paid and can take a 10% pay cut, one could ask why I receive child benefit when my wife and I have decent salaries. If we are to have a fair and serious debate on equity in our society we should at least be honest and accept that some people can afford to live, to rear and provide for their children without receiving State supports such as child benefit. Deputy Burton cannot deny that.

This leads to the supplementary budget, the Minister for Finance's announcements and their implementation in this Bill. We know that we face a challenging economic outlook. The commentary from some quarters in this House suggests that it is all of our own making. This is a simplistic view proffered primarily by the Labour Party as if the crisis in the sub-prime market in the United States, the downturn in the global economy and the depreciation of sterling-euro exchange rate had nothing to do with our difficulties. Everybody accepts that there was an over-reliance on the property market. The Government and the Minister for Finance have said this.

In 2007 the Labour Party and others put forward their projections in their election manifestos but I do not see in any part of the Labour Party's manifesto that it forewarned the Irish people or the Government of the day of the over-reliance on the property market. I am sure Deputy Burton had a major part in its drafting.

Joan Burton (Dublin West, Labour)
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I do not think the Minister of State read the manifesto because he would have seen it there.

Billy Kelleher (Cork North Central, Fianna Fail)
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There was no allusion to that fact and the Labour Party's growth projections were in accordance with the norms that other political parties put forward and with international commentators and economists who said that Ireland would grow by approximately 4% in 2008 and 2009. For people to wear rose-tinted glasses and lecture us on the basis that they forewarned us is to say the least disingenuous, and if I were to stretch it I would say it is dishonest. People here and outside the House acknowledge that the problems confronting us are very serious. The Minister for Finance has had to make difficult decisions. They started with the bank guarantee on 29 September 2008 when the Government faced the potential collapse of the banking system. That is how grave the problem was. We can argue about how we arrived at that point but most of those problems derived from the international banking crisis that has afflicted all the modern banking systems of Europe and elsewhere.

If we are to deal with the problems, we should acknowledge their root. The reason for our economic contraction of between 8% and 9% in 2009 is in part an over-reliance on the property market but equally because this is an open global trading economy and our exports are having difficulty in markets that are struggling and contracting too. Germany was potentially going to ride out this economic storm with projections of a 2% shrinkage in January but that has changed to 6% for this year. People who claim the problems are all the fault of the policies pursued on this side of the House are not facing reality and do not want to do so because they do not have policies that can be costed. They know that if we are to deal with the deficit and budgetary difficulties, people will suffer pain. Some commentators outside the House have acknowledged that it is easy for people to highlight the difficulties but few solutions have been offered.

In September 2008 Fine Gael was conscious that the banking problems were of national importance and supported the Government's view that it had to guarantee the banks to prevent a massive run on deposits that would have caused a collapse across the board. Nobody, not even the Labour Party, can tell me that we could survive if we allowed the banking system to collapse. Time and again Deputies talk about businesses being unable to access credit and losing their short-term overdrafts and loans, and about first-time buyers who are unable to access mortgages although they might be in secure jobs and could afford them. If we had allowed the banking system to collapse, businesses would not have any credit facilities and we would be a basket case. Deputy Burton has not faced the reality of this issue but there has been a lot of bluff on it.

We nationalised Anglo Irish Bank, capitalised Bank of Ireland and further discussions continue. The national asset management agency, NAMA, is critical to dealing with impaired assets but there are people who consistently refer to it as "An Bord Bailout". Everybody is aware that the capitalisation will yield dividends to the taxpayer. There is a charge not only in the guarantee but also in the capitalisation. People should read the fine print when they comment. The Minister has referred to the difficulty and complexity of NAMA, and we have no choice but to deal with impaired assets because until we do the banks will not be able to access wholesale money markets and provide credit, which is of critical importance to small and medium-sized businesses and to first-time mortgage holders.

I am sure every Deputy has met in his or her clinic young people who have approached banks for a mortgage but are unable to access one, despite having secure employment. We must address that problem. I have said a couple of times - whether people have listened is another matter - that the banks have a fundamentally different relationship with people through the bank guarantee and capitalisation scheme. In cases where there are positive proposals to support small and medium-sized businesses or first-time mortgage holders, I urge the banks to look on them more favourably than is the case at present because the banks are stifling growth and commercial activity which is having a negative effect on Ireland's commerciality and viability. This erodes confidence, resulting in job losses. We would like to be honest in that debate.

With regard to the issue of taxation, there is a view that if one taxes Bono, Enya and a few more, all our problems will be resolved. The fact of the matter is that there are just not enough Enyas and Bonos in the country to deal with the current budget deficit. The proposals introduced by the Minister, Deputy Brian Lenihan, are progressive in that if one earns more, one pays more. One can work out the income levy any way one likes but one will discover that those who earn most pay most in that context.

I urge people to be responsible in the challenging times that face us. There is potential for optimism and hope. If one looks at trends in the international markets in recent days, one will note the announcements, emanating from Europe, that some countries may have bottomed out and are, as the jargon goes, at the inflection of this curve. It is important that everybody in the House acknowledge the difficulties that confront us. If one is to object to them, one should make proposals that are sensible such that we can have an honest debate on how to address the issues. To date, I am disappointed that this attitude is not being adopted in certain quarters.

Frank Fahey (Galway West, Fianna Fail)
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I support the Finance Bill and the difficult measures being implemented by the Government to get us out of this financial crisis. There is no doubt but that much pain is involved in the budget and the Finance Bill. The raising of taxes and levies is difficult for everybody but I am satisfied the attempts that have been made are fair. They ensure that those who are earning most are paying most and that those on the bottom of the ladder are paying least. That is not to say that everybody is not making a large contribution from his or her income. It is the only way forward in this crisis. The decision being made now is the same as the one that had to be made in 1987 after several years of procrastination during which we failed to take the hard decisions.

The cuts that have been made to public expenditure, in addition to the increases in taxation, are vital. The reality is that the Government has made cuts in the order of €5 billion in the three attempts that have been made, that is, in July and October of last year and in January of this year. Opposition parties continually call for action to be taken but every time there is a cut to expenditure or an increase in taxation, they cry halt.

I ask both the Labour Party and Fine Gael, and particularly the new candidate in Dublin West, whether they support Deputy Reilly's continual requests for greater expenditure in the health area. Week in, week out, Deputy Reilly and his Fine Gael colleagues call for increased health expenditure. Fine Gael calls for the continuation of cancer services in small hospitals across the country and, at the same time, Deputy Bruton tells us the only way forward is to cut public expenditure and not increase taxation. There is continual hypocrisy on the part of Fine Gael. Its members are speaking out of both sides of their mouths and calling for a general election at the same time. It is about time that Fine Gael gave us consistent policies that will deal with the economic crisis in this country.

I welcome the fact that the Labour Party has tabled a motion tonight on the nationalisation of the banks. The reality is that the Labour Party has opposed the Government in all its fiscal and financial policies on the banking sector. We would now be in disastrous circumstances had we gone along with the Labour Party's proposal not to introduce the bank guarantee scheme. We would have had a disaster had we accepted the Labour Party's proposal not to put equity into the banks. The party criticised the decision to nationalise Anglo Irish Bank and it is now calling for the nationalisation of the banking system. This latter proposal is the one that will bring down the Labour Party. An unbelievably crazy economic line has been taken by the party on banking policy in recent months. It is now calling on the Government, in a motion this evening, to nationalise the banks.

The only way forward is the creation of a model such as that represented by the national assets management agency, NAMA. Today's Financial Times states that, today or tomorrow, Germany will be announcing the setting up of a number of NAMA-type agencies to deal with the toxic debts in that country. No country in the world bar Iceland has nationalised its banks. Now it is Labour Party policy to nationalise the Irish banks. What circumstances would Dr. Michael Somers and the National Treasury Management Agency be in if we were to nationalise our banks tonight? What circumstances would they be in when borrowing on international markets to deal with our borrowing requirement? If nationalised, what position would the banks be in when trying to borrow in international markets? It is the most crazy, stupid proposal I have heard from any party in many years in this House.

Deputy Gilmore stated during the Order of Business this morning that we should nationalise the banks and then clean them up. I challenge him to spell out exactly what he means by cleaning them up. How exactly does he propose to deal with the now very significant debts, which are now bad debts and must be taken out of the banking system? The reality is that Irish banks will not be able to re-introduce a positive lending policy until the toxic debts they hold are taken off them. The NAMA model, if established properly, represents the way forward.

NAMA will take over the bad debts. It will not bail out the banks and certainly will not bail out the developers. The developers will be the first casualties, and rightly so in respect of any developers who overstretched their ability to run a good business. It is the developers who have toxic debts who will have to be liquidated. There are many developers in this county who have the ability to trade their way out of their difficulties given the time and the opportunity to do so. I am confident that the NAMA model will work. It is vital that the valuations of the assets be accurate and that those involved with the agency know the property, banking and accountancy businesses. It is the property business that they need to know most.

When NAMA was introduced in the House, Deputy Gilmore was very critical and sarcastic regarding the fact that a large percentage of the debt that NAMA will be taking over from the banks is foreign based. However, I am confident that will prove to be very good for the Irish banking sector. If up to 30% of Irish banking debt is overseas, we can be confident that, by and large, it will be dealt with very successfully.

An Irish banker in New York contacted me recently and gave me a formula that I hope to pass on to the Minister for Finance. He stated he could manage the Anglo Irish Bank portfolio in New York very successfully and would return a profit for the bank through the proper management of that portfolio. Furthermore, the man stated he is confident that a reformed Irish banking sector will be in a position to avail of the opportunities that will be available internationally to return to profitability as a result of the downturn that has occurred in the banking sector internationally.

While we have serious problems at present, I am confident that the Minister for Finance, Deputy Brian Lenihan, and the Taoiseach, Deputy Brian Cowen, have chosen the proper way to deal with the banking sector. It is vital that the NAMA legislation be introduced as quickly as possible, that the NAMA model be outlined to the country as quickly as possible and that the agency be set up so we can take the toxic debts off the banks. This is the only way they can return to borrowing internationally and lending to good businesses. This is the biggest problem and challenge facing the country. No business has the cashflow or credit facilities to do its business successfully. It is of the greatest urgency that the Government makes the decisions on NAMA and passes the necessary legislation.

I will listen with great interest this evening to Deputy Gilmore outlining what he would do with the nationalised banks he wants to create and how he would deal with the toxic debts. His proposal in this regard is the most crazy economic proposal we have heard in this House in a long time.

Kieran O'Donnell (Limerick East, Fine Gael)
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One would think from what has been said on the Fianna Fáil side in the debate so far that it had no hand, act or part in the situation in which the country finds itself. The Minister of State said Fine Gael did not know there was a global crisis. We all know there is a global crisis, but recognised independent bodies such as the ESRI have stated that at least half our problems are due to domestic factors and Government policy. The current situation, in which we are considering the setting up of NAMA, is due to our over-reliance on the property sector. When the governor of the Central Bank, John Hurley, came before the Oireachtas Joint Committee on Economic Regulatory Affairs, he said he had repeatedly warned the Government that the construction and property sector was overheating. In 2005 the IMF stated emphatically that Ireland was over-reliant on the construction sector. The Government cannot say it was not told there were problems. It was warned, and clearly it ignored these warnings.

Over the years there was phenomenal growth in the property sector. Deputy Kelleher made reference earlier to the export and business sectors. He will know that in 2003 our exports decreased for the first time, while at the same time the property and construction sectors were increasing at a considerable rate. The reason we are in this mess today over and above other countries - although no one denies there is a global crisis - and are facing a decline of 7% or 8% in the economy is our over-reliance on the property sector. It is the main reason the banks are in such a mess and our public finances are in a bad state. We moved away from the fundamentals of how the economy should be run. We are a small, open economy which must be export-driven. The Government took its eye off the ball. The funds were flowing in from the construction sector.

Billy Kelleher (Cork North Central, Fianna Fail)
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Fine Gael did not say that in its 2007 manifesto. I read that as well.

Kieran O'Donnell (Limerick East, Fine Gael)
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Does the Minister of State agree that the Government took its eye off the ball in terms of exports? Construction was booming and billions were coming in. It was easy money, but the problem was that the economy became uncompetitive. Our exports declined and the small business sector was suffering. That is what we need to understand.

With regard to the Finance Bill, I will start with the positives. The tax relief on intellectual property is a welcome measure. I refer to section 13 of the Bill. However, that is the sole element of the Bill that deals with business and getting the economy going again. I see no provision to reward employers for creating and sustaining jobs. I see nothing about dropping the VAT rate. The Minister for Finance admitted he had made a mistake in increasing the standard rate of VAT from 21% to 21.5%, but he did not reverse it. When one makes a mistake the best thing to do is to hold up one's hands, admit it and reverse the decision. Unlike Fianna Fáil and the Green Party, we suggested a stimulus of €340 million for creating and sustaining jobs. We also suggested lowering the reduced rate of VAT from 13.5% to 10% and reversing the crazy decision to raise the upper rate. In addition, there is the administrative aspect of a VAT increase.

The one person within the Government who had a fundamental understanding of business was Deputy McGuinness, but he was given the bullet. I set up in business as an entrepreneur 12 years ago and I understand what it is to be self-employed. I started with nothing. The Government cannot come along and increase the VAT rate during a VAT period. It introduced the increase on 1 December, during what was, it is to be hoped, the busiest period for retailers. It hit them in terms of sales and in terms of cumbersome administration. I was a practising chartered accountant and I know from dealing with clients over many years what they need. The Government does not understand the fundamentals of business. One of these is that credit must flow. People must have access to credit.

We supported the Government's guarantee scheme because it was the right thing to do, but it did not follow up with the necessary proposals to build on it. AIB was projecting a bad debt provision of between €2.9 billion and €4 billion for 2009, but we now find it will be €4.3 billion. Three directors stated they would resign their posts, but tomorrow they are going forward for re-election. It is a farce. The Government is providing AIB with €3.5 billion of taxpayers' money. The tail is wagging the dog. The banks have been doing this for too long with Fianna Fáil and the Green Party. What is now required is to get credit flowing.

NAMA will not work. There is enough undeveloped zoned residential land in Ireland at the moment to build 1 million units. At 50,000 units a year, that is the equivalent of 20 years' supply. The bulk of the money to buy this land was borrowed. Building costs about €50,000 per site. Of the €90 billion of development and investment loans, €62 billion - we were told this by the Financial Regulator in the Joint Committee on Economic Regulatory Affairs - is in respect of undeveloped land. Based on this we reach a figure of 1 million units of undeveloped land. NAMA cannot get the value back in time. It will lose taxpayers' money heavily and it will not bring about a flow of funds to small businesses. The Minister of State talked about telling the banks that were given the Government guarantee scheme to give out funding. This is supposed to put manners on the banks. The banks are unable to function; they cannot get access to funds in international markets because the markets do not trust them. This is reinforced by the fact that AIB is changing its figures on bad debts day by day.

Fine Gael has put forward a proposal. What the Government must do, working with the Financial Regulator, is to conduct proper stress testing of loans and then come back before the Oireachtas to update it on the situation and the long-term capital requirements. It should then look to renegotiate with the bond holders so that the losses are shared. Bond holders are trading on the international markets as we speak. The Government should establish a State-sponsored wholesale bank, funded by the European Central Bank, which would provide funds to banks so they can lend to small business. The wholesale bank could acquire those loans but allow the banks to administer them and get a management fee for doing so. This would ensure that funds flow to small businesses. NAMA will not do this. All it will do, effectively, is to take €50 billion of taxpayers' money up front, with no guarantee that the money will come back; in fact, it will probably lose money. It will not ensure the flow of funds to small businesses and mortgage holders. The measures for small businesses in this Bill are disappointing. The granting of a PRSI holiday to employers who maintain employees until the end of the year would encourage them to keep people on. There should be a Government guaranteed loan scheme and, if necessary, the Government should provide the funds itself. VAT rates should be reduced and PRSI exemptions introduced for employers who take on new employees.

These measures should be straight forward but the penny has not dropped for this Government. If credit does not flow to small businesses they cannot function. Small businessmen and women feel they have been forgotten, even though they provide the bulk of employment. They are being crucified on VAT, taxes, rates and other areas but the Government is offering them nothing to support job creation. For every 1,000 people who lose their jobs, the cost to the State is €21 million. We should be doing everything in our power to stop people losing their jobs. There might be 500,000 on the live register by the end of the year.

All we hear is the rhetoric that it is a global problem but the Government created this mess. People are losing their jobs because of a lack of leadership. People are not spending money but why would they when they know they will pay more and more tax because the Government is unwilling to put in place innovative proposals to sustain and generate employment?

Section 2 of the Bill includes the composite rate to allow for the doubling of the income levy. Now a single person on €36,400 will pay up to a 51% marginal rate. A married couple on €45,400 will pay 51%, with all tax at the marginal rate. The Minister of State, Deputy Mansergh, should admit the composite rate was a drafting error. The Government made a cock up. How can the Minister for Finance say on budget day that the increases would apply from 1 May when the detailed resolutions provide for a composite rate? People who are losing their jobs, with their income collapsing over the year, who might have got a bonus at the start of the year, will be asked to pay back-tax. Is the Government seriously saying that a person who loses his or her job in the next few months, who happened to have income that brings him or her above the increased level for the income levy, will be expected to pay more tax? The Government made a cock up and should admit it. All it is doing here is compounding the error by trying to justify the unjustifiable. Once again a mistake has been made.

Everyone knows there is a recession but the fundamental problem is they do not believe the leadership and know-how exists to lead them out of it. There is no business experience in the Government. The only person with any knowledge of business was shown the door. The problem with Deputy John McGuinness was, to paraphrase Jack Nicholson in "A Few Good Men", the Government could not handle the truth. Deputy John McGuinness was telling it as it was and he was shown the door.

The Irish people, however, agree with Deputy McGuinness, they agree the Government is making mistake after mistake and has caused a situation where we are now establishing a debt management agency for toxic debt. I cannot understand why the Government cannot say there is a problem in the construction industry, it will not foist it on to the taxpayer, it will seek innovative ways to get funds flowing to small businesses, it will put effort into getting our export markets going again to make us competitive and that it will not do this on the backs of ordinary taxpayers.

In 2005, when the Taoiseach was Minister for Finance, even though the IMF and the Governor of the Central Bank warned we were over-reliant on the construction sector, he said the fundamentals were sound and we should build on. Effectively, in league with the banks, he encouraged people to buy houses they could not afford. Many young couples are now in negative equity and worried about losing their jobs. We have people coming into us every day who are losing their jobs. Husbands and wives are both losing their jobs, and their sons and daughters are losing their jobs. Their main concern is meeting the mortgage repayments. Many of them are on fixed rate mortgages at prohibitive rates. They are wondering where alternative jobs will be generated. There is no safety valve now of emigration to Britain and America because there are no jobs there. The Government must deal with the problems it has created and come up with policies to deal with it.

Fine Gael published a pre-budget submission that offered a way to deal with the present situation. Unlike Fianna Fáil and the Green Party, which were heavily reliant on taxes, we believed there should be a balance of one third tax and two thirds savings because we cannot tax our way out of recession. The Government has shown no knowledge of business, of how to free up credit or how the ordinary man might deal with this situation.

The fact the Government could even consider removing the Christmas bonus demonstrates a complete lack of understanding of how much people are suffering. It has hit the most vulnerable, it has hit ordinary lower and middle income taxpayers, the people who are struggling.

The Government has also failed to introduce reforms. When will we see the report of Mr. Colm McCarthy's public sector review group? Why was that report not brought forward as a matter of urgency? When will there be measures to get credit flowing for small businesses or a job creation document? The Taoiseach claims he is willing to have informed debate on job creation but when will he welcome a debate in the House on the NewERA proposal document put forward by Fine Gael, which details the creation of 100,000 jobs in areas that would cover exports and the green economy? Where is this Government bipartisanship? When will the Government acknowledge its mistakes, admit it has made a mess and work with everyone to move forward?

The Government must come up with measures to support small businesses. The composite rate must be reversed and the increased levies should apply only from 1 May. The Minister for Finance stated in the Dáil they would apply from 1 May. That is exactly what he stated. It is critical the Government reconsiders the establishment of NAMA. It will not work. It will bankrupt taxpayers into the future and cost them between €50 billion and €90 billion. It will not bring about the flow of credit to small businesses and mortgage holders that is so badly needed. I look forward to the Minister's response.