Wednesday, 27 October 2010
Macro-Economic and Fiscal Outlook: Statements
As the people of Ireland look to this House today they do so with understandable concern. Our people are concerned about their future, about the prospects for their children, about the well-being of their neighbours and of the country as a whole. They are looking to this House with hope and with expectation. They hope the political leaders of this country have the capacity to steer us through this period of unprecedented economic challenge. As they expect, there will be a clear plan, a pathway which charts our course to economic recovery and secures confidence in our country's future. The people need to hear from the Members of this House what we are going to do to fix these problems.
As the House is aware, I invited the Leaders of the Opposition to meet with me and my colleague, Deputy Gormley, last week, to discuss the budgetary crisis. I proposed that the Opposition should have full access to briefings by the Department of Finance, so that they could appreciate fully the scale of that challenge. I believe it is important to afford other parties in the House the opportunity to formulate their proposals for putting the public finances on a sustainable footing. I am also seeking to build external confidence in the determination of Ireland to achieve fiscal and economic stability through a broadly expressed commitment on the part of Irish political leaders.
It is, therefore, particularly important and beneficial that the leaders of the main political parties in this House have expressed their commitment to the target of reducing the deficit to 3% of GDP by 2014. That commitment will underpin confidence on the part of investors and workers and the community generally. I acknowledge that commitment and the spirit in which it was reiterated at our discussions last week. It is a sure sign of the strength of our democracy, and of the widely-shared recognition in the House of where the national interest lies at this critical moment in our economic history.
We should reflect on how far we have come in our efforts to overcome this unprecedented economic crisis – a crisis that has affected all the developed economies of the world. Since 2008, we have achieved budgetary savings of €14.5 billion in full year terms, in just two years. The economy is emerging from recession, with growth returning and the prospect of stronger growth next year and thereafter. There have been significant improvements in our competitiveness as Ireland prices itself back into the markets we sell to and a remarkably strong export performance is being recorded this year over last year.
The budgetary figures for this year are broadly on target. Despite all that has happened, our debt to GDP ratio in 2014, forecast to be about 110%, will not be significantly out of line with many other developed countries. Taking account of the National Pensions Reserve Fund, and cash reserves in the NTMA, our net debt position is forecast to be about 83% of GDP, lower than many other developed countries. However, our borrowing costs have increased significantly and our public finance position still requires a major additional correction to put it on a sustainable path.
The State, therefore, continues to be faced with an enormous budgetary crisis. Against that background, the Government has decided that an overall budgetary adjustment of €15 billion over the next four years is warranted in order to achieve the target deficit of 3% of GDP by 2014. This is based on a projected average annual real GDP growth rate of 2.75% over the period 2011 to 2014. It is also based on a working assumption that the budgetary adjustment will be somewhat front-loaded in 2011 and that it will be weighted more towards reductions in spending rather than tax increases.
It is the Government's judgment that while a degree of front-loading may dampen economic growth in 2011, it will give the necessary confidence to the international markets and secure our funding position which is, of course, fundamental to sustaining public services for our citizens and achieving sustainable economic growth in future years. The key reasons for the significant increase in the required consolidation are lower growth prospects both at home and abroad and higher debt interest costs. The size of the adjustment for 2011 and the distribution over the remaining years will be announced in the four-year plan, which the Government is currently discussing and preparing for publication in mid-November. However, more work needs to be done and more up-to-date information will be assessed, before a final decision on the precise figure for 2011 is made.
The projected adjustment for each of the four years is not arrived at lightly. It is based on a rigorous assessment of the balance between what is credible to the markets and to international institutions and the inevitable impact on potential economic growth in the economy. It is severe, but it is a necessary next step to economic recovery.
No one can forecast with complete accuracy how the Irish economy will perform next year, never mind over a four-year period. There is also considerable uncertainty about the international economic outlook, which has a powerful influence on the performance of our economy. For instance, last year we ourselves predicted a contraction of minus 1.3% in our budget and if one considers what others were saying about a medium position of about minus 1.1%, it looks like we will have perhaps zero or small growth rather than that. This is just with respect to the one-year forecast. However, there is also considerable room for continued action here at home. We are not passive spectators, watching helplessly as events unfold. On the contrary, I believe the four-year plan we will publish will be a call to action for our entire economy and society. The plan is not only about bringing order to the public finances by 2014, which is vital. It is also about bringing together our growth strategy, as set out in the smart economy plan, our jobs strategy and our proposals for structural economic reform. It will demonstrate how growth in the economy and in employment will be fast-tracked by building on the key competitive strengths I mentioned earlier. If we can do that, we can reduce the scale of the €15 billion adjustment that is necessary if we are to achieve the 3% target by 2014.
I emphasise that the best way to reduce the deficit is to accelerate a major programme of structural reform in our economy, aimed at increasing employment and national income. If vested interests wish to oppose reform, all they will do is help to deepen our problems. If they proceed with such an approach, they will help to condemn our society to persistent unemployment, deteriorating public services and reduced support for the most vulnerable in our society. Our problems are so serious that no vested interest and no section of society can escape from their consequences by trying to protect narrow sectional interests. We all have a part to play. Everyone is in this together. The public service has a critical role to play in achieving the goals of the plan we are preparing.
Yes. It should be here. It is on the way.
I fully acknowledge the contribution that has been already made by individual public servants across the system as a whole. There has been a significant reduction of 11,000 in the number of staff in the public service. Staff have seen significant income reductions. Staff numbers will fall further over the coming years, as the cost of the public service is reduced and service delivery is radically reformed. Crucially, we have agreed with the public service unions a framework, in the form of the Croke Park agreement, which acknowledges the need for greater flexibility and faster change in underpinning jobs and living standards in the public service. The agreement is an instrument not only to enable the public service to live within its means, but to transform it to meet the needs of our citizens in the future.
The Government is looking not only for a slimmed down and less costly public service, but for a total transformation. We need a transformation in what the public service achieves for our citizens. We need a transformation in the targets that are set and outcomes that are achieved for our people across every stage of the life cycle. I refer to children, people of working age, people with disabilities and older people. We need a transformation in how such targets and outcomes are delivered so the overall cost of the public service is sustainable for the economy. We will need extraordinary leadership, creativity and flexibility from management and staff if the commitment to avoid further pay reductions and compulsory redundancies is to be honoured. The Government has no desire to back away from the commitment into which it has entered. However, it can meet that commitment only on the basis of full and comprehensive delivery by all of the parties.
We need to give our people hope. It is important that the country is taking credible, thoughtful and resolute action. This debate can and should be about finding the right solutions to our problems. We need to implement solutions that are right for our country at this time. My absolute and firm conviction is that the challenges we face can be met and overcome. They will be overcome through the resilience and capacities of our people, through the inherent strengths of our economy, through the intrinsic values of our society, through a commitment to courageous, innovative and responsible policies, and through the formulation and energetic implementation of a plan which demonstrates to our people and to the world how we will survive our present difficulties. The scale of the challenge is clear. It is reflected in the significant drop in economic activity and the output of the economy in recent years. That is why we must continue to plan for growth. It is reflected in the increase in unemployment and the reduced prospects for young people who are leaving our schools and colleges.
That is why policies and actions to create and sustain jobs are of paramount importance. It is reflected in the loss of national competitiveness in recent years. That is why we will introduce proposals for further reducing costs and improving competitiveness across the economy. It is reflected in the extent of the repairs that are required to our badly damaged financial institutions. That is why we must conclude the process of banking reform and recapitalisation. The scale of the challenge is reflected in the size of the gap between our income and expenditure as a State. That is why we need to continue the process of reducing the deficit, with measures to increase growth, jobs and revenue and to reduce public spending. We will not be overwhelmed by the realities we must face. We take great encouragement from the significant progress that has been already made in tackling this unprecedented crisis. Our objective now must be to build on the decisions we have taken and the stabilisation we have achieved. Now we must push ahead to grow our economy, create jobs and bring down the deficit.
A crucial element in building confidence in our capacity to overcome these problems is to realise the strengths we have and the strong performance which continues in many parts of the Irish economy. We still have 1.86 million people at work today, which is approximately 480,000 more people than were at work in 1997. This is a highly qualified and productive workforce, working in an economy where a high proportion of our output comes from the innovation-intensive, high value-added and growing high-technology sector as well as in an indigenous sector that is now more efficient and competitive than it was when the economic and financial crisis hit us in 2008.
That is reflected in our export performance, which has recovered rapidly this year, despite the very difficult international trading conditions. Today's figures from the Irish Exporters Association show a 12.8% growth in merchandise exports in the third quarter and a 9% increase in total exports on the same period last year. It is expected that the balance of payments of the Irish economy will move into surplus next year. The level of exports and capital inflows is set to exceed imports and capital outflows from next year on. That fact tells us our economic relations with the rest of the world are firmly pointing towards our capacity to pay our way, to service our debts and to achieve economic and fiscal stability.
Ireland's real competitive strength is further reflected in the continuing flow of investment announcements and the expansion of employment by world leading international companies which still see Ireland as the location of choice for many of their activities. Last week an IBM survey stated that Ireland was the best location for direct investment. Many of the best and largest companies in the world have decided to locate their higher value-added activities in Ireland and we are seeing a high and growing proportion of firms engaged in research and innovation. That inherent competitive strength also reflects the realism and flexibility of our people at work across the entire economy.
I apologise. The script is on the way.
The Irish workforce has adapted to the international economic crisis and the very changed circumstances at home. In many cases, work practices have changed, working hours have been altered, pay rates have been reduced, especially premium earnings of various kinds. Employers and workers have got together at local level to agree how to adapt and to preserve jobs.
As a result, the unit labour cost of production in Ireland has reduced while it has continued to rise elsewhere. That improvement in cost competitiveness is already being reflected in the more positive way in which operations in Ireland are being viewed by international companies.
The Government has been also taking a range of actions to help return the economy to the path of sustainable growth. In December 2008, we published our economic plan, Building Ireland's Smart Economy. It identified five action areas as the basis for the Government's response to the crisis. Since then, we have been assiduously implementing that framework.
We have acted aggressively in all these areas to tackle short-term difficulties while laying the basis for future recovery. We have introduced supports for business, for example, the enterprise stabilisation fund and the employment subsidy scheme, while seeing large gains in international competitiveness.
We have acted decisively to stabilise the banking system in very difficult circumstances and ensured a continued flow of credit to business, albeit not yet back to its optimum, and work continues in this critical area. We have begun to re-position Ireland as a global innovation hub, based on the work of the innovation task force, notably through the establishment of Innovation Fund Ireland and improvements to our research and development and intellectual property tax regime. We have invested heavily in renewable energy infrastructure, while developing new market opportunities in areas like electric vehicles and the SmartGrid. We have sustained high levels of capital investment to support economic activity during the past two years, completing the inter-urban motorways and delivering new projects at reduced cost.
The decisions we have already taken, and the reforms we have already introduced, will greatly benefit this country in the years ahead, and there are many reasons to be hopeful and optimistic about the future of our country and her people. Our mission now is to translate our economic strengths into economic recovery. We must be hopeful, optimistic and energetic, and yet we must be clear-eyed, realistic and thoughtful. Hope and optimism are the essential ingredients of our future, but they do no blind us to the realities of the present.
We must recognise that the rapidity of the recent economic decline and the scale of our budgetary deficit have created real doubts about the State's capacity to pay its way. These financial problems have overshadowed our real economic and competitive strengths. The reality is that we must convince those who lend to the State, who fund our banks and who do business with Ireland that we have a credible plan to close the gap between Government income and expenditure, and to meet the cost of servicing our increased debt. There is no other choice, it must be done and the Government is determined that it will be done.
We are entering a crucial period. Together, we will have to make some of the most significant decisions in our recent economic history. Those decisions will shape the future for all of our people for many years. If we shirk the necessary decisions, or if we make the wrong judgments, the consequences are very difficult to contemplate. That must not happen, and I do not believe it will happen.
When the Government presents its budget, it will set out the specific adjustments, in terms of income and expenditure, which will demonstrate progress towards our 2014 target. Achieving budgetary balance will require difficult decisions, based on a clear view of economic and social priorities and, crucially, on the principle that the burden must be shared.
As I have outlined, we all have a part to play in contributing to recovery. The gap between what we are spending and what we are collecting in revenue is too big for anyone to escape sharing the burden of adjustment but the society that we have built has at its core a commitment to help the less fortunate. The Government is determined that the major gains in social protection and support for the vulnerable in recent years will be maintained as far as is possible in present circumstances.
For example, between 2005 and 2010, the contributory State pension rose by 37.7%, the lowest rate of welfare payment rose by 45.4%, the qualified child benefit increase rose by 77.4% and the national fuel scheme payment rose by 122.2%. Inflation in the same period was just 10.3%. Those gains are real and substantial. There have also been major improvements in public services such as health and education, in care for our elderly and in support for people with disabilities.
Given the budgetary crisis we are now in, I do not believe that we can protect every aspect of health, education and social welfare spending. Unfortunately, that is impossible given the scale of spending in those areas relative to the reduced Exchequer resources that will be available. However, many, if not all, of the gains of recent years can and will be preserved, and once financial stability is restored and sustainable economic growth achieved, we can improve our living standards again also. Every measure we consider over the coming weeks will be assessed with this in mind.
We must aspire to the goal that all of our citizens have an opportunity to work and to be valued in our society, to be well-educated and to be properly cared for when needs be. To do this, we must get more from less, and not to be afraid to change things around to get the best possible outcomes for the resources we now have available.
The four year plan is about demonstrating how we will achieve a return to growth and jobs in line with the capacities and ambitions of our people so that we can meet our social objectives on a sustainable basis. While this is a national plan, to be presented by the Government and containing a range of measures requiring the approval of the Oireachtas, we will also seek support for it from the EU institutions. That is prudent and it recognises the reality of the international situation, as well as the support we have already received from those institutions.
A viable plan, with the approval of this House and the support of the EU institutions, is the surest way forward to economic recovery. Responsibility lies with the Members of this House and ultimately, the Irish people. We all need to understand and believe that we can have a powerful influence – as we have had before – on our own economic fortunes.
As a small open economy we have to pay our way in the world through trade and exports. This means we must ensure our costs are not out of line with our competitors, focus our investments and energies on sectors and activities with scope to secure more jobs and organise our business and industrial relations practices in a way that unleashes the full potential of the economy.
We will continue the process of reducing the costs of doing business. While we have seen significant improvements in many areas, some significant costs are out of line with our competitors. This is true of parts of our sheltered domestic economy which are not exposed to international competition. We will look, in particular, at the costs of professional services and charges levied by public bodies of all kinds. We will adopt a focused and determined approach to drive down costs which are unreasonably out of line with those of important competitors.
Many employers, including the public service, have had to take steps and sometimes unpalatable decisions to reduce payroll costs. Labour costs in the economy, like other costs, cannot be sustained at a level which is out of line with our international competitors when account is taken of productivity and other relevant factors.
I welcome the fact that a framework for engagement between employers and trade unions in the private sector was agreed between IBEC and ICTU. Negotiations have also produced adjustments in a small number of sectoral agreements which are underpinned by the institutional machinery of the State. It is time to look closely at the terms of some of these agreements to ensure they are fair by reference to what has happened in the rest of the economy and appropriate to the task of sustaining and growing employment.
As part of an overall competitive economy, there are sectors where specific opportunities arise at this time if we focus particular effort on taking advantage of them. These have been identified in a series of strategic initiatives on the part of the Government over recent months. For example, we are determined to ensure the environment for innovation in existing and new businesses is as positive and productive as possible. This is as important for Irish SMEs as it is for the high-tech sector.
Our economic policy framework is not only about new industries and high-tech capabilities. It applies just as much to what we might regard as our traditional businesses of agrifood, tourism and construction. These industries have the benefit of involving people right across the community and all around the country. They are sustaining communities and families and have the potential to do so for many years ahead as they evolve in line with market realities. They face challenges but their potential for further growth and development is significant. We must ensure those capabilities are fully realised in order that these traditional sectors can also play their part in growing jobs.
The four year plan will, therefore, set out concrete and tangible ways in which key sectors of the economy are being supported and mobilised to grow our economic base in the period ahead. Their vitality will build the credibility of our overall economic and fiscal commitments. Achieving our budgetary targets will, in turn, build a better business environment for investment in these sectors. This can result in many thousands of new jobs which, in turn, can facilitate a much less severe budgetary adjustment. This virtuous circle of budgetary performance, competitiveness and economic development is the dynamic which will drive a successful economic future for our country.
With hindsight, we can see that the sustained boom period of the Celtic tiger misled us all into believing we could avoid difficult choices. We now know differently. As a consequence, the choices we now face are, unfortunately, very stark. It is essential at this time of severe economic difficulty that our people understand the choices facing the country, the decisions being taken by the Government and the reasons for them.
It is also important and appropriate that the Government can show to this House and Irish people that it is listening to all points of view and considering all policy options.
Some have expressed the view that we can reduce the severity of the fiscal consolidation by extending the 2014 deadline. While the Government understands this view, it is simply not grounded in the reality of the political and economic situation in which we find ourselves. It also disregards the implications of the consequent rise in debt service costs for the economy.
There is a lively debate about the scale and pace of changes to public spending amid fears that austerity could create a deflationary spiral. Reducing public spending on the scale envisaged will temporarily dampen economic growth but we must recognise that even with the proposed adjustment of €15 billion, we still intend to borrow tens of billions of euro between now and 2014. We simply cannot afford to increase borrowing further. If we tried to do so, we would run a very real risk of not being able to borrow.
There are, however, many good ideas to which the Government has been carefully listening and about which it has been actively thinking. While respecting the absolute need to meet the deficit target, we are considering new initiatives to promote employment in various sectors of the economy. We are looking at how we can reduce the abnormally high savings ratio and release some of those resources into the economy. We are examining the entire asset base of the State to make sure it is being used to maximum effect to drive investment and to help our competitiveness. Moreover, the Government is acutely aware of the role of small business in providing employment and the need to make sure we support our indigenous companies by helping to reduce their costs and administrative burden. We are evaluating our capital investment plans to make sure we make the right investments for the future as well as helping employment in the short term. Consequently, all our decisions on taxation, spending and growth will be made with an open mind. There are many choices still to be made.
In bringing forward the four-year plan, the Government will set out its ambitions for the future of the country and our society. In doing this, we will be part of the broader Europe 2020 strategy for jobs and growth to ensure that our economy and society develop to meet the ambitions and aspirations of our people. We will outline an approach to budgetary policy which is not just about balancing the books in line with our commitments but about trying to transform and restructure our economy and ultimately to improve our society. In addition, the Government will set out a new vision for social partnership as a process that can mobilise commitment and energy to support economic recovery and a fair and decent society. Our social dialogue will thereby return to its roots as an important part of the process of building up the real economic and social strengths of our economy and society.
This is a moment with very few parallels in recent economic history. It is a moment when the Government will act clearly and resolutely in the national interest.
There is a realistic prospect of achieving, within a reasonable time, not merely budgetary balance and economic security but an Ireland worthy of the sacrifices our people are currently being called upon to make.
We can build such an Ireland, that is capable of meeting our ambitions for our children and their future in this country.
I remain open to the possibility of a broad measure of agreement on the details of a pathway to recovery and am very open to hearing and acting on sound proposals that may be aired in this debate.
However, I stand before the House in the full knowledge of my own responsibilities as Taoiseach and I will do my duty. I will discharge my responsibilities to the best of my ability. I will do so with my Government colleagues in the best interests of the country at this important time. I trust this debate will be a constructive and solid contribution to meeting the challenges our country faces at present.
I listened carefully to the Taoiseach's contribution, which did not contain a single proposal the Government intends to carry out despite having held two days of meetings at Farmleigh House and Government Buildings. At present, depression, anxiety, concern and fear stalk the land. This is because of the Government's catastrophic failure to deal with reality in the clear-eyed fashion to which the Taoiseach referred. Hundreds of thousands of people have genuine fears and concerns about their future and security. They have concerns about their resolve to keep a roof above their heads and about jobs, employment and an economic future for themselves and their families. The reason for all this is the Government cannot be believed and has no credibility or truth left. On the day Deputy Cowen was appointed Taoiseach, I stated that he should put his new mandate to the people for their approval. The real difference now is that the present Government, which practically is at the end of its life, has run out of time and credibility. Neither the international markets nor the people believe it.
The version from Ministers, who arrived at Farmleigh House in sleek transportation in a manner reminiscent of the Anglo Irish coming back to the big house, is to state repeatedly that they want to do what is fair and to make decisions that are in the interests of the people and the country. They state that each Minister is looking at all other Departments - so we will all hang together instead of hanging separately - which is a complete change from the manner in which Ministers used to approach budgets in the past. Moreover, this morning I heard the Minister for Tourism, Culture and Sport stating that the Opposition parties should now accept the €15 billion.
The leaders of the Fine Gael Party and the Labour Party, who attended the meeting last week with the Taoiseach and the absent Minister for the Environment, Heritage and Local Government, Deputy Gormley, have accepted the target to reduce the deficit to 3% of GDP by 2014. However the Government will not be successful in any attempt to browbeat Opposition parties into accepting all the elements of the budget or the cuts on which it now must make decisions. It is about time for the Government to face this crisis rather than running from it, as it has done repeatedly. Every single projection put forward by the Taoiseach, the Government and the Minister for Finance, who now has lost considerable political momentum, has been wrong. One was told that NAMA would make a profit and that the deficit would be €3 billion, €5 billion or €10 billion but on each occasion, this figure has risen far beyond Government projections.
We now have reached a point at which emigration is back on the agenda. Irrespective of what has happened, the really sad fact about this political situation, arising from the billions that have been wasted by an incompetent Government and by Ministers who neglected to oversee public expenditure, pertains to the hundreds of thousands who are leaving this country with the consequential transfer of the investment in education and training of graduates across all walks of Irish life who now will give of their talent and their futures to other jurisdictions. Added to that is the depression, anxiety and concern of the many people who put their belief in the present Government on the last occasion by a majority. However, it has failed utterly to live up to the trust placed in it through the ballot box. As far as the present Government is concerned, the moral of the story is that everyone should leave, be they bankers, regulators, governors of central banks or bank boards, except for the Government itself. Its time is coming and when the people get their chance they will exercise their mandate appropriately.
There is much talk on the part of the Taoiseach and other Ministers on the need to restore Ireland's credibility in international markets and Members on this side of the House share that concern. However, yesterday's announcement of the need to commit a further €15 billion from the public finances in the coming years constitutes an indictment of the disastrous failure of the Government to restore Ireland's credibility both at home and abroad. The credibility of our country is on the floor and the reason the Government is unable to enter the bond auction markets is because there is no belief in its strategy for growth in the Irish economy over coming years. This is not because of anything that the people have done. It is because of the continuance in office of a Government the policies of which not only led us into this crisis but which at every turn have made that crisis much worse. Our credibility is on the floor because each projection made by the Government has been proved to be wrong and each announcement of recovery has been premature. The Government stated that the corner has been turned, that there was a light at the end of the tunnel and that the only way was up but each time, this has been proven to be wrong.
The colossal failure of the Government's banking strategy also has damaged our credibility. After two years, most other countries have cleaned up their banking problems and people have been put in prison. However, the Government has failed to restore credit availability and now has lumbered Irish taxpayers with a €40 billion mortgage, the cost of which at approximately €1.5 billion must be met each year in perpetuity. Many Ministers could do a great deal of work with that kind of money, were it available to be spent on Irish infrastructure and jobs. Ireland's credibility has been hammered by the paralysis of the Government in the face of the huge reforms required in the public and private sectors to make the economy competitive enough to export our way back to full employment and sound health in the public finances. Six months after finalising the Croke Park agreement, not a single euro has been saved by its provisions as the entire public sector waits for some political leadership and a credible reform plan. After two years of blundering, paralysis and catastrophic misjudgments in almost every area, Ireland now stands at the edge of an economic abyss, threatened with the loss of our economic sovereignty, led there by an incompetent Government incapable of managing the affairs of the people.
The Taoiseach says Irish people must restore Ireland's damaged credibility through massive cuts in services and entitlements and tax increases. He outlined three of them in general terms today - social welfare, health and education. I note the Minister for Health and Children made the announcement of a cut of between €600 million and €1 billion in the health area outside the House. We were promised a world class health system. We know we have world class doctors and nurses but we do not have a world class system to back them up. The Minister calmly announced a cut of between €600 million and €1 billion in the health area, and let them eat cake after that.
The Government has imposed these cuts in services, tax increases and losses of entitlements on people. We must recognise that there are no painless solutions to the crisis in which we now find ourselves. It has become depressingly clear that everyone in our society will be affected by the measures required to undo the damage the Government has inflicted on the Irish people. There is a way to restore at least some of the country's lost credibility. That is by showing that the Irish people will hold failure to account and that there will be political consequences for disastrous economic management. A new Government with new ideas and a new mandate would, at least, have the impact of reducing Ireland's borrowing rate by 0.5%, as happened in Britain a few months ago.
The Fine Gael Party remains committed to reducing the deficit to 3% of GDP by 2014, as agreed with the European Commission. Reopening negotiations at this point with the EU to extend the period of fiscal adjustment beyond 2014 could lead to a further loss of international confidence in the Irish economy in 2011, with disastrous consequences. We know that Ireland is now likely to borrow more than €60 billion over the coming four years, pushing our debt to GDP ratio to well over 105%. Irrespective of the views of the European Union, there is no guarantee that markets will be willing to lend Ireland the additional resources required to extend any period of adjustment. The credibility of any four year fiscal plan is dependent on the likely growth path over the coming years. Largely reflecting the colossal cost of its banking policy and its failure to restore credit availability, the Government now projects higher debt-servicing costs and lower growth - an average of 2.7% - than hoped for last year. As a result, it has doubled the estimate of the spending cuts and tax increases required in order to hit the 3% borrowing target in 2014 from €7.5 billion to €15 billion. There are better possible outcomes. For instance, if the ESRI's updated high-growth scenario of an average growth of 4.5% were to materialise, a smaller package of fiscal measures would be needed to hit the 3% target by 2014.
That is why Fine Gael believes it is necessary, over the coming weeks, to put a relentless focus on the ways to support growth and jobs as the country attempts to repair its public finances. That is why Fine Gael believes that any fiscal plan has to operate in parallel with a credible growth and jobs plan to turn the present downward vicious cycle into an upward virtuous cycle. We have a different approach from the Government. Fine Gael offers real hope that we can rebuild our economy and restore trust in politics and in Government.
I recognise the need for a new start. The language and circumstances of the past cannot deal with the crisis we now face. This crisis has to be dealt with but we have to have a new start based on politicians telling the public the truth about where we stand as a country. The Fine Gael Party will open the books to the public when we get the opportunity, tell them the truth and point out how their country was run for the past decade or so. We are not a prisoner of any big business or powerful union. Our only interest is the public's interest. More than that, we can offer hope for the future because unlike any other party we have done a detailed analysis and made detailed plans to restore our country's fortunes. The central pillar of our plan is the commitment to making the protection and creation of jobs the first and last priority of a new Government.
There is a simple truth that appears to have escaped those in Government Buildings and the Department of Finance. If we do not grow our economy and fix our jobs crisis we will never fix our financial crisis. This is not just about fiscal consolidation, as they call it, or cuts, in the Taoiseach's language. This is about our own society, our people, our country and what the endgame is. The endgame has to be a country that works, a people who have career opportunities and where there is a sense of security, confidence and the hope to which the Taoiseach referred. The endgame will not be easy to achieve. We have been led to this point by the bluffs, untruths, negligence and incompetence of the Government over the last number of years. That is why we are committed to an enterprise society, where small businesses and entrepreneurs are supported by ensuring that banks are the servants of enterprise.
When we look at what creates jobs in our country we recognise the need for a number of key factors. There must be a favourable macro-economic environment that comprises a competitiveness profile, an advantageous tax position, a sharp industrial policy, a superior education system, support for entrepreneurship and a first rate public sector, particularly where it touches on jobs issues. There must be a targeted policy where it is possible directly to create jobs, or boost or support job creation, in specific areas.
We used to have a number of advantages over all other countries. Some are still in place, others are in areas where we have clearly slipped, some are outside our complete control and others are not. We need to be brutally honest with ourselves in evaluating our position and deciding what measures we have to take if we are to look at a credible growth pattern with a concentrated focus on jobs and on getting people back to work. The low corporation tax has been a fundamental lever for foreign direct investment into Ireland. I was honoured to be a member of the Government that introduced that low corporation tax rate. Many other countries now have a similar position. We must defend our position here. This party, in government, will defend that position. From speaking to business interests abroad, it is perfectly obvious they value the low corporation tax rate. It is still a matter of fundamental importance to our jobs policy.
We have, clearly, slipped in the area of cost competitiveness. The Government lost sight of the impact of cost control and cost competitiveness in business, whether of local authority rates and charges, red tape or bureaucracy. Many of our 80,000 small businesses are nearing bankruptcy. Many are struggling to remain in business. They have never been written to by Government saying: "These are the supports or encouragement we can offer you. This is what we want to do for you if you can take on one extra employee". They have never been contacted and assured that Government recognises the importance of small business and of what small and medium enterprises can do for our country.
I recently spoke to business people in the United States, where there is still huge interest in investing here and ensuring that Irish small and medium enterprises can export to that country. The IDA has always done a fine job in attracting foreign direct investment but we have slipped in some respects in recent years. We have to examine the trends to find out why we were No. 1 and what we have to do to make this the best small country in the world to do business.
Last week in City West, I attended the Ernst and Young entrepreneur of the year awards. Somebody who flew in solely to attend that function would be blown away by the potential, initiative and creative ingenuity shown by many small and medium enterprises around the country. In Government, Fine Gael will remove the shackles from people who want to work and create jobs but who are being impeded by a lack of encouragement and obstacles put up by Government bureaucracy.
There has been much discussion of our diaspora. Last year, people from all over the world gathered in Farmleigh House. It is a pity that event was hijacked by the Department of Foreign Affairs, which never had the competence a Department of trade and industry might have in dealing with these matters. Unless we bring from that meeting specific initiatives and results, people will not attend another one. Diasporas have had an impact on Taiwan, India and Israel in terms of serious investment and job creation. The Irish diaspora, whether in the United States or elsewhere in the world, is willing to contribute and wants to help our country. That has not been harnessed to the extent it should.
Fine Gael has pointed out on numerous occasions that our education system has both strengths and weakness. Major employers in the technology sector have voiced concerns about the position of science and mathematics. The rote learning of many aspects of the leaving certificate has led many potential employers to state that our students display less capacity for imaginative and independent thinking than those of other countries. That issue needs to be addressed for the sake of the fine qualities of our thousands of young people who can and will measure up to the competitive pressures of their peers around the world if they are given the opportunity.
The entrepreneurial culture of which Fine Gael speaks must be maintained. In the 1980s, Ireland had one of the lowest percentages in Europe of people who wanted to run their own businesses but by the late 1990s and the early part of this decade, we had one of the highest percentages. That transformation, and the development of a broad entrepreneurial culture over the same period, was one of the most important developments in Ireland's economic history. Many of the elements of this culture are still in place but others have run into difficulties. The entrepreneurial culture survived the boom and bust of the dotcom bubble. Even now, in the face of domestic and international crises, I regularly come across small and medium enterprises which want to expand, change direction or get into exports and new lines of business, yet the Government voted down the loan guarantee scheme which Fine Gael introduced last week.
We have investigated the job creation potential in semi-State bodies through our NewERA economic recovery strategy published two years ago by Deputy Coveney. I note the British Prime Minister, Mr. Cameron, has launched a £200 billion investment programme in major infrastructure, with a £50 billion contribution from his Government. Fine Gael's programme for water, broadband and renewable energy, which involves commercial semi-State bodies providing infrastructure facilities and charging commercial rates at the end of their provision, will mean increased attractiveness for investment and job creation, both locally and internationally. Up to 100,000 jobs can be created through that additional infrastructural investment.
I have previously referred to the impact that international education can have on Ireland. The demand for education beyond boundaries has increased hugely in the past several years and is forecast to reach more than 6 million students by 2020. The number of US students attending college overseas increased from 90,000 in 1995 to 250,000 in 2007. Approximately 300,000 international students attended British universities in 2008, paying almost €4 billion in fees. International education contributed €11 billion to the Australian economy in 2009. We are bogged down with visa bureaucracy and restrictions on students entering this country. It is past time that was addressed. These are areas in which we can change the way we do business.
Deputy Bruton will shortly publish a serious document on public service provision and cost. In dealing with the provision and cost of Government, it is essential that we start at the centre and the top. This is why Fine Gael has published our own document on changing the way we do our business, reducing the size of the Dáil and putting the abolition of the Seanad to the people in a referendum. By changing the way this Chamber does its business, we will make it the centre of Irish politics rather than a place where the Government does not want to be.
We want to bring the Dutch health system, which is the best in Europe, to Ireland. We are now told that between €600 million and €1 billion will be cut from our public health service without reference to protecting the front line services that save lives. Fine Gael's health plan, which we call FairCare, will eliminate hospital waiting lists, as was done in Northern Ireland, and will put the patient front and centre by paying hospitals for what they do rather than what they did last year. We will eliminate the unfair two-tier health system by making health insurance affordable for everyone. People will be able to access care on the basis of need rather than wealth. Our new approach is based on a system that is not fantasy and which works in the Netherlands.
We will change politics and the public service. Fine Gael's programme for political reform will start at the centre and the top to ensure the political system never again lets us down so catastrophically as it did in the past few years.
The Government has on many occasions claimed that the recession is at an end. This claim is no longer credible. However, there is a world of difference between the Ireland that will be ground out by the relentless forces of credit starvation, long-term unemployment and emigration and the country that could emerge if we adopt a more decisive, creative and innovative set of solutions which harnesses our entire community to the task. In every city, town and parish in this country, people want to contribute and assist. It is that contribution which gives people a sense of satisfaction. The days of the Celtic tiger are long dead and its values are not the values of the future. People who want to give their time and experience to their communities will pull this country through. This Government has failed absolutely to recognise the intrinsic values that are held deep down by the Irish people and the old meitheal spirit that is part of a tradition based on emigrant trends over two centuries.
The last recession officially ended in 1983 but it took six years before investment in job creation significantly reduced the dole queues. The Government strategy appears to have only two planks: the first is writing whatever cheques are necessary to bail out banks and the second is cutting the budget deficit each year through savage and insensitive cuts. I did not hear a significant proposal of any proportion from the Taoiseach today in his contribution to this macroeconomic debate. These two planks of the Government add up to a strategy of national retrenchment. There is nothing positive, nothing ambitious, nothing creative to restore confidence in Ireland's economic future and nothing that will add any sense of hope or confidence to people out there, who do not see any security up front despite the fact savings continue to accumulate in Irish banks.
We have a very different philosophy, which is that the people's potential can and will flourish here in this country. The Fine Gael plan states that the crisis must be viewed as an opportunity for the political and economic transformation of our country. To do that, we need to focus not just on, as the Taoiseach calls it, fiscal consolidation and on cuts in the cost of Government and the way we deliver public services, but also in the value of those services and by creating an enterprise society.
In the early part of the last century, the Government, led by the forerunner of the party I now lead, created and built the institutions of this State, such as with the establishment of the ESB in 1927, the Shannon scheme at Ardnacrusha in 1929, the dramatic acceleration of rural electrification in 1955 and the air transport liberalisation in the 1980s that launched Ryanair as Europe's largest airline. Now is also a time for re-imagining our economic future. For me, the end game is not the red line or where it is drawn. The end game is a country where pride can be restored, where people have hope and confidence that they can have a future in this country, if that is what they wish, where we can restore sound public finances, where there is a banking system that works and lends credit to business in circumstances where it should, where there is a health system that measures up and is not a black hole opening up and sucking in relentlessly all of the taxes from all areas of Irish society, and where there is an education system that is competitive and able to stand up to measure against the competitive forces of the world.
We pointed out in our plans how we can fund that enterprise society through the sale of assets that are no longer necessary for the future, through a leaner, more skilled banking situation where credit is lent to business, where necessary, and through a re-balancing of the tax system to offer greater support to enterprise, innovation and employment. As I said, a 51% marginal tax rate is much too high.
Fianna Fáil and the Greens, supported by a number of Independents, have led our country to the edge of an economic abyss. It is ironic that within six years of the centenary of the 1916 Rising, which was the beginning of the opportunity for Ireland to have economic independence, the so-called great republicans have led us to a point where there is no credibility, faith or belief in the strategy of this Government to rectify our problems. As I have said before and say again now, it is time to consult the people, time to give them their opportunity and time to have a new mandate. The Government should go. It has failed in its duty, it has broken the trust given to it by the people and it has failed to implement the policy situations which would keep Ireland proud, strong and clear. We should not be the focus of this international recession; we should be but a backwater of it. We are here because of neglect, incompetence, lack of management skills and a failure to recognise that politics is not just about keeping a party in power, it is about people, about a society and about our country. Fine Gael will measure up to that responsibility when the people give us the opportunity.
Yesterday, the Minister for Finance told the Irish people that the Government has decided to make a €15 billion adjustment in the budget over the next four years, double the amount that was previously expected. Where does this €15 billion come from? When I asked the Taoiseach earlier today for the detail of the information and projections on which that figure must be based, he either would not or could not give me the information. How, therefore, are we to rely on the figure of €15 billion? How credible is it when it comes from the same source that has already told us we had the cheapest bank bailout in the world, that we had seen the last of the really difficult budgets, that the worst was over, that we needed only one more push and that we had turned the corner? Some corner.
What we still do not know is what is the basis for this €15 billion figure. According to the Government, the Opposition has been shown the books. Two meetings lasting a total of three hours and now the Opposition is supposed to know everything. After three hours in the Department of Finance, the Opposition parties are expected to have the same level of knowledge and information about the public finances as the Government has after 13 years in office.
Let me put on the record what we were actually given. The kernel of the briefing last week was three sheets of paper, with a table on each, containing nine rows of figures. The first table shows what would happen if one went ahead with the €7.5 billion plan, and what would happen to the deficit and GDP with a €15 billion plan, assuming a €4.5 billion adjustment in 2011. That is it and no more - GDP figures in ranges. On another page, we were given the same table, this time assuming a €7 billion adjustment in 2011. The GDP figure for 2011 in this table is lower, as one might expect, but the figure for 2012 is higher. What explains this particular form of "bounce back economics"? We do not know because the table contains no data on consumption, investment, exports, imports, inflation, wage growth, interest rates, exchange rates or growth in the US, European or world economies.
When one asks how it could be the case that a massive hit on the economy in 2011 - we are told the reductions in spending are to be front-loaded - is going to produce higher growth in 2012, the answer is one word, "confidence". Not a worked out spreadsheet showing how different levels of interest rates will affect investment or consumer spending, just "confidence", or what Professor Krugman calls "the confidence fairy". While five-year olds in Ireland are understandably prepared to believe in the tooth fairy, it is unwise for a country or an economy to put its faith in the confidence fairy.
Despite all the damage done to the economy, Fianna Fáil still insists on playing political games. The Fianna Fáil spin machine is putting it about that it has opened up the books to the Opposition and now it is up to the Opposition to produce the answer, based on a few so-called scenarios about how the deficit might possibly be reduced, depending on two possible sets of adjustments and two possible sets of growth forecasts - possible, not probable or definitive. We have not yet been given the official growth forecast for next year because, we are told, the Government is still negotiating it with the European Commission. We have not yet been given the official forecast for the three years after that, and we have not yet been given the figure for cuts in next year's budget. Nor have we been given what the Department's estimate is of the additional impact of extra budget measures on jobs and growth. We have simply been told to believe in the confidence fairy.
We do not have a template for the four-year plan. We do not have a figure from Government on what Croke Park will save next year. We do not have an answer on how the bank bailout will be treated in the national accounts and how that will affect the deficit target. If one asks for projections for 2011, one will be told that they do not have the October or November Exchequer returns.
The horrifying thought is that this might actually be the kind of information that has been used to inform Cabinet decision-making over the past few years. Either Fianna Fáil is genuinely uncertain about these key figures, which would be extraordinary after more than 13 years in office, or it knows them and is simply not willing to tell the Opposition or the public because it does not suit its carefully worked out political choreography.
After everything that has happened up to now, one would have to be naïve not to be sceptical about any figures that come from this Government. What we do know is that after Black Thursday, there has been an enormous bill to pay for the banks, of at least €45 billion. We know there has been a catastrophic loss of confidence in Ireland abroad and that the cost of Government borrowing has shot up to the point where the Government feels unable to continue borrowing money. We know there is to be a four-year plan and a budget that are supposed to restore order to the public finances and confidence in the country. However, beyond that the Government has provided very few specifics. There were no specifics at all in the Taoiseach's speech today. The Opposition parties are, justifiably, often challenged over specifics. It is astonishing that, in the opening of today's debate, the Taoiseach did not set out a single specific measure under consideration by the Government. Today's debate should be about solutions. The economic crisis we now face is the worst in the history of the State. Disastrous mismanagement of the economy and the catastrophic error of the blanket bank guarantee have brought the country to the edge of bankruptcy. The reality is that we face a fight to hold on to our economic freedom and the right to make decisions about our own future if the Government cannot convince investors to lend money to Ireland at reasonable rates again.
This crisis is not about economic jargon, or graphs or numbers; it is a human crisis. It is a crisis for the hundreds of thousands who have no work, for families at risk of losing their homes, for people who have lost their businesses. If we are going to solve this problem, we need clarity on numbers. However, we also need clarity on objectives and a serious, sustained approach to achieving solutions.
What I and the Labour Party have been saying throughout this crisis is that there must be more than one objective. We need to lower the deficit to 3% by 2014, but not just for the sake of it. It is a means to several ends. Our objectives must be to get people back to work, re-start economic growth, increase exports and restore our reputation abroad and confidence at home so people will invest and spend in Ireland.
We need to come up with a plan not so much to satisfy our partners in Europe, but to convince international bond markets to invest in Ireland while we go about the difficult work of restoring our public finances. We must combine deficit reduction with a strategy to re-start economic growth. We must do all of this in a way that is fair.
Ever since the Government made its agreement with our partners in Europe to reach the 3% target by 2014, the Labour Party has supported it in that objective. We have done so because we believe it is extremely important that Ireland send a united signal to the wider world that we are serious about dealing with our deficit. People who invest in this country do not necessarily follow our politics or have any understanding of what a change in Government might mean. The Labour Party wants to make it clear that a change in Government in Ireland will not result in the goal of deficit reduction being abandoned. I regret that Fianna Fáil has taken so long to grudgingly accept that this is the case. Had it done so earlier, it could have made more of it, to the advantage of the country.
It is important to be clear, however, about what Ireland has actually signed on for. We have agreed to try to lower our deficit to 3% by 2014. That means having a credible multi-annual plan that addresses the problem over a period. It does not mean we are tied to any particular deficit figure for next year. We will not solve this problem by resorting to ever-greater and ever-more-crude adjustments. We will solve it by having a strategy that combines reduction in the budget deficit with a programme of action on jobs and growth, and which puts in place reforms that signal to the wider world that Ireland is a serious country that will not allow this disaster to happen again.
Bond investors are just like any other investors. They want to see the whole story. If they invest in a country, they want to know how much debt it has and how big its deficit is, but they also want to know whether the country will be able to pay the money back. They will look at headline numbers, but they will look also at the medium-term story. They will want to know whether this country has a growth model that is going to ensure it can service its debts. It is the presentation of that story - of a credible plan to reduce the deficit while re-starting economic growth - that should be the focus of debate and of the four-year plan.
The figures produced by the ESRI and what we have been given by the Department of Finance make it clear that the position is extremely challenging. A fundamental rethink of every aspect of the budget is required. The problem also calls for purposeful and sustained action. What must happen now, and what should have happened long since, is the adoption of a multi-annual approach to budget policy, not just a set of announcements every December and a set of projected multi-annual figures, but continual and determined action on a multi-annual basis. We know we are not going to fix this overnight. We know also that 2014 is a long time away. Relying on the forecasts of a Government that cannot forecast one week ahead for four years from now is a bit uncertain, to put it mildly.
What we need now is a credible multi-annual plan for stability, growth and jobs that gets the economy moving again. That means looking at each aspect of the budget and how savings can be made while limiting the damage to the economy, and promoting jobs and growth. It means cutting expenditure but it also means raising additional revenue. Unfortunately, taxation must be part of the mix. This is a point that Labour has been making for the past two years while others were trying to pretend that the whole adjustment could be achieved by cutting spending. We are finally seeing some rational thinking on this issue. It is regrettable that extra taxes are necessary, but they are nevertheless. While everyone will have to contribute in some way, I do not subscribe to the notion that the only people who should pay more are those on modest incomes.
We should aim for an even split between additional revenue raising and lower spending, roughly at a ratio of 50:50. Given the scale of the deficit, we need to spread the burden of adjustment for it to be economically or socially credible.
We need completely new approaches to both capital and current expenditure. In respect of capital spending, it is clear that the Government will have to go back to the drawing board once again. Our current level of capital spending is still high by European standards and, unfortunately, that will now have to be reviewed. A reduction of approximately €2.5 billion over three years would leave us with capital expenditure of just under 3% of GNP, or approximately the same as the eurozone average. However, if capital spending by the Exchequer is to be reduced, as it must be, until we stabilise the public finances, we should be looking for ways to replace it from elsewhere.
There have been numerous proposals put forward in this area to find alternative funding for capital projects. Labour has proposed taking €2 billion from the pensions reserve fund to provide the capital for a strategic investment bank that could give the lead in this area. Similar banks exist in other countries, and the UK Government is establishing a green investment bank on a similar model.
It no longer makes sense to make payments into the pensions reserve fund. We are now borrowing money on the international markets at an interest rate of 6% to invest back into the international marketplace through the purchase of shares by our own National Pensions Reserve Fund. Borrowing at this rate for this purpose is the wrong way to use our depleted resources and should be suspended until we return to some form of normality.
In the area of current spending, we must stop lurching from budget to budget with crude cut after crude cut. What we now require is a proper comprehensive expenditure review with a three-year time horizon, such as has been carried out by the new Government in the United Kingdom, but using the Canadian model. The truth is that the Government-commissioned bord snip report has been a failure because it has not produced either the savings it promised or the reform we need. It was never likely to do so because it never sought or received buy-in from Ministers and Departments. The problem with the bord snip approach is that it started by looking at the level of expenditure and asked what can be cut. What we actually need is a process, such as was developed in Canada, that is led by Ministers themselves and by the managers of Departments and agencies. They started with the opposite question: what service do we want to provide? We must have a root-and-branch examination of spending that identifies what we believe is really important, such as keeping the schools open and maintaining a decent health service.
A proper comprehensive spending review would lead to a reduction in both pay and non-pay costs. It would very likely result in a reduction in the number of agencies and to a merger of back-office functions in several of those remaining. The results of a comprehensive spending review would then provide the basis for sustained and ongoing reform of the public service, which should include negotiation with staff to bring about change. That was supposed to be the idea behind the Croke Park agreement, but it is not happening. It is now abundantly clear that having spent months attacking the Labour Party for not telling people how to vote on the it, once the agreement was accepted, the Government has done little or nothing to work it. We cannot keep lurching from one budget to the next, inflicting crude cut after crude cut. If we want to reduce costs in the public service, including head counts and payroll costs - but also input costs - while minimising damage to front-line services, then it must be done in a determined and sustained way.
The Revised Estimates for 2010 show that total current spending, excluding social welfare and public sector pensions, was budgeted to be some €31.6 billion. A programme to reduce both pay and non-pay costs by only 3% per annum would yield savings of €2.8 billion over three years, including payroll reductions of €1.4 billion. That is readily possible and the process relating to it should have begun long ago. Public sector workers have already endured big adjustments in their pay and the Croke Park agreement contains a commitment to the effect that there will be no further pay cuts prior to 2014. At this stage, however, it is unlikely that the necessary payroll reductions will be achieved through natural wastage and redeployment. A voluntary redundancy scheme in the public service will, therefore, be necessary. Such a scheme should be strictly confined to areas of identifiable over-staffing and should be tailored to ensure that critical front-line public services do not have their essential staffing levels eroded.
Non-pay costs will also have to be addressed as part of the review. There are a number of areas that have long cried out for reform, particularly the cost of drugs in the health service, which the Irish Medical Organisation, IMO, estimates could be cut by €300 million through use of generics. It could be further reduced by a more robust approach to negotiations with drug companies that uses the State's bargaining power more effectively. Professional fees are also a serious issue. The bord snip report estimated that GMS fees could be reduced by €370 million over time.
The social welfare budget must also be curtailed. It is possible to achieve considerable savings in social welfare by reforming the way in which the system works. Labour's spokesperson on social protection, Deputy Shortall, recently produced a report for the relevant Oireachtas committee which shows that major savings can be saved by more robust and modern enforcement of anti-fraud measures. Savings of at least €100 million can be made in this area. A second area for potential savings is rent supplement. The State is now spending €500 million per year to supplement the cost of private rented accommodation at a time when there is an overhang of residential property. A saving of at least 10%, or €50 million, could be achieved in this area. The most effective way to reduce the social welfare budget is to get more people back to work. Every job lost costs the State €20,000 a year in tax foregone and direct payments. The number of jobs lost since 2007 stands at 288,000, which costs the Exchequer an additional €5.8 billion per annum.
We now face a difficult challenge to gradually raise the total level of tax revenue as a share of GNP without hurting employment. This will be difficult but not impossible. As the Governor of the Central Bank has pointed out, our ratio of tax to GNP has been higher in the quite recent past when the economy was still performing extremely well. For example, if Exchequer revenues as a share of GNP this year were to be the same as they were in 2001, then an additional €5 billion would be coming in. That does not mean that we should just return to the tax rates that were in force at that time. Instead, the place to start is with broadening the tax base. It is time for a major programme of reform to finally curtail the network of tax breaks and tax expenditures. A recent paper by Micheál Collins and Mary Walsh again highlighted this issue which my colleague, Deputy Burton, has been addressing for many years.
Some €3 billion is being spent in the area of pension reliefs. This amount should be curtailed by at least €500 million, particularly by limiting the total amount of relief that can be claimed by any individual in order to make the system fairer. The reliefs for property-based investment, which cost €380 million, should simply be scrapped and interest relief on rental income from investment property must be significantly curtailed by at least €430 million. An entire series of minor reliefs, mentioned in the report of the Commission on Taxation and including relief on trade union subscriptions, should be scrapped. The relief on patent royalties, which is an avenue for avoidance that costs €50 million, should be abolished.
Labour has been arguing for some time that, in the area of taxation, those who have the most must contribute the most. We have proposed a 48% tax rate for the highest earners. There is also a need for a system whereby a minimum effective tax rate is applied to high earners to limit the total relief that any one person can obtain from all tax breaks combined. The Government claims to have done this but the system it is full of holes and deliberately so. There must be more equality of treatment of earned and unearned income in order that income from capital gains is subject to PRSI and levies in the same way as earned income.
There is room to increase the tax on second homes. It should also be possible to phase in water charges on a metered basis as part of a broader reform of how we manage and deliver this vital environmental resource. In addition, we should plan to introduce a new bank levy when the capital levels in the banks are adequate. These will be extremely profitable businesses again and they are not just going to be allowed to ride off into the sunset and leave the rest of us to sort out the mess.
We must make hard decisions but they must be the right ones. They must include the decisions that are required to bolster economic growth. This is the hard work of economic management that really matters. Such work was recently described by Will Hutton as involving "the policies that sit between the glories of headline-catching changes in tax, spending and interest rates, and the habitual invocations of labour market flexibility and deregulation".
One of the reasons for the gloom in economic forecasts is the level of price increases in the economy that is depressing nominal GNP. However, we should not assume that there is no work to do in dealing with the cost base and competitiveness. Wages may fall on average next year but underneath that average we are likely to see wage pressures re-emerging in more sheltered sectors. As of now, the Government effectively has no pay policy outside the public service. I favour a return to social dialogue, in a new format with a far more limited agenda than before. Arising from that, I would like to see a negotiated pay freeze for three years.
We must also tackle the level of fees and prices in the protected professions. While some in the legal profession have taken a major hit, I am concerned with regard to what seems to be happening in respect of NAMA, which has an enormous budget for professional fees. In this economic crisis, emergency measures are needed. Such measures must include the State exercising its right to control fees, in areas such as law and medicine, through a temporary fees commission. If we are to deal with the crisis fairly, then everyone must play his or her part. The medical consultant who charges €150 for a ten-minute appointment must be reined in.
These cost controls must also be applied in the public sector, where there must be stronger efforts to control input costs, including professional fees, but also costs such as those relating to drugs and other elements of supply chain management.
For all the doom and gloom of this emergency, the Irish economy actually has a great future. The real Celtic tiger was an export-led boom before Fianna Fáil turned it into a property bubble. Last week, I had the opportunity to meet with officials from the Irish development agencies based in New York. They are doing excellent work and it is clear that there are enormous opportunities for Ireland in sectors such as food, tourism and alternative energy.
Ireland is, and will continue to be to be, an attractive location for foreign investment. Our relationship with the US is vital but we must also recognise that the centre of gravity in global trade is shifting to the east. The new world economic powers - Brazil, Russia, India and China - present a great opportunity for Ireland to develop new export markets. However, building up our business with these countries will require greater resources and strong political commitment, including trade missions led by Government Ministers. This is an area where the Government must lead.
Labour has been strongly supportive of the knowledge economy, if not of the increasingly discredited buzz phrase "the smart economy". A knowledge economy is one where innovation is pursued in every sector and region not just in a small number of specialist areas. We must maintain our investment in science but we must do far more to promote applied and downstream research, which is focused on commercialisation of new ideas.
We must get away from the notion that innovation only happens in laboratories. Innovation can happen in any business and in any region, and tourism is a key example of this. There are tourism businesses in every county in Ireland offering career opportunities across a range of skill levels. Whereas core values such as good service are essential, the industry has been profoundly affected by the information technology revolution, and that change will continue. Having a coherent tourism strategy and delivering on it is essential, as has been proposed in Deputy Upton's excellent document on the subject.
Equally, Ireland has natural advantages in areas such as clean technology and food. Our food sector is still too reliant on exporting goods with limited value added to the UK. We must see agriculture as Ireland's great raw material and develop our food industries accordingly. We need a whole of enterprise approach but we must also look in detail at specific sectors and how they perform.
The role of the industrial development agencies will be critical and we must encourage the agencies to take more risks, be prepared to fail and to take a longer view on where they put their resources, particularly in building up our presence in India and China. We need a network of enterprise support that covers firms of all sizes, including start-ups but also focusing on scale-ups. Ireland needs to do more to keep the companies that we develop and grow rather than getting a start-up to a certain size and then selling the company to a multinational. We need to look at providing more support to firms that are over the size limit to avail of support from country enterprise boards but which are not now getting support from Enterprise Ireland.
To create jobs, we must have investment in infrastructure, firms and people. Given the limits on resources, that investment will have to come in new ways and must be strategic. Labour's strategic investment bank will act as a source of investment finance for major projects and for companies. Even with the constraints on resources we must also prioritise investment in people, and we cannot stand by as 442,000 people are looking for work. We must make a national effort, including both public and private sectors, to offer educational, training and work experience opportunities to our people. Many are already highly educated but need experience. Some have been working but need to address educational needs. There is no "one size fits all" scheme that will deal with this need. What we need, as outlined in Labour's policy document Just the Job, is a range of schemes meeting a range of needs. This costs money but relatively small amounts. Our proposals would cost approximately €230 million in the short term but would save money because people will get off the dole queues more quickly.
Labour has been responsible in Opposition and we will be responsible in Government. We opposed the banking guarantee because it handed the banks a blank cheque and we have been proven correct in doing so.
We opposed NAMA and we have been proven correct in doing so, just as we watch the developers continuing to enrich themselves through more tax breaks on interest they have not even paid. We supported the Government on the Lisbon treaty and we have supported the plan to bring down the deficit to 3% by 2014 because it is right that we send the signal to the world that a new Government will tackle the deficit.
Unfortunately, it has taken too long for Fianna Fáil to grudgingly acknowledge that commitment. We should be clear, as the Government is still less than forthcoming about the kind of basic information that should have been available weeks before this debate, regarding growth forecasts for next year and the years beyond, as well as figures on the adjustment to be made in 2011. We should also know details of how the Croke Park deal will reduce costs or of how the bank bailout is going to be reflected in the deficit target. This is all information that in other countries would be provided to Parliament and to the public as a matter of course.
What I have outlined is an approach to budgetary policy that will allow us in a balanced and consistent way to start getting the deficit down. It will be an approximate 50-50 balance between taxation and spending and new approaches to current spending, capital spending and taxation. These are reforming measures that would allow us to make steady and consistent progress on the budget deficit while getting the country back on the road to recovery. It is on this basis that we can devise a credible plan for stability, growth and jobs.
Fianna Fáil has been in office for 13 years and it has left an enormous mess for the next Government to sort out. It has done so before but the scale of this disaster is unprecedented even for Fianna Fáil. Ireland is not the only country where an outgoing government has left a mess for an incoming government but it is surely the only country where the Opposition is asked to fix the problem while the Government that created it remains in office. This is a great country and we can sort out this problem. We can create jobs and growth but it is clear that will not happen until we have a strong and stable Government with a mandate from the people measured in years rather than months.
I firmly believe it will be extremely difficult, if not impossible, for the Irish people to come through the coming few years of economic crisis without some form of common approach. We need some kind of consensus about how we are going to fix our economy. The Irish people have wearied of the blame game and are tired of bickering politicians who appear more interested in scoring points than addressing the significant problems faced by the Irish nation.
For more than a generation the Irish people have not been served by politics as usual. For a long time we have needed a new way of ordering our affairs. Now, as we face the biggest economic challenges in the State's history, we very urgently need to go beyond the short-term political party interests. We must identify common goals and frame a strategy to work towards them. As the leader of a smaller party which has fought an uphill struggle for three decades working in politics in this country, I know I am asking much when I say it but I am genuinely prepared to make common cause here.
Let us for a moment honestly identify a few simple facts. We have got into this position through fundamental errors which were made as far back as 1977 with the infamous give-away budget and election setting us on a course of auction politics, where politicians sought to outbid one another for voter support. It led us to accept bad planning as a fact of everyday life and in time we fell into a very poor system of financial regulation. It gave us endemic crony capitalism and the blurring of boundaries, which meant those in important jobs did not uphold the people's interest.
It is very sad to reflect now that we did not learn the lessons of the economic slump in the 1980s. That grim experience forced me, like tens of thousands of others, to leave this country to find work and should have taught us enough to put in place systems to ensure it would never happen again. We failed to learn one lesson from economic recession in the 1980s; the imperative to ensure it did not happen again. Are we now about to fail to learn an even more important lesson from that era? Are we about to repeat our failure to take tough, appropriate and timely action to deal with our problems? Are we about to relive the 1980s worst-of-all-worlds approach where we take half-hearted and belated measures which gave us lingering pain but no long-term remedy?
It is abundantly clear that we as politicians have also failed to take on board another more useful element from the 1980s experience. The noble stance adopted by the then Fine Gael leader, Alan Dukes, in 1987 was a once-off stab at consensus. He put aside short-term party interests so that the necessary tough policies could be implemented, although it was all too short-lived. In the macho world of Irish party politics, Alan Dukes's Tallaght strategy has all too often been derided as political weakness, and Fine Gael very recently acknowledged that the Tallaght strategy was good for the country but bad for Fine Gael. It must also be said that the other parties did not reciprocate Mr Dukes's generosity of vision and short-term political goals remained central to Irish politics for the following two decades. They must take their share of blame here.
Most of the political parties – I say this without a hint of rancour – were part of this system and part of this malaise which has brought us to where we are today. Most parties joined in the auction bidding that characterised and were central to the 2002 and 2007 general elections, as parties sought to buy the voters' support with various incentives and blandishments. I do not remember anyone warning of an impending economic crash in the property price spiral. I do not recall anyone raising a flag about poor and inadequate financial regulation. I do not have any memory of anyone calling for root and branch reform of our planning system. Like the Green Party, many Members were not part of a Government which made errors in handling this country's affairs. However, most parties joined in propagating and institutionalising politics as usual. Politics as usual played a significant role in getting us to where we are. Just this week, the main political parties in Portugal engaged in negotiations on a common budgetary approach. These talks are proving very difficult, but they are taking place and we could learn a lot from a country and people first approach.
After weeks of deliberation and many long meetings, the Government has decided we need to bring in measures totalling €15 billion over the next four years. We must do that to meet the 2014 target to cut the budget deficit to 3% as agreed with the European Union. We have considered the arguments for extending this timescale. If we in the Green Party thought there was a benefit for the Irish people in that idea, we would have backed it, but we honestly and sincerely do not believe it is the correct thing to do. We believe it would replicate the 1980s experience, making the recession last much longer than it needs to.
I acknowledge the honesty that led Fine Gael and the Labour Party to agree the target and timescale to reduce the deficit. I further acknowledge their courage in maintaining that commitment despite recent calls for a change. However, I am determined that this is not enough. It is not enough to say that we must achieve that target without agreeing a basic roadmap to take us there. The figure of €15 billion is double the one set out in last year's budget but it will maintain the confidence of our EU partners and lenders on international money markets. This confidence is vital to our short-term and longer-term prosperity and it is crucial to our efforts to protect and reassert our independence.
The main reasons for this significant increase are the reality of lower economic growth prospects at home and abroad and the higher costs of paying interest on our debt. The Government must bring the deficit down to 3% of economic output by 2014 to come back in line with EU rules. I welcome the fact that the EU Monetary Affairs Commissioner, Olli Rehn, will be in Dublin early next month to discuss the four-year budgetary framework plan with the Opposition and the social partners. The Government intends to publish formally the four-year plan shortly after that.
The spending cuts and revenue raising measures needed will impact on peoples' living standards, but it is a matter of conviction for me that it is neither credible nor realistic to delay these measures. We must restore and maintain confidence in our ability to meet our obligations and responsibilities. We cannot repeat the experience of the 1980s and delay a return to sustainable growth and full employment in our economy. It is true that a significant front-loading of the €15 billion correction will be needed next year. We will continue to work with our Government partners in producing detailed plans which will be published in the middle of next month. We in the Green Party are working with two main imperatives in mind. First, there must be a balance in the measures to ensure that the economy is not unduly impaired in the medium to longer term. Second, spending cuts and revenue raising must be fair and impact most on those best able to bear the strain.
There is no denying the difficult choices have to be made, but the job of everybody in the House now is to get a budget that works and that gets Ireland out of the economic difficulties that it is in. The Green Party in Government has managed to protect a number of key areas from the deepest spending cuts. We have reversed the education cuts, a key feature in the programme for Government and the reason that so many in my party endorsed it.
We protected actions taken to combat homelessness. In fact, we ensured extra spending in this area. Protecting the most vulnerable at home and abroad has to be priority and that is why the Green Party, as part of this Government, has protected overseas development aid. We have also recognised that the creativity of the Irish people is undoubtedly our greatest asset and that is why we have protected the arts. This is an investment that leads to sustainable growth, particularly when linked to tourism opportunities.
Our job is to get us out of this crisis and plan for the recovery which will be green. That is why we are protecting investments in modern public transport and environmental infrastructure. This is what we have done thus far and we intend to stick to this path. As I have said, I realise only too well that the adjustment required is painful and indeed may seem right now to be overwhelming. I am also aware of the difficulties of persuading people of its necessity when trust in the political system has broken down. That trust has to be restored. It can only be done through fundamental change to business of politics.
We cannot and we will not tolerate the status quo. We need to see changes to ministerial transport, the salaries and expenses of Deputies and Senators and the working times and productivity of the Oireachtas. Members of the public are also justifiably angry about what they perceive as the inequality of treatment for white collar criminals in this country. My party has always said that this is intolerable and the Government needs to show purpose in this regard.
No Government Department will be immune from cutbacks and other changes, but in the Department of the Environment, Heritage and Local Government over the past two years of major challenge, we have maintained a strategic focus on supporting economic recovery and assisting those in need of support. Focus has been kept on sustainable economic development. As a party which has a fair proportion of people who run their own businesses, we understand the need to keep the rates base low for those in business and the Government has done this. The Taoiseach has convened meetings on the issue and we understand the need to continue with the policy because many people in small businesses are feeling the strain.
My Department is now finalising proposals to give effect to the commitment in the renewed programme for Government to introduce charges for water services. We intend doing this in a way that is fair, significantly reduces waste and is easily applied. The installation of water meters in households connected to public supplies will encourage householders to conserve water and will result in savings in the significant operational costs faced by local authorities in providing water and waste water services. It will also complement the significant increases in investment on water conservation measures in the water services investment programme 2010-12 which I announced earlier this year. I am proud to say that, even in these straitened times, this programme brings a fivefold increase in funding for conservation measures to €320 million.
The roll-out of meters to more than one million homes around the country will require significant resources and I will be analysing the various options to ensure the delivery of the metering programme in the most cost-effective manner. A number of funding options are being considered and the achievement of value for money will be a key factor in determining the approach to be taken. The programme will also provide a very significant job creation opportunity in the construction sector. It is estimated that every €1 million euro per year spent on installing water meters will provide employment for a minimum of ten people. The metering programme will take a number of years to complete, but every effort will be made to complete it in as short a time as possible. My aim is to ensure that, once meter installation commences next year, we will have a significant proportion of the programme completed in two to three years.
Also regarding water services, we have made available over €1.5 billion since 2008 and with this investment much has been achieved. In 2009, for example, we saw completion of 40 major water and wastewater schemes, with 108 other major schemes under way at year's end. In the period 2000 to 2009, we added the equivalent of over 1 million population to the capacity of water treatment systems and the equivalent of 3.7 million population in wastewater treatment capacity. This high level of expenditure reflects our commitment to protecting our water resources, meeting EU standards and putting critical infrastructure in place to support development and jobs.
In the housing area, we have made available a budget of over €4 billion since 2008 to spend on a range of measures. This reflects the high importance the Government attaches, in difficult times, to the provision of social housing and meeting the needs of homeless people and other vulnerable groups requiring housing support. Our strategy has been to maintain output through more flexible approaches, and to prioritise the most vulnerable and disadvantaged. We are shifting away from new build projects and towards initiatives such as leasing and the rental accommodation scheme. Available capital funding is increasingly targeted at special needs housing and improving the environmental performance of our housing stock.
We have also maintained a high level of ambition for local authority regeneration and improvement works in some of the most disadvantaged and neglected areas of the country, aimed at helping to replace failed estates with vibrant, sustainable communities. Nearly €200 million is being provided for this purpose in 2010 alone. Major improvement in recycling performance can be seen in the fact that the latest available statistics, for 2008, show the municipal waste recovery rate at 37.5%, 65% of our packaging waste is being recycled and 9 kg per capita of household electrical and electronic waste is being collected. All of these figures exceed European and national requirements.
My Department has also introduced a range of policy measures to help better target Exchequer investment and facilitate economic recovery. The national spatial strategy update and outlook sets out a revised implementation framework aimed at maximising the spatial planning and regional contribution to economic recovery, long-term national competitiveness and sustainability. A key element in the Planning Act 2010 is the introduction of a requirement for an evidence-based core strategy in development plans. The location, quantum and phasing of proposed development must be shown as well as growth scenarios, details of transport plans, retail development and policies regarding development in rural areas. This requirement will help target scarce Exchequer resources on sustainable economic development. We introduced this legislation to ensure we will never go back to those dark days of overzoning and ensure that we learn from the severe lessons of the past.
The multi-agency local government-led county development boards, CDBs, have established economic development sub-committees made up of representatives from FÁS, Enterprise Ireland, the IDA and local business interests including chambers of commerce, to develop and co-ordinate economic plans and strategies for their areas. When required, they also act as the local-based inter-agency task force constituted in response to significant issues in the area and to provide a focal point for economic promotion of the county. I have agreed that these sub-committee will also operate as a business users forum in each county and city.
The CDBs also work closely with business support units or similar arrangements which have been put in place in all county and city councils at my instigation to act as a point of contact to ensure quick co-ordinated responses to businesses from local authorities in areas such as planning, water and roads. In this way, business interests will have the opportunity to discuss issues with a range of relevant bodies including the local authorities. The units provide assistance to individuals and businesses seeking advice and direction on business start-up and expansion and signpost them to the most appropriate organisations to ensure they get the necessary support.
Despite the very obvious difficulties, there have been significant achievements in recent years and these should be acknowledged. They give us confidence that even with the challenges we now face we can meet the objectives we have set. Ultimately, this work will also help set the country on the path to long-term sustainable growth but in the immediate term we have to face the challenges of completing the four-year programme and the budget for 2011. We in this House need to make common cause in facing these challenges. Unfortunately, to judge by some of the debate so far, it is adversarial politics as usual and sometimes these debates can produce more heat than light.
In this time of crisis we need to move beyond business as usual politics. We are far more likely to beat this recession earlier and better with some form of cross-party approach in the actions we must take. I have not given up hope of getting something moving in this direction. I state to the parties opposite in all sincerity that huge changes will be made in the coming years. They may well be in government and find the choices they have to make are extremely unpalatable. They may and will argue that they are in the national interest but if we have politics as usual those challenges will be extreme and it will be extremely difficult to implement. This is why I continue to ask for some form of consensual approach.
Sinn Féin stands as the real opposition in this debate. Deputy John Gormley's call for talks between party leaders and all that followed served one very useful purpose; it cleared away the smokescreen of false party rivalry and exposed the alignment that exists in Irish politics. It is now very clear that Fianna Fáil, the Green Party, Fine Gael and the Labour Party stand together in their economic approach. They form a consensus for cuts. Sinn Féin stands apart from that consensus for cuts but we do not stand alone. The Irish Congress of Trade Unions and its constituent unions, the community and voluntary sector, the ESRI and a range of economists have warned against the strategy of attempting to cut the budget deficit to 3% by 2014.
Sinn Féin joins with those seeking real recovery and a fair way forward and we are convinced that there is a better way. We recognise that the deficit caused by the disastrous policies of the Government has to be reduced. However, the plan to reduce it by 2014 by imposing savage cuts to front line services and social supports will be hugely damaging. It will further deflate the economy and worsen the recession. Furthermore, the approach the Government is taking in its four year plan of front line and capital spending cuts as well as flat regressive taxes is the same approach it has taken up to now and it has not worked. Deepening the cuts will only compound the problem.
We need a different strategy and a longer timeframe. We want a realistic deficit reduction strategy based on a fair taxation system that ensures the wealthy pay their share, on investment in jobs which will increase State revenue and reduce the social welfare bill, and on the elimination of wasteful public spending. Our approach is based on the reality that there is wealth in the State and that 1% of the population controls 20% of that wealth. If that inequality had been addressed a decade ago we would not now be in recession. It is possible to reduce the deficit to 3% over a longer timeframe, provide real stimulus for jobs in the short term, raise revenue from wealth, eliminate wasteful public spending and ensure the delivery of public services while protecting those on low income.
The Minister for Health and Children has threatened cuts to our public health services of between €600 million and €1 billion. Our health services face devastation if this is allowed to proceed. I have no doubt that cuts to services on this scale, especially as they affect our public acute hospitals will cost lives. In Sinn Féin's pre-budget submission we identify €600 million that can be saved in the health system without affecting patient care. Take the drugs bill for example; tackling profiteering, waste and over-prescription and increasing the use of generic drugs can make huge savings. However, what is the Government's approach? It is to target the patients, such as those on the medical cards who had prescription charges imposed on them.
The report of the Comptroller and the Auditor General earlier this year on the National Treatment Purchase Fund, NTPF, exposed the waste that is involved there. It stated that of the procedures performed in public hospitals in some cases the patient was treated privately in the same hospital where he or she had been on a public waiting list. Even more extraordinary, and surely a conflict of interest, is that in 8.5% of treatments arranged by the NTPF, the consultant referring and treating the patient is the same. In other words, in a public hospital a specialist can refer a patient under the NTPF to himself or herself, thus ensuring the consultant a higher rate of remuneration for the work because it is being done so-called "privately" even though the State pays the bill. This surely exposes the folly and waste that is the NTPF.
In a reply to a Dáil question received from the HSE last week, I was told that to date a total of 296 hospital consultants had been written to by clinical directors and hospital managers regarding the need for them to address excessive levels of private practice. These excessive levels are of course in breach of their contract. This is only the number of consultants that hospital management has detected. Here is another indication of the massive waste of public money involved in the two-tier public-private hospital system. In another reply, the HSE admits that in Carlow it is paying rent of €1,000 per day to a private landlord for a primary care centre rather than develop the centre rent-free on an existing HSE site in the town. The reason for this expenditure is purely ideological; it is because developing the centre on HSE premises would not be in line with the Government's policy of developing all new primary care centres through public-private partnerships, even if these cost more than the fully public method. Sinn Féin has demonstrated that elimination of waste and delivery of equity and efficiency can go hand in hand. We will set out our proposals in detail in our pre-budget submission next week and my colleague, Deputy Arthur Morgan, will refer to them further in his contribution to this debate.
The enormity of what has been done to this economy by the reckless policies of the past decade and a half is difficult to grasp. Yet the stark reality is that Fianna Fáil and the Greens have brought the country close to economic ruin since 2007, their so-called solutions having made the situation worse. They have introduced four successive budgets, as well as emergency measures in February 2009, and the result is as follows - a total of 450,000 people are now out of work; a total of 100,000 more will have emigrated by next year; tax revenues have collapsed; almost €90 billion between recapitalisation and NAMA has been promised to bail out the banks; the interest rates being paid by the Irish Government on the international bond market are three times those paid by Germany.
This Government is planning a budget in December that will attack people on low incomes and devastate vital public services. The Government has decided that someone who earns €300,000 a year contributes enough but a person on the minimum wage, or someone who has lost his or her job and is receiving €196 a week, must survive on less.
The Government has signed up to a four-year timeframe for deficit reduction which it knows it cannot meet and which the IMF, OECD and ESRI, know it will not meet. Fine Gael and Labour have once again followed the Government's lead, just as they did in the general election in 2007 when they, too, offered to cut taxes and just as they did in the Lisbon referendum in 2009 when they promised there would be jobs if people voted "Yes" to Lisbon.
This is not just a question of the 3% by 2014 target being too short in time; it is also about how the Government proposes to go about reaching that target. It is preparing a slash and burn approach to the economy that will cause untold damage. It will attack the least well off but it will also attack the overall economy and delay recovery. The consensus for cuts parties are determined to plough on, tying this State's future to a formula brokered with the EU Central Bank, regardless of the consequences. It is no coincidence that these are the same parties who campaigned for a "Yes" vote in the second Lisbon treaty referendum, having refused to implement the people's decision to reject that treaty when first put to them. In Lisbon Two they urged the people to, "Vote Yes for Jobs". We ask where are those jobs as we contemplate the reality of over 450,000 people on the dole queues and emigration on the rise. Those young people forced to emigrate, the hundreds of thousands unemployed and the people struggling on low incomes are ill-served by the capitulation of the so-called main Opposition parties. Slash and burn and all will be well by 2014, is the new mantra and anyone who does not accept it is being labelled as economically insane.
Sinn Féin was labelled as economically illiterate in 2007. Yet, had our policies been taken on board in 2007 and before it, we would not now be in the depths of this recession. Alone among the political parties in this Dáil, we did not call for tax cuts. We called for Government housing policy to be based on the need for decent housing for all the people, not a policy of inflating the property bubble. We called for wealth to be shared on the basis of a fair taxation system. We called for the banks to serve the economy and the customer and for the unbridled greed of financial institutions to be curbed by Government. Fianna Fáil-led Governments pursued exactly the opposite policies, driven by greed and totally devoid of any real vision for the future of the Irish people.
When we spoke of a golden circle we were derided but such a golden circle existed and what we have found out since shows that we and others actually underestimated the extent of the corruption and the avarice at the top of the ladder in this economy. The so-called regulators were in collusion with the bankers and developers. Ministers and top civil servants allowed it all to go on unhindered. The elite executives at the top of the public service and the semi-State companies were awarded massive salaries and perks on a par with the high-flyers in the private sector. Auditing and accountancy firms played their part and profited handsomely by it. What has changed? In many ways, very little. I will give one concrete example. Loan valuation for NAMA is being carried out by Ernst and Young. Last April in the Dáil I raised this issue with the Minister for Finance. Ernst and Young was the auditing firm for Anglo Irish Bank when accounts were published in February 2009. That report effectively gave Anglo Irish Bank a clean bill of health, yet we now know that the 2008 year-end figures included cash that had been transferred from Permanent TSB. We know that directors' loans were concealed and loans were given to shareholders to buy more shares. Loans were also given to directors, senior executive members of Anglo Irish Bank, to buy more shares, yet none of those matters was exposed in the end-of-year accounts presented by Ernst and Young. KPMG is now audit co-ordinator for NAMA. KPMG audited Irish Nationwide. Its 2008 results, announced in April 2009, showed a pre-tax profit of €300 million after having set aside €500 million for bad debts. In April it was confirmed that Irish Nationwide required €2.6 billion in funds from the Exchequer, a mere 11 months after KPMG gave it a clean bill of health. I asked the Minister for Finance at that time how it came about that these firms got the top contracts for NAMA, given the questionable role they played in presenting figures allegedly as facts when we now know they were nothing of the kind. I asked if those auditing and accountancy firms were being investigated for their specific roles in what some would suggest was an orchestrated cover up of the facts on those financial institutions.
The Minister replied that the questions raised by me were legitimate and that he would ask NAMA to examine what I said about the professional advice involved. He said the matters to which I referred are serious and will require investigation both by the accountancy bodies and the banking inquiry. Where stand those investigations now? If the situation were not so serious it would be amusing to listen to the Taoiseach and his Ministers talking about the need for us to preserve our economic sovereignty. Whenever we in Sinn Féin pointed to the erosion of economic sovereignty as a result of successive EU treaties, we were ridiculed.
Successive Governments have abandoned economic sovereignty. They have allowed international bondholders and the European Central Bank to determine how many euro go into the pockets of the least well-off in our society. We should not doubt that it comes down to that. In the last budget the Government, which is tied to a doctrine of fiscal rectitude, took €8.50 per week from the pockets of those who care for elderly, ill or disabled relatives in their homes. It halved the level of assistance given to the young unemployed. It took the Christmas bonus from social welfare recipients and cut welfare payments across the board.
Fitch Ratings recently called for more evictions in Ireland in order to enhance the reputation of the banks. This is what happened when we had landlord rule under the Union Jack. It is only one step removed from what the Government is doing to the least well-off. Far worse is planned in the next four budgets. I put it to the Minister for Finance last week that international bondholders are now more important than the Irish people in the consideration of this Government. The Minister indicated in May that he could not say who the bondholders are; I have a list of 80 possible suspects. I cited a number of them on the floor of this House last week. They include Alliance Global Investors France SA, Barclays Wealth Managers France, BlueBay Asset Management Limited, BNP Paribas Asset Management, Brown Shipley & Co. Limited, Credit Suisse Asset Management, Deutsche Asset Management Investmentgesellschaft, European Credit Management Limited, Frankfurt-Trust Investment, W & W Asset Management and WGZ Asset Bank Luxembourg.
I understand that this list of 80 suspects contains Anglo Irish Bank bondholders, and that the composite figure of the face value of the bonds they hold exceeds €4 billion. These people, rather than ordinary taxpayers, should have taken the hit from the collapse of Anglo Irish Bank. The Minister replied that many of them are also subscribers to Irish Government bonds. We rely on them for the Government's massive borrowings. I understand that Goldman Sachs, which advises the Government on its approach to bondholders, also appears on the list of Anglo Irish Bank bondholders. The next time Mr. Peter Sutherland, who is the chairman of Goldman Sachs International, descends on us from the clouds to give his advice, perhaps reporters from RTE and The Irish Times will ask him about the conflict of interest that is certainly involved. In the meantime, the Minister might like to address this conflict of interest in his contribution at the end of this discussion. The bondholders invested in a bank and not in a state. They should have read the disclaimer at the bottom of bank advertisements, which we all know off by heart. It states the value of one's investment may go down as well as up. What part of that did they not understand?
The budget plan that the Government is working on has nothing to do with deficit reduction. For every cent that is cut from front line services next year, at least 10 cent will be redirected into the Government's bank bailout. If spending cuts could fix the deficit problem, we would not have a growing deficit. What has happened after had three years of spending cuts? The deficit has grown. The Government, with the support of Fine Gael and Labour, is planning a savage four-year timeframe in which to fix the deficit problem. Sinn Féin is advocating a different six-year approach which could see the economy recover sooner. The consensus for cuts believes that to grow a little, one must cut a lot. We believe that to grow at all, one must invest. The relationship between jobs and the deficit is a clear one. If more people are in work, more tax is brought in and fewer welfare payments have to go out. It does not take a genius to work out that reductions in expenditure put people out of work, bring the tax take down and increase welfare spending.
The policy of cutting social welfare is a false economy that ultimately causes misery for those on the receiving end. People on social welfare spend every cent of their income in the local economy. If one cuts their welfare, one inflicts cuts on the local economy. Rather than targeting welfare, the Government should target wealth. It has been estimated that there are approximately 33,000 millionaires in this State. In the five years since 2005, they have been the main beneficiaries of approximately €20 billion as a result of tax break schemes introduced by Governments led by Fianna Fáil. The schemes in question include tax relief on pensions, a myriad of property tax reliefs, reliefs on private nursing homes and hospitals, capital allowances and the PRSI ceiling. On 17 October last, Dr. Michael Collins, who is a member of the Commission on Taxation, reiterated that 110 of these tax breaks are still in place and are costing the public purse €11 billion per annum. If this millionaire section of the Irish people paid a 1% wealth tax, the Government could receive €1.2 billion in 2011 and every year thereafter.
We believe that the parties of the left should be joining trade unionists, those involved in community and voluntary organisations and other progressive voices in demanding an alternative way forward. We are calling for the abandonment of the unrealistic and damaging target of 3% deficit reduction by 2014. We want revenue saving and raising to be based on fairness and efficiency. We demand stimulus measures to protect and create jobs. Vital front line public services, including health, education and social supports, should be supported. I thank the Minister for the Environment, Heritage and Local Government and the Minister of State with responsibility for children for staying to hear my contribution. I hope they will heed some of the arguments I have presented this morning. A consensus for real recovery is needed now more than at any time in our shared political experience as elected voices. We do not need a conspiracy of political parties against the people.
In the past two years, this Government has had to deal with the consequences of the most severe economic downturn in the history of the State. The crisis has primarily related to the public finances and the banking system. In a consistent way, the Government has acted swiftly and with determination to deal with each episode of the crisis as it emerged.
As a result of these actions, stability is being restored to the banking system, economic growth has resumed, albeit on a limited basis, and the economy has regained a considerable amount of the competitiveness it had lost. Notwithstanding these favourable trends, the interest demanded on Irish debt has risen and is set to remain high unless further decisive and credible action is taken soon to stabilise the public finances and establish the basis for sound economic growth for the years ahead.
The impact of the economic downturn has been severe. In the past two years, 2008 and 2009, gross national product per head is estimated to have fallen by more than 16%. Despite the severity of the downturn, however, I do not want to be negative about the economy because although last month's quarterly national accounts data were somewhat disappointing, they were not so in a uniform manner. For example, the quarterly GDP decline of 1.2% comes on the back of a very strong increase of 2.2% in the first quarter of the year, which essentially indicates that the level of economic activity has stabilised in the first half of the year.
The quarterly figures also point towards a bottoming out of gross national product, which is the most appropriate measure of Irish living standards. Gross national product fell by just 0.3% in the second quarter, a considerable improvement on the fall of nearly 11% last year. In summary, the national accounts figures for the first half of this year point to stabilisation as a prelude to growth.
The latest information on labour market trends also provides evidence of stabilisation. The Quarterly National Household Survey for the second quarter of this year showed that the downward trend in employment is slowing rapidly and that in some sectors the underlying trend has become positive. Even in unemployment, the latest figures point to stabilisation; in September the unadjusted live register fell by a record figure, and there was also a substantial fall when account was taken of seasonal factors.
In addition, the data confirmed another strong export performance in the second quarter of this year following a good performance in the first three months. This is encouraging. It is clear evidence that the improvements in competitiveness in recent years are having the desired effect. An especially welcome feature of the export figures was that they showed a broadening of our export performance, with strong growth recorded across a number of sectors.
Although the latest economic indicators point to a resumption of economic growth, this growth will - initially at least - depend on exports and will be at a modest pace because investment and consumption will take some further time to recover. We cannot rely on economic growth alone to stabilise the public finances in the short to medium term. In fact, and this is the key point, there is a structural gap in our public finances and without concerted action we will not repair the deficit and that would mean a continued drain on economic growth.
The impact to date of the downturn in growth on the public finances has been drastic. Despite the considerable efforts of the Government in the course of the last two years to bring stability to the public finances, additional and even serious adjustment measures are still needed over the next four years. A few figures will help to explain why so much adjustment is needed. Total current public expenditure increased by almost 150% in the period 2000-2010, with a near tripling in expenditure in the social protection and health areas as well as major increases in the education area. Over the same period the economy only grew by 40%, while consumer prices increased by just under 28%. Having recognised at an early stage in the downturn that action was needed to deal with the public finances, the Government has been engaged in a process of significant re-prioritisation and consolidation of all areas of expenditure since 2008. The measures introduced have reduced all aspects of Government spending, including public service pay and operating costs across Departments and State bodies. As a result, annual growth in public expenditure has fallen from 12.1% in 2007 to an estimated contraction of 1.8% this year. This major consolidation has been achieved in the face of significant pressures associated with rising numbers on the live register, increasing debt interest payments and a downturn in the economic cycle. This process of expenditure realignment has not been painless and has required a wide range of sometimes unpopular, but necessary, actions by the Government.
Ireland is now into the third year of a multi-annual consolidation period, and the Government is busily making preparations for the four year plan. It may be useful to recap the main initiatives undertaken by the Government over the past few years.
Shortly after coming into office, I put a range of efficiency and savings measures into effect in July 2008, including those identified as a result of the efficiency review process initiated by my predecessor in budget 2008. These savings included a 3% reduction in payroll costs for all Departments, State agencies and local authorities other than front-line health and education services and a 50% reduction in expenditure on consultancies, advertising and public relations by Departments and agencies.
Budget 2009, which was brought forward to October of 2008, continued the objective of continuing to restore the sustainability of the public finances. A significant tax package to raise almost €2 billion in 2009 was introduced. I also announced the setting up of the special group on public service numbers and expenditure programmes in November of 2008 with a remit to identify potential savings in all areas of Government expenditure, including a thorough reduction in the numbers of staff working in the public service.
By the start of 2009, international forecasts for the global economy had been revised sharply downwards, reflecting the effects of the worldwide upheavals in the financial markets. In this context, the Government set out a multi-annual fiscal plan in January 2009, with the objective of bringing the overall deficit back within the 3% ceiling in a credible manner. That plan remains in effect today, and our subsequent policy actions have been designed to implement and to underpin our consolidation drive.
Accordingly, further programme and payroll savings of the order of €3.5 billion were announced in the first half of 2009. The main element of the February package of measures was the introduction of public service pension-related pay deduction. Additional capital and efficiency measures were also announced, including a 25% reduction in the rates of the domestic travel and subsistence allowances, and an 8% reduction in fees paid for professional services. The supplementary budget in April 2009 continued the process begun by these earlier measures, consolidating the expenditure reductions through a range of programme savings.
Budget 2010 continued the process of implementing a multi-annual plan, with an expenditure reduction of €4 billion delivered. This was achieved through a combination of payroll, social welfare and other programme reductions, reflecting the sharp fall in the price levels across the economy over the course of the year. The special group report, published in July 2009, has been a central point of reference in the Government's consideration of overall expenditure strategy in budget 2010, with savings of some €2.1 billion in 2010 arising from the report to date.
No doubt the Government has had to take some difficult measures in order to stabilise our budgetary position. Nonetheless, we are still well aware that it is vital for us to continue to invest in key infrastructure so that we can best position ourselves to take full advantage of the economic recovery.
Despite our straitened budgetary circumstances, the capital allocation for 2010 amounts to almost €6.5 million or 5% of GNP, which is very high by international standards. While it is inevitable that further adjustments in the capital allocations are now required, I still expect Exchequer capital investment to remain at a significant level and be a key source of infrastructural investment in this economy. This Exchequer capital programme will be supplemented by projects part-funded by private investment in the PPP programme and by the investment programmes of the commercial State-sponsored bodies.
Notwithstanding a scaling back of the investment programme, which will build on the high level of public sector investment which has taken place over the past decade, it still represents a major ongoing stimulus to the economy. The Government is determined that, in addition to scaling back on expenditure as necessary for fiscal correction, we continue to build the economic capacity for strong growth, to take full advantage of the recovery as and when it gathers strength. Government capital investment will, therefore, support those projects which will help the development of a productive and internationally competitive economy; the development of the smart/green economy; support sustainable long-term employment; and provide a modern social infrastructure.
Evidence that the Government's efforts to stabilise the public finances are now having a positive impact was provided by the most recent Exchequer returns of revenue and expenditure, covering the period to the end of September. These figures show that the overall Exchequer position is in line with target. Encouragingly, total tax revenue is exactly in line with profile, expenditure is approximately €1.6 billion down year-on-year and the underlying general Government deficit this year is expected to be in line with the budget target; in other words, after experiencing an unprecedented shock to the economy we have stabilised the public finances. The second phase of our task is to build on the measures we have taken, narrow the gap between day to day spending and what we earn and therefore bring longer-term sustainability to the public finances over the next few years.
Notwithstanding these encouraging figures, the position remains serious and a few crucial details clearly demonstrate why we need to change the path of the public finances. At the end of 2007, total national debt was only 23% of GNP and the Exchequer deficit in that year was only 1% of GNP. By contrast, in 2010, we expect revenues will be €35 billion and net expenditure is likely to be €54 billion, leaving a gap to be filled by borrowing of €19 billion - an average of over €4,200 for every man, woman and child in the country. As a result an underlying general Government deficit of 11.9% of GDP is expected this year.
On a purely headline basis, the general Government deficit this year will be extremely high - currently estimated at 32% of GDP. This is due to the accounting treatment of capital support being provided to some of the financial institutions. However, it should be stressed that no additional borrowing is required this year as a result of this large headline deficit and the Exchequer is already fully funded through the first half of 2011. In addition, the funding costs of the capital support are being spread out over the next ten or so years, thereby lessening the impact on the Exchequer and they are manageable in that context.
While these costs are manageable, the overall position is that the debt to GNP ratio is estimated to be 75% at the end of this year. With high interest rates, the annual interest bill is big and is getting bigger. If we were to allow this trend to continue, it would not be long before we were at debt levels last seen in the 1980s which, as we all remember, well exceeded 100% of GDP. This time, unlike in the 1980s, while we benefit from being a member of a strong global currency, the euro, we cannot unilaterally devalue. Furthermore, the prospect for strong global growth is mixed, inflation is low and, above all, the indulgence of the markets to build our rapid build up of debt levels is not available.
While substantial progress has been made in tackling our public finance difficulties, the Government is fully aware that the scale and speed of the deterioration in the public finances mean we have to make considerable adjustments now in order that we will not have to make even bigger ones later. We remain fully committed to reducing the general government deficit to below 3% of GDP by the end of 2014. This means we have to take many essential decisions. Despite the scale and urgency of the necessary adjustments that have to be made, however, Irish people will still hold on to most of the gains built up in the many years of strong growth we have enjoyed since the mid-1990s. Over that period, we took many steps forward; we are now taking only one step back. Also, and most important, despite the urgent need for large-scale adjustments to the public finances, the Government is going about making these decisions to ensure they will be fair and will enhance the economy's growth prospects.
I have made officials from my Department available to the finance spokespersons of all the parties across the floor to explain to them and some of their colleagues the current macroeconomic position and the prospects and scale of the adjustment that needs to be made to the public finances over the next four years. I am pleased with the response from the main Opposition parties to this series of meetings in that they share with the Government a recognition of the scale of the adjustment that needs to be made, even if we do not have a shared view of the specific actions needed to achieve this adjustment. The first series of meetings on 18 October was followed by another meeting yesterday and I expect my officials and I will be available to Opposition parties between now and budget 2011.
Deputy Gilmore made a number of points this morning to which I would like to reply. However, in the time available I can address only a few of them. The Deputy makes the general point that insufficient figures have been provided to him by my Department and that the Government's proposals lack credibility. At this point, I can only reply that he will be provided with all the figures he could reasonably want when these have been finalised. I can also guarantee one thing about the Government's four year plan; it will not lack credibility.
On a more specific point, Deputy Gilmore cites a recent report identifying a claimed €11 billion of tax expenditures. More than 90% of these tax expenditures are the tax allowances from which all taxpayers benefit, such as the PAYE credit and basic income tax credits. It does not serve public debate well to misrepresent the basic PAYE credit or credits available to income tax payers as in some way a tax shelter enjoyed by the very rich when they are a basic entitlement of every taxpayer.
Deputy Gilmore proposes the introduction of a 48% income tax rate. It should be borne in mind that such an increase would raise only €410 million in the next year. One of the great advantages of the multi-annual, four year plan approach is that one projects tax revenues over a four year period. If one thing is abundantly clear, it is that a 48% tax rate, in addition to the current levy and PRSI systems, would effectively mean an effective marginal tax rate of 62%, which would lead to a reduction in tax receipts in the subsequent years of the plan. The initial figure of €410 million would decline over the four year period as higher income tax earners, faced with income tax and impositions of tax from the State in excess of 60%, flee the jurisdiction. Deputy Gilmore needs to face reality when he claims that the deficit target of 3% can be met without examining any tax increases on incomes under €100,000.
A proposal for a strategic investment bank was referred to again. It is unclear from where the funding for such a bank would come. While the capital is to come from the National Pension Reserve Fund, it is unclear from where the funds would come. In essence, the bank would compete with our two established banks and the State for increasingly scarce funding. The cost of borrowing to the State, as a sovereign, is at a very high level, while the cost of borrowing for the banks it at a higher level. The strategic investment bank, once capitalised, would face the same difficulty the banks and State already face. Every euro the bank would attract would mean one less euro for existing banks and the State which must now borrow €2 in every €5 spent on providing our public services. It makes little sense for the State to set up a new bank to perform the functions we are now correctly demanding of Bank of Ireland and Allied Irish Banks in return for the support given to these institutions by the taxpayer.
I will now address the proposed four year plan. The urgency, scale and duration of the adjustments required to stabilise the public finances demand a response that matches this challenge. It is vital that this response shows we have a clear, credible path for doing so. This response will be presented in the Government's four year growth and budget plan, which will be published in the next few weeks and presented to Dáil Éireann.
Yesterday, I announced the Government's decision that to achieve the 3% of GDP deficit target by 2014, an overall adjustment of €15 billion is now warranted and this figure will underpin the four year plan. The focus of the Government at this stage is on finalising the size of the necessary adjustment for 2011. The Government is conscious of the need to strike an appropriate balance between continuing to bring order to the public finances while, at the same time, taking account of the economic impact of budgetary adjustment. However, as I stated, there needs to be a significant element of front-loading in the 2011 budget given the scale of the adjustments.
In broad terms the plan will set out clearly the revised annual headline targets and necessary adjustments to adhere to a credible deficit reduction plan in the medium term. It will take on board the most up-to-date economic and fiscal data and the implications for the fiscal process. It will also chart the path of the economy and public finances towards recovery over the years 2011 to 2014. To underline the strength of our resolve, budget 2011 will contain a significant consolidation effort and the size of this, as well as the distribution of the adjustments over the remaining three years, will be also presented in the plan.
The plan will show in a detailed and credible manner how we can correct the imbalances in the public finances, while showing a pathway to sustainable increases in living standards and demonstrating to the markets that we have the vision and capacity to address our public finances problems and resume economic growth. As part of the budgetary plan, we will set out a strategy for underpinning and encouraging sustainable economic and employment growth in the medium term.
It is only through adopting policies that enhance our economic growth and job creation prospects and improve our competitiveness that we will achieve the necessary targets. To ensure the fiscal targets we set are delivered the four year plan will also feature reforms to the budgetary framework. I thank the Opposition parties for their participation at the Joint Committee on Finance and the Public Service on the proposed budgetary framework. I understand the joint committee is finalising its deliberations on that subject and look forward to receiving its report in that regard.
While the details of the plan have not yet been finalised, I can at this stage outline what I envisage it will contain. To begin with, the plan will outline the current economic position and outlook and explain why the necessary budgetary adjustments have to be made. This will be followed by a statement of the economic growth strategy, fiscal targets, details of the expenditure and tax adjustments as well as a statement of the principles that will underpin these adjustments. It will also include a review mechanism which can make adjustments to the plan as circumstances change.
An important element of the plan will focus on structural reform. This is an issue that has not received the attention it merits in recent years because of the need to deal with more imperative matters. Structural reform is about making the economy - both the private and public sectors - work better. It is not only about dealing with macroeconomic imbalances. It is not enough to sort out the public finances and leave untouched the way the economy works, particularly, as is evident, when it is in need of change. We, therefore, have to take action to ensure our policies support the restructuring of the economy in the wake of the present crisis. We have to ensure no sector will be a drag on economic growth, competitiveness will be maximised and that which is under the direct control of the Government - our tax system, public expenditure programmes, budgetary procedures and public services generally - will be reconfigured to achieve optimal efficiency, economy and effectiveness.
Structural reform measures often take several years to have full effect but announcing a set of wide-ranging structural reforms in the four year plan will have the immediate effect of adding further credibility to the macroeconomic and budgetary framework it will contain.
In the context of structural reforms, it is also relevant to mention that on 12 November next Ireland will submit an initial draft of its national reform programme under the EU 2020 strategy to the European Commission. This draft, which will be considerably influenced by the four-year plan, will contain the set of key structural reforms which can be implemented most quickly and which will address the main obstacles to economic growth. The final and more detailed plan will be submitted to the Commission in the spring of next year.
Being a member of the European Union has benefits but also involves responsibilities. The Government takes these responsibilities seriously and, accordingly, I have made considerable efforts to brief my fellow EU Ministers, as well as the Commission and the European Central Bank, on significant developments regarding our budgetary plans. Last Monday I visited Brussels to update Commissioner Rehn on the current economic position and on the progress being made in the preparations for budget 2011. As a result of these contacts with my colleagues, I am confident that they all have a clear and detailed understanding of Ireland's position and what the Government intends to do about it. The endorsement of the European Union Ministers, the Commission and the European Central Bank will be of key importance in demonstrating to the markets the soundness and credibility of our plan.
The language used in debating issues related to economics and public finances is often perceived by the public as lacking clarity, directness and impact. I wish to state the Government's position on its budgetary plans simply and as follows. The cost of the public services that we have been using is far higher than our current tax revenues. Economic growth will not on its own deliver sufficient revenue to close the gap for some years to come. This means that the difference between what we are spending and what we collect in revenue must be borrowed. The cost of borrowing is high and rising and unless we act soon to live within our means, those from whom we borrow may stop lending to us. Were this to happen, the continued provision of an adequate range of public services and social supports would be impossible to guarantee. Therefore, we must accept cuts in public expenditure and higher taxes. Even though these measures will be painful, we will continue to enjoy most of the substantial increases in living standards that were gained and secured in the past decade and they will provide the basis for regaining what we have temporarily lost.
There are those who, although they accept that strong corrective action must be taken to deal with the public finances, have argued that such action does not have to be taken now. Instead, they argue that it would be easier to put off the hard decisions which this action involves until economic growth has become established. There is, however, no better time than now to act. If we delay action, the problems will not only remain but will worsen and the necessary decisions will become harder to make and will have a more painful impact. Moreover, we will not fool the markets for an instant if we seek to defer any longer what evidently needs to be done now. We cannot backtrack on the commitments we have made to the European Commission and to the other European Union member states. In summary, in the real world in which we live, it is neither a credible nor a viable choice to defer the action that we now must take.
I thank the Minister for his speech and for his courtesy when my colleagues and I visited his Department yesterday. The Minister is always very courteous and easy to deal with and I thank him for this. Things are very bad and people are very down and depressed. When I went knocking on doors after the summer, people were angry but that anger has almost left them by now. They are down and do not see any hope of recovery. While this varies from family to family, I wish to stress at the outset how gloomy and down people are at present. Members of almost every family are out of work. Parents are deprived of the company of their adult children who are to be found everywhere in the world but in Australia, Canada, the United States and England in particular. Many grandparents have no contact with their grandchildren in far-flung places and their biggest thrill is to talk to them on Skype in the middle of the night. The statistics support the gloomy picture I am painting as 350,000 people are unemployed and more than 100,000 young people have emigrated. The banking system is crashed, banjaxed and in the hands of the State. Moreover, the country costs €20 billion more to run than is collected in taxes. The Government is swinging from crisis to crisis, there is no growth, no hope, no optimism and no economic plan. It was not always like this. When the rainbow Government left office in 1997, 100 people per day were starting work, there was a good standard of living, very good health services, fine schools and the budget under the guidance of Deputy Quinn was in surplus for the first time in two generations. Then Fianna Fáil came to power and the bubble economy was created by that party. Three years ago, the bubble burst and the rest is history. I do not intend to go through the high points as they have been rehearsed on many occasions.
The focus of today's debate is the economy and Fine Gael's priority is to grow the economy and to create jobs again. No country has cut its way out of recession or taxed its way out of recession but many countries have grown their way out of recession. Present Government policies are continuing the declining gyre and the downward vicious circle and it will require a major new initiative to shock the economy into reversing its downward spin, thereby spinning back up again in a growing economy in which the vicious circle becomes a virtuous circle. While I hope this can be done, it needs the dynamic of change and the dynamic of a new Government with new policies to begin the climb from despair to optimism and hope.
The first plank that must be put in place is that the public must be given absolute certainty about their future. I acknowledge that the Government now has started this process. While Fine Gael has been asking it to do so for the past three years, at least now it is setting and confirming the 2014 target and is committing to budgetary profiles to get there in instalments. Had some of the points contained in the today's speeches by the Taoiseach and the Minister been done three years ago, it would have given hope and optimism. However, the Minister's biggest problem when trying to provide certainty is that no one believes him any more. He has been wrong so often, his figures have been so outlandish so often and his forecasts have been so off the rails so often that no matter what he says now, he lacks credibility. I do not wish to personalise this but I make the point that the Government lacks the credibility to provide such certainty. However, the first plank is certainty and if Fine Gael can co-operate with the Government in providing some certainty by reconfirming the 3% target for 2014, then it will do that.
Once certainty has been established, the second thing that must be done is to restore confidence. Again, there is no confidence at present. The savings ratios in deposit accounts by Irish citizens used to average out at approximately 8% but now have risen to 11%. This constitutes an increase in saving of just under 40%. No one will spend or invest if they are unsure about the future. One fundamental of personal behaviour is that one does not take a punt in the dark unless one is a total gambler and one needs to be certain about what is happening in the future before spending one's money. Another amazing statistic demonstrates that in the words of the industry, Irish people have begun to deleverage or in other words, they are paying off their loans. A recent Central Bank report indicates that over the last 12 months Irish citizens, in a series of personal decisions in individual households, have paid off €6.8 billion in credit card balances, overdrafts in banks and so on. This is an amazing amount of money but when people fear the future, they pay their debts and save money and the consequence of people so doing is that very little money remains in circulation. I forget which eminent Sunday newspaper columnist referred to the origin of the word "currency". He observed it derives from the Latin verb currere, to flow. I note the Minister is a classical scholar and that there are very few of us left.
The verb is currere. It is not a currency unless it flows. Unless money is flowing, it should not be described as a currency. If everyone is saving and paying off their debts, there is no flow. If the nationalised banks do not give credit to small and big businesses there is no flow, no current and no currency. That is the situation the Minister has got himself into.
I will try to be less gloomy and a little helpful. Fine Gael remains committed to reducing the budget deficit to 3% of GDP by 2014, as agreed with the European Commission. We believe that re-opening negotiations at this point with the EU to extend the period of fiscal adjustment beyond 2014 could lead to a further loss of international confidence in the Irish economy in 2011, with disastrous consequences. Ireland is already likely to borrow more than €60 billion over the coming four years - an awful lot of money - pushing our national debt to well over 105% of GDP. Irrespective of the views of the European Union, there is no guarantee that markets would be willing to lend to Ireland the additional resources required if we were to extend the period beyond 2014. I would say to the representatives of the trade union movement, whose views are sincerely held, and to our colleagues in Sinn Féin, whose views are also sincerely held, that to try to extend the target beyond 2014 could bring about a situation where we would not get the money to run the country next year.
We are taking in €30 billion and spending €50 billion. I do not know what the Minister's correction will be next year but if he pulls expenditure back by €4, €5 or €6 billion we will still be borrowing a significant amount. The bond markets are closed because, in the estimation of Irish financial authorities, if they were open we would not get investment. When they re-open in January, it is essential that they lend to us again. If the deadline is extended from 2014 to 2016, for example, there is a danger that Ireland will not get money when the bond markets re-open and instead of an adjustment of €4, €5 or €6 billion, or whatever the Minister has in mind, we will have to go for the whole lot. If we do not get the money we will have to bridge the gap and the gap is between €30 billion and €50 billion. That is a scenario I would not like to be exploring in January. We would have no sovereignty left if that were to take place.
The credibility of any growth path depends on the growth that is likely to take place. This is where the Minister's €15 billion comes in. This morning, the Taoiseach said the expenditure cut of €15 billion was a forecast. He is right. It is not a target; it is a forecast. While Fine Gael agrees to the 3% target we do not agree to the forecast of €15 billion, which is a forecast of the ways and means to get to the 3%. The forecast can shift, depending on what growth figures are put in. The Ministers for Justice and Law Reform and Finance have suggested that the €15 billion expenditure cut is based on an annual growth forecast of 2.75% for the next four years.
Yes, it is averaged out. We both know the predictions for next year are 2% and perhaps 3% annually from 2012 to 2014, inclusive. Three threes are nine and two makes eleven, and a quarter of that is 2.75. That is where we are getting the average. It is significant that the 2% figure for next year is not sufficient to allow the Minister to take a quarter of €15 billion as the correction for next year. The Minister will have to do more up front, as he says himself.
A very small variation has a huge effect here. Davy's growth forecast for 2011 is 1.9%, and 2.2% for the subsequent years up to 2014. That would drive the correction up to over €20 billion. On the other hand, the ESRI has updated its high growth target to assume an average annual growth of 4.5%. Maybe it is right or perhaps it is wrong. They have two scenarios of high growth and low growth. If its high growth scenario is right and instead of 2.75% the annual growth rates were 4.5%, a smaller package would be needed. We would achieve the 3% budget deficit target in 2014 with a cut of only €9 billion. That is a long way short of €15 billion.
I think the Minister can understand the position of the Opposition. When the €15 billion is a forecast and when minor adjustments in the growth rate can make such vast variations, would we not be desperate clowns to tie ourselves in to the Minister's figure, especially when the Taoiseach could not answer Deputy Gilmore this morning when he asked what was factored into the estimate of growth? Deputy Gilmore asked about all the elements of growth and the Taoiseach looked blankly at him. We do not know whether the Cabinet had a punt in the dark on their way out of Farmleigh and came up with €15 billion or whether it was handed down to them by the EU Commission when the Minister visited Brussels.
Is it one of the Department of Finance scenarios? Departmental officials mentioned €15 billion fairly strongly, among other scenarios. Is it an ESRI prediction? It also mentioned €15 billion. The key element is the forecast for growth and there is a vast variation between Davy's forecast, which would take us over €20 billion, and the ESRI high growth forecast, which would bring us down to €9 billion. The Minister is on the mid point so maybe he is right, but we are not buying in. We need more information. We certainly need to know how the Minister built up his forecast and we need answers to Deputy Gilmore's questions on the elements and factors that were put in to build up that forecast.
The concentration is now on the €15 billion and the ways and means. The Minister says he will front-load the 2011 budget, which he will introduce on 7 December. A month ago a correction of €7.5 billion was announced, and look what has happened in a month. At that time, the Minister stated that he would make a €3 billion cut in the first budget. When he went to Galway on that infamous occasion, he said €3 billion was a minimum figure. The figure of €3 billion is 40% of €7.5 billion, so the front-loading was to have been 40%. An equivalent front-loading of €15 billion would be €6 billion. Will the Minister take €6 billion out on 7 December? Will he do the same proportion of front-loading as he intended a month ago, or will he do something less? If he is looking for some element of ongoing co-operation from the Opposition, that is an absolutely essential figure for us to know. We also need to know the other intermediary annual targets up to 2014.
What is the actual deficit for 2011? The ultimate target is 3% by 2014. However, when a race or contest is being organised, it is not enough to know the finishing line. One also needs to know the starting position. What will the starting position be on 7 December? It was Government policy to bring the deficit below 10%. In the last budget, the Minister announced that the deficit for 2011 would be less than 10%. This contained a suggestion that if we did not have a deficit low enough to convince the markets to lend, we would be in difficulty in January. Now that we have agreed that 3% in 2014 is the finish of the race, what is the Minister's starting point on 7 December? Will he go soft? Will the budget deficit be 11%, 11.5% or 10.5% of GDP? Will he go below 10%? He needs to come up with this figure pretty quickly. I will not press him any harder on this; I am simply speculating. I have no information as to his thinking on this but this is an essential piece of information. Unless we know the starting point we do not know where the Minister is going.
When we move away from the targets we can look at an economic strategy to get the country moving again and to give it the shock that will turn the declining circle into an ascending circle. The Minister falls down badly in concentrating all the time on fiscal correction. If the debate is only about how much we will cut and how much we will tax, all the people with money on deposit in the banks will neither spend nor invest. We have to get onto a more optimistic programme which provides jobs and economic growth in parallel with the fiscal correction.
The economic plan for jobs and growth will be along the lines of the NewERA document authored and published by Deputy Coveney. I appreciate that circumstances in the semi-State sector have changed since that document was published two years ago and it will have to be updated but the concept remains the same, namely, the need to invest in new infrastructure. This country needs to find the wherewithal to invest in all the things that are important to a modern economy.
We have resources, such the money that was put into the National Pensions Reserve Fund for a rainy day. I recall Charlie McCreevy's thinking when he established the fund. His assertion that it would preserve our pensions for the future was really a sales pitch for taking money out of circulation because he was afraid of inflation. I am not saying the money will not be needed for pensions but given the way the economy is going, there will be nobody around to draw pensions. The fund was always intended for investments in Ireland as well as in the four corners of the world. The reason it did not invest in this country, even when large sums of money were earmarked for the domestic economy, was because Ireland was awash with cheap money on the interbank market. That flow of money is what got Anglo Irish Bank and the rest of the financial institutions into trouble.
It is possible now to invest in domestic infrastructure on a commercial basis while giving a boost to the Irish economy. I will give one example from the greens around the House. People do not want domestic water charges but we are prepared to charge them for wasting water on a metered basis. One can boil the kettle, take a shower or use the bathroom for nothing but it is fair that one should pay for washing the car or running the hose over the allotment for three days to grow greener cabbage than the woman next door. The essential element of any pension fund is a revenue flow because that facilitates investment through a PPP scheme.
The NPRF is not the only solution. Some of our semi-State organisations have healthy balance sheets, despite the crazy politically driven investments in things like grids in Northern Ireland which upset the ESB's balance sheet. The advantage of semi-State companies is that they always have capital programmes and can invest in new infrastructure.
Another solution is suggested by the review conducted by Colm McCarthy to identify the State assets and agencies that are no longer essential or strategic and, as a result, can be sold off. I do not propose that we sell at the bottom of the market. We could use the NPRF money and, if we feel we have to replenish it subsequently, we can do so through the sale of assets. That was done on previous occasions.
Funds for a stimulus package can also be found in the private pension funds which have been lobbying for changes to the law. They believe the restrictions currently in place on their investments in Ireland require them to take bigger risks abroad rather than spread them, which was the intention of the legislation, and they want more scope to invest domestically.
We are all in politics and we have been around a long time. The conclusion I have reached from knocking on doors is that we cannot sell hardship. No matter how good we may be, and the Minister is very convincing, the problem is that the jury keeps returning to the trial. The more they get used to him, the less convincing he becomes.
That will happen. We cannot sell hardship but everything that has been said about fiscal adjustment is an attempt to sell hardship to the Irish people. It has to be accompanied by a strategy that gives a shock to the economy in order to get it growing again. We will have to take a sectoral approach to the economy and take what the economists call supply side initiatives. I am sure the Minister heard the business lads in Trinity speak about supply side economics while he was studying law and liberal arts. The stimulus package is a demand side measure but the advantage of supply side initiatives is that they are small and do not cost a lot of money.
I will outline a very simple example. London is full of Chinese tourists at present. The city is like the Ireland of 30 or 40 years ago, when one would get a belt of a camera from a Japanese tourist if one looked at the Blarney stone. Is Fáilte Ireland asking why these tourists are not adding three days in Ireland to their packages? The reason is the difficulty in getting visas. If there was a way of fast-tracking their visas, it would cost nothing because it would only be an administrative matter for the Department of Justice and Law Reform and the Department of Foreign Affairs and we could attract more tourists. It will not have cost anything even if it did not work.
I am aware the former Taoiseach, Deputy Bertie Ahern, was offended by being held up to ridicule in the advertisements that Michael O'Leary placed in the newspapers.
The Deputy should not be upset because once he went into the press, Michael O'Leary could do no more to him. If the Government has a vendetta against Mr. O'Leary and is keeping the travel tax in place because it does not want to give him the satisfaction of saying it was wrong, that is bad politics. It could be a good supply side initiative, however. If one takes the tourism sector, five star hotels around the country are empty and nobody is using our golf courses other than the odd fox or rabbit. We have excellent self-catering accommodation and underutilised airports all over the country, including the second terminal at Dublin Airport. The investment has been made in the tourism infrastructure but it is not being used because the missing ingredients are the tourists. They have to be brought into the country. Was the Government to sit down with Michael O'Leary, the gentleman from Aer Lingus and the heads of the other carriers and offered to removed the travel tax if the airlines committed to deliver tourists, that would be a basis for negotiation. At a minimum, we could ask for €20 million to promote Ireland in Germany given that Germans are beginning to spend money again and they might fly here. These are the supply side initiatives to which I refer.
I will describe another initiative that would not cost money. The law states that rents can only be adjusted upwards. It always struck me as bizarre that a tenant cannot negotiate. Businesses are closing as a result of this law but nothing is being done about it. We will list these and other initiatives in our own policy programmes.
It appears the Government is suffering from paralysis whereby individual Ministers cannot come up with low cost, or no cost, supply side initiatives such as tweaking taxes.
Is he doing as his colleagues in Mr. Cameron's British Government are doing? There, since the election, they have had a "patent box" approach, which involves a new treatment of patents and intellectual property. If the Minister talks to those he knows in IDA Ireland and Enterprise Ireland, he will know we are already at a competitive disadvantage. The "patent box" involves only tweaking and changing the rules, which kicks into research and development and makes Britain more attractive for research and development than Ireland. It is a supply side initiative to fix this problem and it costs nothing because there is no great return on it in any case. It is very important that we would do this.
We need a credible fiscal policy going forward. I hope the Minister will, some time in November, bring forward the profiles for four budgets. He has said he will set targets for the individual budgets when he does so. I strongly suggest that when he is bringing out the budget, no matter how harsh it is, he accompanies it with a jobs and growth strategy for the economy. Otherwise, we are all going down the tubes together.
Like many Members of the House, when parents and citizens stop me in the street, they generally tell me about their worries for the future. They worry for the future of the country but, above all else, they worry for the future of their children. Most of us here are parents and we all went to see the best for our children. We want to believe and we want our children to believe that they are not being condemned to that old path of emigration by this Government. We are looking for a sign of hope, a ray of light and confidence that the sacrifices Fianna Fáil have laid out have some meaning.
We must remember that over the past two and a half years Fianna Fáil has already taken some €15 billion or €15.5 billion out of the economy. Like the hamster-----
It depends on how it is counted. Like the hamster on the wheel, people have given all that sacrifice to find out that after all the promises of green shoots and turnarounds from this Minister, and all the bag of tricks in regard to the cheapest bank bailout in the world and everything looking rosy in the garden, this particular gardener did not really do the spade work of laying the ground for real growth and real recovery.
Fianna Fáil suggests we are facing into an age of austerity. Perhaps it is the Japanese lost decade. That is the wrong way for Fianna Fáil to present it because it is to deprive of any hope thousands of young people who are out of work or on the verge of graduating from college. That is wrong. Our young people, with their quality of education, are world beaters. Many of the 400,000 people who are languishing in unemployment are shocked. These are people who have been used to looking after themselves and to having expectations. They now find that on Wednesday of any week, they may have to borrow from their parents or others to try to get to Friday or Saturday, when they will get some money again.
That kind of thing went out not in the 1980s but in the 1960s. It is why somebody like President John F. Kennedy was such a ray of hope to Ireland because he came here, wonderful looking and well dressed and, just as "The Cosby Show" did for black Americans, he represented something that came from us and something we could become, and which in due course we did become.
Fianna Fáil's sense of pervasive hopelessness is killing the country. This is why I had hoped to hear more about a balanced approach to the economy. We say "Yes" to cutting and pruning expenditure, getting better value for our money and having all of us work harder, whether in the public or private sector, but also "Yes" to growth, to stimulus, to the future, to the skills of our young people, to the education in which we have invested and to the fact we are in the EU. We have an attractive corporation tax rate. Our diaspora, particularly in regard to Irish America but also those of our people who have gone to live in Australia and New Zealand, want to be told by us that we have a plan for recovery and that they can help with that plan. I did not hear mention of any of this.
For all of the language about a smart economy, give me a smart Government that helps to generate hope and employment and I would settle for that. We seem to have one of the most pathetically stupid Governments of the recent period. It inherited a good economy and an easy task. For about five years it followed roughly what the Rainbow Government had done and then, once we went into the euro it lost the run of itself. Now, we must change from that.
Irish politics is now almost entirely dominated by the economy. Consider the business of Dáil Éireann. Already in this single year we have gone through two game-changing moments. First, in the week before Easter, the Minister made his shock and awe announcement about the first disclosure of the Anglo Irish Bank losses. Then, a few weeks ago, there was Black Thursday and yet another stunning set of losses that have been dumped on the citizens of this State. Today's debate is a foretaste of the pre-budget debate we must have in a few weeks when we get the details from the Government of the four-year plan to be sent to Brussels. Then, on 7 December, we will get the 2011 Budget Statement.
Even the most addicted of politically minded citizens have become numbed by the sheer scale of what has happened, while the economics profession has retreated into its own exclusive language of multipliers, deflators and technicalities that rivals the language of lawyers in its obscurity.
The Cabinet will make the budget decisions and will have to live with their consequences. Nobody can have any sympathy for the plight of this Cabinet. Members should read the report by Messrs Regling and Watson. Mr. Regling is now the man with the money in the stabilisation fund. He said that our problems were "home-grown". He has laid out the scale of the policy errors of the years since 2000, particularly the property tax shelters that drove the construction boom and the light touch regulation that encouraged the reckless lending practices of the banks. We know the impact of the Government's fiscal tightening will be to depress growth in the coming years. What we do not know yet is whether the country's credit rating internationally will be more affected by the evidence of weakening activity or by the stubbornly high level of the budget deficit. This is why it is a balancing act.
Portugal does not have anything like our fiscal problems, does not have a banking problem at all and has a forecast deficit for next year of below 5%. Why can it not borrow at reasonable rates and why is its borrowing limited? It is because it cannot show enough growth prospects in its economy.
The point is that our difficulties are not unique. If one decides to follow the deficit hawks and kill the economy, one will not gain kudos from the bond markets. What they really want is a twin-track approach. Whatever option is chosen has immense risks. As the Taoiseach is fond of saying, we are where we are. It is where he and the Minister have brought us. The Minister does not like to be reminded of that but it is the undeniable truth. He does not deserve and will not get a moment's peace in this House from the Labour Party. This is his legacy.
Earlier today the leader of the Labour Party, Deputy Eamon Gilmore, reaffirmed the Labour Party's commitment to the four-year timetable for deficit reduction. He did so because we know the country needs to be able to return to borrowing at reasonable rates of interest between mid-January and mid-February. There is more than one timetable involved. In many ways, we do not just have a four-year timetable to meet but a four-month timetable.
The 3% deficit target has been the core of public policy since the starting round of emergency budgets in 2008. There have been four-year plans aplenty sent to Brussels. There is nothing unusual in this procedure as it is a long-standing part of the Stability and Growth Pact. We are subject to the excessive deficit procedure.
The plan that must be submitted in a few weeks will be subject to a tougher-than-usual stress analysis. This is because the last two budgets, despite the pain the people took as a consequence and despite the painful measures we all have had to endure on foot of the various special budgets since the summer of 2008, failed to reach the intermediate targets set out.
I have to hand the Minister's previous effort. One line refers to €2 billion for 2011, €2 billion for 2012, €1.5 billion for 2013 and €1 billion for 2014. This is why the Opposition has problems with the Department's arithmetic. What does such a line mean? I am referring to the book the Department of Finance presented to us. All I can say is that it is a short book and it is not convincing. We are seeking information that is credible, presented with conviction and which allows us to explain the position of the Government.
The dismal and repeated failures of Government banking and budgetary policies have left a cloud of international doubt over the capacity of the Government to deliver the goods. This is the Minister's problem. Only a change of Government, a new Administration, will make the bond markets feel Ireland is again on the up. This would be because the Government's mentality would be characterised by freshness, vigour and a desire for change. Credibility must be the principal feature of any revised four-year plan. The plan must not be about cuts and more cuts.
The most depressing feature of this debate is that our national predicament is presented in Parliament as a choice between one extreme and another. One side maintains the country must be purged of its crippling debt in a really tight timeframe regardless of social or long-term economic consequences while the other side refuses to acknowledge that international creditworthiness is an issue at all. Then there are those who wilfully ignore the continuing fragility of the banking sector, as if it were not an issue at all in budgetary calculations. In this regard, one should consider what the Bank of Ireland had to pay yesterday and today for raising some funding. It is paying the shadow rates the Irish Government is being asked for. The ordinary citizen watches in considerable bewilderment as the argument rages.
My party accepts the necessity for spending cuts yet remains alarmed at the prospect of a prolonged recession and social disruption. If the right balance is not struck in the coming budget and if public spending is cut by too much too fast, the knock-on effect on business and consumer confidence will surely make matters worse. One should remember that private businesses are the main beneficiaries of public investment. Private builders build and maintain our schools and hospitals and small private suppliers sell goods and services to local authorities and Departments. If this source of custom is cut off, businesses will fail in every county. People in both public and private sectors are not spending but hoarding cash, as is evident from the level of savings in the country. They are worried about their jobs, their children's jobs and whether they will have to help out by meeting extra mortgage repayments. Many mothers in my constituency tell me they are giving their children so much money per week to help with the food bill to allow them to concentrate on trying to pay the mortgage. This is a reality for many people in my constituency.
One can measure the loss of confidence in the Government through the RED C polls and others and one can note the same loss of confidence in the tales from the front line of businesses, big and small shops, hotels, suppliers and contractors, and from the anxiety of parents who are watching sadly as their qualified children, including graduates and apprentices, prepare to emigrate. The Government's economic policy is a wild gamble. Banking policy has failed utterly. The promissory notes tactic to fund the Anglo Irish Bank bailout has blown up in the Minister's face at a huge cost to the State.
If ever there ever were two rogue characters in this Hallowe'en horror story, they must be bankers FitzPatrick and Fingleton. We now have a €31 billion mortgage for this country, payable over a ten-year to 15-year period. The deficit has increased from €7.5 billion to €15 billion largely because the Minister or one of his advisers did not account for the approximately €1.5 billion per annum that the promissory notes would cost. This is the main reason the Minister's figures have gone adrift. He acknowledged this by talking about the rise in interest costs. If interest rates continue to rise as they are doing, the country may well be paying up to €6 billion in interest costs next year.
When I popped into the Minister's Department to meet the very pleasant and courteous officials, they were not able to pull out a sheet of paper stating the figures. I had to drag out of them the €1.5 billion annual interest charge on the promissory notes. That is not good enough. Perhaps the Minister told his officials to invite us but not to tell us too much. We do not know what their briefing was but we certainly wanted the kind of information I have outlined.
Ministers insist that public spending cuts are vital to protect confidence in the country until our debts can be repaid. The other issue is that the negative impact of these cuts will be compensated for by a surge in private sector activity. How can that happen if business remains so deep in the doldrums? There is a simple equation being considered, particularly in right-wing circles, to the effect that when one cuts the State sector, the private sector surges. However, ours is a small complicated economy in that much of the private sector depends on public spending to keep its activity at a reasonable level.
Yesterday's announcement of the greater-than-expected hole in the public purse puts every Member of this House under pressure. The Labour Party will respond to the new situation when it has a reasonable opportunity to assess it and when it receives a considered answer to two vital questions. The first concerns the growth and employment anticipated for 2011. The other is the expected outturns in revenue for this year and next. It is amusing that journalists want instant answers from me and my colleagues in respect of what we will do. Are they seeking back-of-the-envelope calculations that would be carried out in the absence of proper analysis of the most recent data? Ministers are allowed time and space to consider their responses. However, Members on this side of the House are criticised if they indulge in the slightest hesitation. This really is a curious form of politics. I put it down to the Government's very skilful and well-paid advisers spinning very successfully on its behalf.
I am sure it did not escape the Minister's notice that the individuals to whom I refer are earning handsome salaries and are doing a very good job spinning matters on his behalf.
The tax code requires a major overhaul in order to yield the additional revenue that will be needed to meet our debts and for investment. For over a decade, the tax code has been infected by the poison of the type of tax shelters which have facilitated the tax planners in ducking and weaving at will in order to evade and avoid paying their fair share. Regardless of the degree to which Ministers pretend that these shelters no longer exist, the truth is that they have left a long legacy which will continue to cost us billions in the years to come. This week, I obtained an admission from officials in the Department of Finance to the effect that the notorious property tax shelters will cost us close to €400 million this year alone. That amount is equal to the total cost of the free fees policy in the area of higher education. However, those who demand an end to this policy are curiously silent about and ignorant of the true cost of the tax breaks that have caused so much damage in the past decade.
Tax planners placed large advertisements on the front page of one of the Sunday newspapers last weekend and the weekend before in which those with spare cash were urged to hurry up and take the last remaining opportunity to use the tax shelters to which I refer in order to minimise their exposure for tax. These advertisements reminded me of the slogan employed by Moore Street traders in the week prior to Christmas and encouraging people to "buy the last of the Cheeky Charlies". Tax experts are exhorting people to avail of the last of the tax breaks while they remain in place. The figure of €400 million to which I refer is not insignificant.
I wish to refer to the absurd tax breaks that exist for very high income earners who have private pensions. Mr. Fingleton is the most famous case in this regard and he has a private pension pot of €27 million. All of this money has been carefully sheltered within structures put in place by the Government. These tax breaks are another cause of vexation on the part of ordinary PAYE workers and, in full, they cost the Exchequer between €1 billion and €2 billion each year. They must be amended in order that the costs to which they give rise can be substantially reduced. They must be focused on low and middle income earners rather than on those who earn high incomes. I am in favour of one measure that has been introduced by the new Conservative-Liberal Democrat Government in the UK, namely, the imposition of a cap on the amount of relief that can be claimed under this heading, regardless of whether it is contributed to taxpayers or by the owners of companies by which proprietary directors are technically employed. I urge the Minister for Finance to follow the lead provided by the UK Chancellor, Mr. George Osborne, MP, in this regard.
We are continually reminded that a high percentage of wage earners at the lower end of the pay scales pay no income tax at all. It may well be that there is scope for reform in this area and that a well-structured universal levy could have a significant role to play in order that savings might be achieved. The Minister previously referred to a universal social contribution, a matter in respect of which the ESRI recently compiled a paper. I would add the proviso that there is no change of securing consent under this heading when there is such rampant evasion and avoidance at the top end. Get that part of the equation right and we can then discuss a thorough application of the principle that everyone must pay a fair share.
It is astonishing to consider how the rampant organised tax avoidance to which I refer remains so embedded in our culture. One need only consider the recent stories relating to NAMA. All of the guys - and they are guys - whose loans were taken over by NAMA are each going to be given €200,000 per year in order that they might continue to live in the style to which they have become accustomed. A sum of €200,000 represents a large salary by most people's standards. The majority of those to whom I refer will not pay any tax on that money because they still have access to a range of tax shelters which they utilised in order to pay little or no tax during the period of the boom. It is all a question of balance. If one wants to cut child benefit, one must clearly show that one intends to act tough on this type of rampant tax avoidance.
In comparison to other eurozone countries, the overall gross tax take here, as a share of national income, is way below what it ought to be. The position in this regard must be changed in a planned and coherent way in the coming years. Many of those to whom I would refer as "deficit hawks", and who inhabit television and radio studios, do not want to acknowledge that this is the reality shown by all of the statistics produced by the OECD and other bodies in respect of Ireland. This reality is the result of the various tax breaks and tax shelters and the way in which our tax system evolved under Charlie McCreevy. Essentially, we should have moderate taxes, the effective tax rate should not be distorted by tax shelters and everyone should contribute. In this way, we could raise our tax revenues to reasonable heights without the necessity to have excessively high marginal rates.
The IMF has a fearsome reputation as an institution that will take whatever action is considers necessary if it is called upon to manage a failed economy. When I worked in a number of different countries in Africa, I witnessed the kind of restructuring the IMF tends to employ. It is not a pretty sight. The IMF's template is very simple: get to a zero-based budget in something of the order of one to three years.
When I visited the Department of Finance, I became depressed as a result of the quietistic mood that appears to obtain among the staff there. When I visit a school, I can nearly gauge, as I walk in the front door, the vibrancy of the children and the levels of hope and expectation that obtain. I did not feel that kind of vibrancy when I visited the Minister's Department. I am sure the officials who work there are the reservoirs of vast levels of knowledge and expertise in respect of public expenditure. However, none of them stated "Joan, we can do this. We can pull matters out of the fire. We know we are going to do it." Far be it from me to state that someone with a salesperson's approach should go into the Department. However, it is obvious that the Government is not inspiring the officials to whom I refer to come forward with serious plans to regenerate this country.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Minister of State, Department of An Taoiseach; Minister of State, Department of Finance; Mayo, Fianna Fail)
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Fine Gael and Labour supported the agreement.
When we met the officials, we were informed that there are no real plans. Ministers are meant to lead their Departments. They are supposed to inspire civil servants and encourage them to develop ideas. I am quite convinced that there are many ideas and a high level of capacity among civil servants. However, the staff of the Minister's Department have been allowed to become utterly depressed by what lies in store for the future. If those who are making the plans are suffering from depression, they are not going to generate the kind of ideas that will assist in getting the country back on its feet. It is the Minister's responsibility, as the leader of his Department, to inspire civil servants to give of their best.
Last week the IMF stated, "Fiscal plans should be fair. There should be specific measures to protect the most vulnerable from the effects of the consolidation." A similar bias lies at the core of the Labour Party's approach to the coming four years. Unless there are reforms affecting the very wealthiest in the country, people on lower income levels cannot be asked to shoulder the bulk of the burden.
The Minister responded in a very negative way to Deputy Gilmore's contribution and the Labour Party proposal for a strategic investment bank. We did much research on this and considered models in four or five European countries. Coincidentally, today's leading article in The Guardian is related to this. The Minister used to quote all the time flattering comments from the Financial Times before it cottoned on to him.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Minister of State, Department of An Taoiseach; Minister of State, Department of Finance; Mayo, Fianna Fail)
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The Deputy will not quote last week's Irish Times.
It states "Far better would be a state development bank along the lines of Germany's KfW." The Minister is averse to new ideas and changes because he is addicted to whatever happened in the salad days of having money to throw at everything. That may have been new centres in Punchestown or the Bertie Bowl. Those days are gone but we need realistic and fresh hope to turn this economy around. What depresses me about today's speeches is that although we accept the smart economy, where is the smart and inspirational Government? Where is it giving leadership, to the public service in particular, that will enable public servants to believe that a reform programme will be adopted giving value for money, making savings, keeping public service jobs and, in particular, giving the people who are using our services the quality and standard of service in health and education that they are entitled to expect?
I thank the Minister and his officials for their courtesy on the number of visits we paid to the Department of Finance recently with regard to the ongoing budgetary process. The information has been useful although it is certainly far from complete. I regard this as a small step to opening the budgetary process and I hope there is substantially more of it in coming years. There is certainly room for a more comprehensive approach to the business.
I suppose we should be grateful because at least the Minister today avoided the reference to patriotism. I am sure he recalls the reference from a couple of years ago when he told youngsters going across the border to Newry or Enniskillen to buy a can of beer that they needed to be patriotic. There was no mention of patriotism when it came to wrecking the economy of the State for a generation.
That was the Minister's reference and if we want to measure the patriotism of the people of this island or this State, we must recognise the reality and have some level of proportionality. The Government has betrayed the trust of the Irish people, or at the very least the people of this State who voted for it. The Government decisions in recent years and particularly over the past two years have amounted to economic treason. It watched as gangsters masquerading as bankers shovelled billions of euro out to corrupt speculators and developers to build houses where planning permission was often acquired through corrupt payments to councillors, although not all councillors are corrupt by any means. The rezoning of such land for housing purposes should not have happened. It is no wonder that there are consequences for the tolerance or encouragement of corruption by this Government.
Some context is needed as a backdrop to the clamour for cuts to the welfare and low-income families from the whole consensus for cuts brigade, which will take place in the days just before Christmas next December. The consensus parties are preparing to impoverish the poorer people of this State for decades. The Government has no mandate to do so because it and the other parties in the consensus for cuts cluster went into the 2007 election promising the people of this State tax cuts and sunshine forever more. The Government was elected on that mandate and was not elected on a mandate of impoverishing swathes of people on welfare and low or middle incomes.
The Government has no mandate, although the Minister may indicate that the Government will squeeze through on a technical aspect of democracy and how it works. The Minister knows his Government does not have a mandate. Coming up to the NAMA business last year I called for a referendum on the agency and the vast sums it would cost our people. The Government did not hold it because it knew the result that would come out. Sinn Féin put down a motion as a parliamentary device to force that referendum but there was no support, particularly from the Labour Party, and I remain disappointed in it.
There is an economic nightmare bearing down on people so this Government should immediately seek a fresh mandate before it does any more damage to the economy. We can think of the details of the consequences of what will happen after the 2011 budget. Who will pay for it? Those who will pay for it in the first instance are the people who are currently languishing in hospital accident and emergency units. People who need acute hospital beds will be staying for two or three days on a hospital trolley - or at least that is the current rate - before getting into the system. It will probably be double or triple this number by the time cutbacks are felt.
I was in an accident and emergency department with a relative approximately six weeks ago for most of the day and into the night. It was Our Lady of Lourdes Hospital in Drogheda. At one point there were 38 people in trolleys and when the trolleys ran out, the staff had to get chairs. The staff asked the family of the ill people if they would mind going to the public area and bringing back a chair. There were not even enough chairs to hold those people. My heart went out to the older people in particular, who are very proud and are conscious of their dignity. They had blankets across the chairs barely covering them and they slipped off the people as they dozed off. It is a nightmare scenario that is now occurring and I hope the Minister will tell us at the conclusion of the debate what the scenario will be for those people after the December budget.
I do not want to make this a health debate as other people will pay for it. Children with special needs will pay for this and already are paying because special needs assistants are being laid off. The consequences of that are that teachers in the classroom pick up the slack and bring children to the toilet and ensure that the children keep up to some degree. The other children in the classroom will suffer enormously as well. There are people with disabilities, with families already carrying substantial burdens, and others with mental health issues. They are already suffering isolation and torment, very often in Victorian buildings and grossly inadequate conditions. Those people will suffer.
When a Minister tells us the measures will be widely spread and the poor will be protected, we can see it as nonsense. These are the very people being attacked by this Government. Almost everybody, except the wealthy, must contribute in a disproportionate way. That is a scandal.
This is not about the people but the economy. It is flat and there is no prospect of growth in the immediate future. The strategy is to hang on in there and hope there will be a global bounce, with some growth here on the coat-tails of that growth. There will not be any substantial growth in this economy-----
-----for at least 18 months. If there is more than 2% growth in the next 18 months, it will be good going. That will not be enough because even a substantial global bounce will have a lag of 12 to 18 months before it will impact on the huge numbers of unemployed people in this State.
It is wonderful that as we come up to Hallowe'en the Minister is appropriately scaremongering to some degree. In the course of his contribution he said that a higher rate of tax for top earners would cause them to flee the jurisdiction. That is interesting. It is causing the Minister substantial worry. Is the Minister worried about the people who have just graduated leaving the State? They are leaving in droves every month. Fully qualified nurses are leaving the jurisdiction every month but neither the Minister nor any of his colleagues has expressed concern about those people leaving the jurisdiction. However, if there is a marginal tax rate on very wealthy people the sky will fall in because they may leave the jurisdiction. I do not buy into that hypothesis for a moment.
I will refer to the Minister's speech because it was fascinating. In it he told us, "Irish people will still hold onto most of the gains that we have built up over many years of strong growth and that they enjoyed since the mid-1990s. Over that period we took many steps forward. We are now only taking one step back". If the Minister thinks that somebody losing his or her home is one step back from where he or she was five or six years ago, I can tell him it is several more steps than that. That is another of his phrases which I can no longer accept, any more than the phrase, "the worst is over" or the other comments he made which I will not go back over because I will waste everybody's time and I want to give the Minister some of our perspective on the economy.
On the phrase, "one step back" the Minister should go out onto the doorsteps and canvass if people are not coming into his constituency office. I do not mean to personalise the debate to the Minister, but his backbenchers should be telling him what is going on in the real world if the Government does not know because I can tell him what is happening. There is a high level of poverty out there. Substantial numbers of people are struggling to feed their children. I am meeting people and dealing with some of their issues and I can assure the Minister that what I said is absolutely correct. To talk about taking one step back is missing the point regarding the level and extent of the deprivation which is out there.
There may be a bounce in the economy but the real test of the economy is employment, growth in employment and a reduction in unemployment. We see the huge numbers of unemployed, some 449,000. We know that figure will continue for some substantial time and that is the real measure of the economy. We have economic indices and all the rest of it but if the Government wants to count it in real terms, it should count it in human terms because we are dealing with society.
The Government has cut and slashed in the past three budgets. It has imposed levies and taxes on low income families and what were the consequences? I will tell the Minister what they were. We now have a flat economy, huge unemployment, revenue is still falling and there is no strategy in place to deal with it. The cost of borrowing is 6% or more and still growing. Why is there is no market confidence in Ireland? It is because the markets know that the Government has told lies and bluffed for so long that they have no confidence whatsoever in it.
We need to get back to a point where politicians have some integrity and when they speak people will at least believe what they say. There is no respect out there for politicians generally, and certainly none for the Government side and what has been wrought on the people of this State. Is it any wonder that the international markets do not have confidence in the Government? It started off with €4.5 billion to bail out Anglo Irish Bank, which increased to €9 billion, then €12 billion and the Minister now claims it is €29 billion but I estimate it will cost €37 billion, as have a number of other people including Peter Matthews and other people of integrity.
Whatever measures the Minister puts in place, until we get to a point where the characters on the Government side of the House can be believed - they cannot be believed at the moment - the markets will have deep suspicions about our capacity to work our way out of this economy. People out there believe that the Government could not lie straight in bed at night, much less exercise some integrity regarding the economy.
I will briefly deal with the Sinn Féin proposals. I thank Deputy Ó Caoláin for agreeing to bring forward our pre-budget submission to Monday of next week because we want to ensure that the Government has the maximum amount of time possible to examine our proposals. Unlike the Minister we do not think that there will be a huge flight of very wealthy people from the economy if we introduce a 40% tax band on individual incomes in excess of €100,000. The proposal was in our pre-budget submission last year and will be there this year. We are not expecting the Minister to accept that given his comments today.
We want to see a 1% wealth tax but only on assets in excess of €1 million which is income linked. What is the thrust of that? It is asking the wealthy and those who can afford it to pay rather than what happened in the budget last year. We know what is coming this year. The Government is going after people on €15,000 per annum with levies and taxes. That is grossly unfair on the people who cannot afford to pay. We will standardise discretionary tax reliefs which will raise over €1 billion.
We will have some very sensible measures for a stimulus. A stimulus is absolutely essential for growth and we will be offering a substantial proposal in regard to it. I do not often agree with Fine Gael but I have to agree with Deputy Noonan on the pension fund. To use some of it to invest in the stimulus package to try to make sure we get the economy moving again is a sensible move. Government blather about protecting the less well off when it means the complete opposite will not wash with me or my colleagues.
What is the Government talking about? We hear some rumbles about potentially having a property tax. Swathes of people are struggling to pay their mortgages. I hear in my constituency office on a weekly basis that people are going to the St. Vincent de Paul. I have gone to negotiate some kind of moratorium for constituents who were being threatened with foreclosure by the banks. That is a growing problem; it is not reducing. To talk about the prospects of a property tax in this environment is nonsense. We heard the Minister, Deputy Gormley, refer to prepping for water charges. I know he can wrap it up, as he did with the carbon tax, in some kind of green cloak but he is once again affecting poorer people from low-income families. In doing so, he will squeeze the life out of the economy.
People refer to front loading the so-called adjustments. I will have to get some explanation of what the word "adjustment" means. In this context it seems to be a cut but the Government will not call it that. The next time I need a haircut and go into the barber I will ask for a hair adjustment. I guarantee that he will produce a pair of scissors and hair will fall to the floor in no time. Whatever about the terminology, what the budget is really about is going after the poor and using language to disguise the savage cuts which will take place.
The people who advocate front-loading are those who are invariably on incomes well in excess of €200,000 per annum. Does an income like that not soften the blow of these adjustments? I believe it does. However, those people being on salaries of €200,000 will not soften the blow for the person on €196 euro per week, as Deputy Ó Caoláin rightly referred to in his contribution. That will be no comfort for them and they will be scrimping and scraping and trying to barely make ends meet, yet we are told the less well-off will be protected.
The Government's policies will undoubtedly lead to a significant economic contraction. The fairest people to quote are those at the ESRI, a Government-funded independent body. The ESRI stated that its calculations suggest that savings of up to €15 billion could be needed, which is twice the sum under discussion at the time Ireland and the Commission agreed to the 2014 deadline. It expressed concern about the potential negative impact on the economy of this scale of adjustment over the period of time while accepting that the 2014 deadline is unlikely to change. This will be particularly punitive.
The ESRI states that when the package was signed off with the 2014 date the debt was only half of what it is now; it was €7.5 billion and not €15 billion. A sum of €500 million either way matters little to those who will face these cuts. The ESRI also accepts that it is unlikely to change. This is because the Government has indicated to it that it will not go back to Europe to try to negotiate a more reasonable approach. There should be a reasonable timeframe for dealing with the financial crisis bearing down on us. No person in his or her senses would undertake a huge mortgage over a 15 year period, he or she would want to repay it over a substantially longer period, such as 30 years.
I was going to deal with the behaviour of the auditors of some of the banks but I thank Deputy Ó Caoláin for dealing with Ernst & Young and a number of others in his contribution. There is no accountability whatsoever because those auditors, like the bankers, are working in the economy and getting paid huge sums of money like the developers and the speculators who are on €200,000 each from NAMA to keep them in luxury, this after what they have done to wreck the lives of so many people in this land. On it goes. We know the bankers have gone off with their huge pensions and bonuses. Michael Fingleton was mentioned. He is supposed to be returning his bonus of €1 million. However, he has not yet done so. He is still flying around the world enjoying himself with no sign of him giving us back that money.
In his speech, the Minister stated that the people will have to accept cuts in public expenditure and higher taxes. I agree with that sentence and he is right. However, where should those higher taxes be? The Minister for Finance tells us he will widen the tax net. He will bring those on the minimum wage into the net. When I state that I agree with him, I agree with the sentiment of the statement but we should be taxing higher income families because they can afford to pay. Higher income individuals are those earning in excess of €100,000 per annum. The current levy system will mean a substantial contribution from this category but those in it are better able to carry it than somebody on €196 per week. We hope it will be for a relatively short period, we estimate it will be for six years. We would make cuts in the public sector in particular and we would put a cap on people earning in excess of €100,000. We would also trim the salaries of Ministers, Deputies and Senators.
Two years into its purge, Ireland has a budget deficit of 32% of GDP. It is 11.9% if one strips out the bank bailouts. Ireland's debt is ballooning while its capacity to pay has collapsed. The current debate is on implementing a programme of extreme austerity versus austerity. However, moving towards austerity is an ideological choice and not an economic reality. There is a need for sustained, substantial and smart stimulus instead of "timely cuts" as they are called. When we are told that the economy is shrinking significantly, that Government spending is far too high and Government borrowing is becoming unsustainable, that the economy is becoming uncompetitive, that workers are being paid too much, that the minimum wage must be lowered and that social welfare rates are too high, we should know that this is not common sense, it is the agenda of an ideology that serves the interests of a small wealthy class in our society.
The establishment is united in the need for cutbacks in workers' pay - although it is much more hesitant about cutting executive pay - for cutbacks in Government expenditure including in health and education, for cutbacks in social welfare rates and for increases in taxation that affect those on the lowest incomes, to the extent of drawing low income earners previously outside the tax net into it. This is because it wishes to preserve the present system.
The demand that countries balance their budgets is a euphemism for selling off the public domain and slashing pensions and public spending on education, medical care and the other basic preconditions for raising labour productivity. The drain of payments to creditors and absentee investors forces countries to balance their budgets by selling off their public domain. Credit rating agencies threaten to downgrade countries that do not play ball by giving up their basic infrastructure, along with their gas, water and other natural resources on the cheap. That has happened in plenty in this State.
Under austerity, Government revenue is used to pay debt service, bail out banks and make other transfer payments or subsidies to the finance sector at home and abroad rather than being spent to raise productivity. Banks and financial institutions should have been let fail. Private deals were made between them. As Deputy Ó Caoláin stated, the value of one's investment may go down as well as up. The Government is indifferent to real businesses and the SMEs, which are failing, but has made every concerted effort to help the financial pirates. It seems we have a banks' spokesperson rather than a Minister for Finance.
NAMA is using large amounts of the wealth produced by taxpayers to bail out the stakeholders of the banks and the speculators who invested in them now that their reckless lending has left them facing huge losses. This reckless speculation was also socially destructive as it drove up house prices creating the now collapsed property bubble, leaving many households with punishing debt.
Pension funds need to be used productively to lessen the reliance on fickle foreign investors. We need to have in place instruments that are fit for investment. That we are dependent on bond vigilantes and international capital markets is perverse. Countries should not be brought to their knees because of the whims of these international players.
It may seem astonishing that we face such economic and social deficits after 15 years of boom but these are the consequences of pursuing a failed low-tax, low-spend model which sought short-term gains from the speculative activity of a small but very powerful golden circle. Choices were made in the late 1990s and in the early 2000s by Fianna Fáil which diverted the economy away from industrial upgrading and new investment priorities, onto a path of speculative booms, a weakening tax base and public finances that were dependent on boom-time growth rates.
Supporters of Government policy argue that there is no alternative, having learnt their economics from Mrs. Thatcher. The Government wants all stakeholders to accept its assumptions and policies - the expenditure cuts and the recapitalisations - all of which the Government deems to be necessary to mitigate recent policy mistakes and excesses which occurred on its watch. This happened over the past 13 years on its watch. To date, the Government has introduced three austerity budgets. On each occasion it has argued that we are living beyond our means and that it has no option but to cut public spending.
It is argued that cutting spending will reduce the State's borrowing requirement and that fiscal rectitude will also convince the markets that the Irish State is a sound investment and in turn, will reduce the cost of borrowing. Some chance. Unfortunately, none of this is supported by the facts. With each austerity budget the Government has pushed the economy further into recession. Cuts to wages and social welfare mean less money in people's pockets. Less money in people's pockets means less money spent in the real economy. Less money spent in the real economy, means more people out of work. As unemployment rises, tax revenues plummet, from €47.8 billion in 2007 to an estimated €30 billion in 2010, pushing up the deficit and the State's borrowing requirement. There is a clear disparity between the economic policies of the Irish Government and those of the other industrialised countries. While most countries in the G20 adopted some form of stimulus measures, Ireland's unique experiment in contraction continues to depress activity and tax receipts, boosting only the unemployment level and the budget deficit.
Rather than realise the error of its ways, the Government, supported by Fine Gael and the Labour Party - I hope that situation changes - is determined to continue cutting public spending in order to reduce the deficit to the agreed 3% of GDP by 2014. These kinds of policies squeezed into a four-year timeframe will have a devastating impact on both our economy and society. Unemployment will continue to rise. Tax revenues will continue to fall. The deficit will grow larger. The cost of borrowing will increase. Hundreds of thousands of people will be pushed further into poverty. It is happening on a daily basis. Ultimately, such policies will jeopardise the economic viability of the State itself. When it becomes apparent that the Government will be unable to meet the 2014 deadline and that the efforts to do so have caused great damage to the long-term capacity to recover, there will be another convulsion of confidence. The international markets may well choose to come back after us at that point. Is the Government approach feasible in terms of where the economy is now situated, and should the emphasis continue to be on deflating demand?
I will conclude with this point. Sinn Féin has put forward an alternative approach to this mess, the Government-created economic mess. Our alternative is sensible and does not involve a policy of slash and burn. It involves a greater contribution from those people at the top who can afford to pay. We will give the Government our submission next week and I hope the Minister will take heed of at least some of the very sensible, well-costed proposals.
I am pleased to have this opportunity to address the House on the macro-economic and fiscal outlook. In reference to what Deputy Morgan said, I look forward to Sinn Féin submitting its plan to the Department of Finance for costing. We can then have a debate on real issues on how to tackle this crisis. I am particularly interested in seeing a justification for the introduction of a 48% tax rate for individuals earning over €100,000 a year. Deputy Morgan did not have time to outline fully his party's proposals but I ask him to explain how two people living in the same house both earning €99,999 would escape this 48% tax rate while one household with an income of €101,000, will face the full hit of that rate. I wonder how this will work out and how fair it would be.
I welcome the fact that Sinn Féin has indicated it will publish that plan. I hope other parties will do likewise and that the Government will be in a position to put its plans forward so that the House can have a real and balanced debate. The scale of the commitment we have made in the House to reduce the deficit to 3% of GDP in 2014, will be a very difficult one. As has been said by many speakers today, it equates to an adjustment of €15 billion over the next four years. We do not need to tell anybody either inside or outside the House how big a challenge this will be but it is a challenge we must manage and to which we must face up as a country. The process will not be painless nor can it be painless, despite what some people might like the public to believe, but it is manageable. If I had been told two years' ago in 2008 when the scale of this crisis began to emerge in Ireland and around the globe, that just two years' later I would be able to tell this House that we had €14 billion of adjustments in that two-year period, I would not have believed it. That is the scale and the measure of what has already been achieved. At a time when people are worried and concerned and many are probably depressed about the situation, we should take some heart from how people have responded. The public has shown its mettle. People have dealt with very difficult decisions which the Government has had to take. What has happened in the recent couple of years underlines the fact that people will accept difficult decisions if they understand them, if they think they are fair and if they think they are the right decisions for the country in the longer term. People know that without the decisions taken by the Government, the country's situation would be significantly worse than it is. If we had not taken those decisions, the country would lack any credibility when trying to convince the markets that we are capable and willing to work out our own affairs. This message has to be constantly repeated. We have to show by example that we are prepared to take on the difficult decisions.
It is most important that having taken those difficult decisions, we continue on a credible path to show we propose to meet this commitment of a 3% deficit in 2014. This will be evident in the four-year budgetary and growth plan to be announced early in November. This will incorporate annual measures and information. It will not make pretty reading as it will involve a number of very difficult decisions and difficult measures will be required to be implemented. The certainty it will bring will help people to plan for the future.
The four-year plan will need to strike the correct balance between reducing the deficit through targeted spending cuts, increasing taxation, obviously, and trying to put in place a package to allow for growth in the economy. This is a very delicate balance. I agree with the leaders of Fine Gael and the Labour Party that we must try to strike the correct and delicate balance between the spending reductions and cuts and increases in taxation. We need to try to do that in a way that does not hinder growth. It is obvious that in the first year or so, the expenditure reductions and the removal of moneys from the economy will have an effect. In the longer term, it will be extremely important to get the balance right.
I was somewhat amused by some of the coverage I saw, as well as some of the statements I heard in the House earlier, to the effect that the Government has all the answers at this stage, having had just two meetings on this issue. The Government has been meeting twice a week for some weeks now to work through the plan and the budget. We intend to make the difficult choices with which we are faced. We will look at all aspects of the matter to try to ensure our decisions are fair to everybody. We have to meet our economic responsibilities. We have to protect the fabric of our society, which involves protecting the most vulnerable to the greatest extent possible.
It is important that we facilitate economic growth, which is the best guarantee for the future of this country and its people. We are focused on getting people back to work as quickly as possible, and economic growth is the optimum way of achieving this. That is why, when we hit the full force of the fiscal crisis in 2008, we set out a four-cornered plan which involved restoring the banking system, getting the public finances in order, protecting and creating jobs, and restoring competitiveness. Despite many distractions and difficulties since then, the Government has focused on each of the four objectives. Our approach has been consistent and methodical. We have been creating the conditions in which economic growth can drive employment and reduce the debt burden.
The various steps we have taken have been working. The circumstances are changing. It is important that our four-year plan continues to deal with the four issues I have mentioned. We hope the banking issue is largely settled at this point. We have to give our constant attention to the other three issues. It is important to try to reach as much consensus as possible in this House. I do not expect the Opposition to decide to take the odium for the decisions we will take. I accept that the first step it has taken in accepting the 3% deficit is an important one. There could be a great deal more consensus in this House. The Government will take the decisions that are needed. The Irish people, and those further afield who are watching this country, should be certain that the four-year plan that is to be put in place will send the right messages to the markets, nationally and internationally. I believe it should receive the support of this House.
Seán Haughey (Minister of State, Department of Education and Science; Minister of State, Department of Enterprise, Trade and Employment; Dublin North Central, Fianna Fail)
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I welcome the opportunity to contribute to this pre-budget debate. I will mention some of the initiatives in which I am involved as Minister of State with responsibility for lifelong learning. The Government's proposed four-year budgetary strategy, which will last until 2014, has been the subject of widespread commentary in recent days. The Government moved swiftly yesterday to reveal the amount of money involved in the planned correction. It is conscious that the financial markets now expect significant reductions in this country's deficit. If we fail to deliver those reductions, it will have negative consequences for the economy, including high interest rates.
The creation and protection of jobs is a political priority for the Government. The four pillars of our approach to the jobs issue are as follows: activation measures, employment schemes, training and upskilling; the promotion of exports and inward investment; the targeting of improved competitiveness and productivity; and reductions in the cost of doing business. There is a consensus among the major political parties about the need to achieve the 3% deficit target by 2014. If we are to demonstrate to the international community that we are competent to manage our own affairs, it is of the utmost importance that we plan for this deadline.
The projected growth in the economy is not expected to be as positive as previously forecast. Consumer demand is likely to be affected as personal households and businesses prepare to save scarce resources or reduce personal debt. Tax revenues might not be as buoyant in future years as we previously anticipated. Despite these uncertainties, the Government is committed to restoring sustainability to the public finances in order to underpin future economic growth and recovery.
Unemployment, which continues to impinge on families in this State, remains a political priority for the Government. Unemployment is an attack on self-esteem. A lack of employment opportunities can lead to heartbreak and hardship for people who are out of work, regardless of whether they are young or old, married or single. As the level of unemployment increases, it has a double impact on the public finances. Not only does the income tax take decrease as the number of people in work declines, but the number of people who depend on State unemployment payments and other allied benefits increases, which places a huge strain on limited Government resources.
I wish to concentrate on aspects of my ministerial responsibility, such as training and upskilling, that are relevant to this debate. I will also outline the steps the Government is taking in this respect to tackle the unemployment crisis. Following the Taoiseach's restructuring of Government Departments, responsibility for the training aspects of FÁS has moved to the Department of Education and Skills and is now within my remit. This allows for a more co-ordinated alignment of activation measures and training policy. The Government has moved swiftly to improve the plight of the unemployed. FÁS has introduced measures to double the annual JobSearch referral capacity to 154,000 places per annum. My Department will fund the provision of over 160,000 training and work experience places for the unemployed in 2010. This represents an increase on the 66,000 such places that were provided in 2008.
We are prioritising four categories of the unemployed in order to minimise the drift into long-term unemployment. These are as follows: those who have low skills or education levels; those who have been on the live register for more than a year; those who are under the age of 35; and those who used to be employed in sectors like construction, manufacturing and retail. Employment levels in the three sectors I have mentioned, which have been severely affected by the downturn, are unlikely to return to their previous levels in the short to medium term. Last March, my Department launched the labour market activation fund, which will target the specific priority groups I have mentioned. Following a tender process which received 370 entries, some 59 organisations in the private, not-for-profit and public sectors successfully secured funding. The organisations in question will provide up to 12,000 training places.
An additional 500 community employment training places were announced earlier this year, bringing the number of places that are available to 23,300. Community employment is designed to give the long-term unemployed and other disadvantaged people an opportunity to engage in useful work in their communities on a fixed-term basis. The programme helps the unemployed to return to the labour market by breaking their experience of unemployment and giving them a work routine. It helps them to enhance and develop their technical and personal skills. This year, Skillnets and FÁS will provide almost 10,400 training places to the unemployed and those on short hours.
The issue of youth unemployment is of particular concern. In light of the increase in the number of unemployed people who are under the age of 25, the Government has decided this category will receive preferential access to State supports such as FÁS employment and training services. This agency is prioritising services for the under 25s and an initiative has been put in place to immediately activate measures for 18 to 19 year olds without needing to wait the usual three months for automatic activation. The main provision continues to be at community training centres and VECs under the Youthreach programme. Some €110 million is being invested in Youthreach and will provide 6,000 places.
The work placement programme provides up to nine months work experience to 2,000 unemployed persons, including graduates. The Government also introduced a range of measures that will enable 4,000 redundant apprentices to progress their apprenticeships. Among these are 30 apprentices formerly employed by SR Technics who are being taken on by the Air Corps to complete phases five and seven of the on-the-job training element of their apprenticeships. I am delighted this specialist branch of the Defence Forces has had the vision and willingness to engage in partnership with FÁS to initiate this programme.
An estimated 166,000 learners, including those who are unemployed, will benefit from full-time and part-time further education opportunities. The total number of full-time enrolments in universities and institutes of technology will be in excess of 140,000 this year. Investment in further education provided by the VECs has increased by 60% between 2002 and 2010 to €426 million, enabling 170,000 learners to participate in a range of part-time and full-time courses in 2009. An additional 1,500 new places were provided on post-leaving certificate courses from September 2009, bringing the total number of places nationwide to 31,688. Adult literacy is extremely important in this context and the budget for that is now €30 million.
The back to education allowance is very important for those wishing up-skill and reskill and return to education and training. There are approximately 21,000 people in receipt of the back to education allowance.
The European globalisation fund is another imaginative fund being utilised in an Irish context. The Government is moving to reskill redundant workers formerly employed in large-scale operations by availing of EU co-financing support under the European globalisation adjustment fund. In recent weeks, I was able to announce that up to €11.5 million in funding will be available for former workers in SR Technics for measures implemented since their redundancies. An application for the construction sector, based on 8,000 workers and for €63 million, was submitted in June 2010 to the European Commission.
The Government is acutely aware that positive measures to promote employment are essential if economic recovery is to proceed sooner rather than later. If we have learned anything from the 1980s, it must surely be that selected developmental measures to stimulate the economy must run parallel to any programme to tackle the crisis in the public finances. The national skills strategy and the activation and training measures outlined also have an important role to play if the economy is to recover quickly.
The Government has already shown it has the capacity and resolve to address our current economic difficulties. Since July 2008 budgetary savings of €14.4 billion have been achieved. Positive growth has been forecast for 2011. Economic recovery will lead to a strong export performance, which continues to exceed expectations. That we face intimidating difficulties is not disputed but this Government, led by the Taoiseach, has shown that it is ready and willing to meet the tough economic challenges. It has moved to take corrective action, it has the drive and commitment to implement further necessary measures and it will not be influenced by short-term political or any other sectional considerations.
The Government continues to put the country first and I have no doubt history will judge that it is doing the right thing at the right time and in a forthright and fair-minded manner. The Government remains committed to its budgetary strategy to protect our economy for future generations. It will not be deflected from its course of action.
I am glad to speak in this debate, although it is frustrating that I only have seven minutes. I will endeavour to try to make some points which I hope will hit home with the Deputies opposite. Everyone in this House accepts Ireland is on an unsustainable path as unemployment continues to increase and businesses find the going tougher. Ireland spends approximately €55 million per day more than it earns and we need to borrow the difference. Currently, we are surviving on reserves because of money we borrowed earlier in the year and, potentially, the reserves in the National Pensions Reserve Fund, which will not last forever.
Everybody recognises Ireland will need to go back to the bond markets in the first quarter of next year, as the Department Finance has confirmed, to borrow money, regardless of the level of cutbacks in the first of four tough budgets. I find it extraordinary that nobody from the Government side dealt with the key issue in regard to our capacity and ability to borrow from the bond markets next year. My understanding from the briefing from the Department of Finance is that the key requirement from bond markets to allow Ireland to issue bonds is that we will need to bring our deficit below 10% of GDP next year from our current position. No Government speaker, including the Taoiseach and the Minister for Finance, addressed that issue as to what figure will be necessary in the 2011 budget to bring down the deficit to 10% or less of GDP. That is the guideline figure we have been given to issue bonds and raise money in order that we can keep Ireland functioning and keep our economic and political independence in terms of budgetary decision-making. Nobody on the Government side addressed that point and perhaps Ministers who will speak later in the debate will do so.
There must be a twin track approach, about which many Deputies, including Government Ministers and Deputies, have spoken. We need to bring our deficit down and the Government has set itself a figure of €15 billion over four budgets, but we do not agree with that yet because we do not have the full figures, in particular the growth figures. However, we agree that by 2014, we need to get the deficit down to 3%, or less, of GDP. Time will tell whether €15 billion will be enough or perhaps too much. Fine Gael will make its position clear well in advance of the budget. However, at the same time, there can be no future with optimism in Ireland unless we can get growth into the economy as we are dealing with structural deficit problems which are the result of insane Government policy over a number of years.
I wish to comment on some recent Government policy. There are two problems here - first, there is the policy itself and, second, there is the execution of policy which is an even greater problem. Even when the Government gets something right in principle, the execution of that policy is incompetent, inefficient or does not meet targets. I refer to the Croke Park agreement, for example. In principle, it was a good idea to get agreement among unions and employers to try to bring stability in a time of recession. What has happened? Six months later there has been no delivery. The Government still cannot give the Opposition a figure on how much it estimates it will save by public sector reform next year.
I refer to NAMA. The principles behind it made some sense, although there were problems. It required the banks to crystalise their losses and their bad lending. It was to provide capital to banks in order that we could get liquidity back into small business and so on. What has happened? There has been an absolute freeze on liquidity. Banks are being financed on a week-to-week basis by the lender of last resort in Europe, the European Central Bank. They do not even have money to lend, never mind a willingness to take risks again and lend money to the marketplace. That is largely because of NAMA which, we were told at the start, would attach a hope value to certain properties. It is now undervaluing properties so that it can get headlines such as those in the past week stating that it is making a profit of €130 million on a property that it acquired from Anglo Irish Bank. Such news is not a win for the country. It means that the bank has crystalised an even bigger loss that taxpayers need to bail out because we own Anglo Irish Bank. Either way, the taxpayer is losing.
On deficit reduction policies, Ministers, one after the other, have complimented themselves on the great achievement of reducing the deficit by €14.5 billion over the past two and a half years. I would like to check the figures.
The calculations of those figures have been wildly inaccurate. Up until two months ago there was talk of the need to reduce the deficit by €7.5 billion over the next four years but now it is to be by €15 billion. Some in the European Union state the figure should be €20 billion. We need to concentrate, not only on getting policies right in this House but also on their execution, which is crucial.
On banking policy, a new CEO will be appointed to AIB. I would like a Minister to tell this House what is that person's job remit. I am not sure whether it is to run AIB as a commercial entity in the interests of a future bank system or for the benefit of the economy. If a CEO going into AIB were to run it for the shareholders of the bank he or she would probably cut the staff by one third, raise interest rates and do away with the existing defined pension schemes for staff, but the State will not allow a CEO to do that because it now has a majority stake in the bank. Banking policy in Ireland has totally distorted the market because now politics is determining banking policy, which means that there will be no new banks without capitalisation problems coming into Ireland to lend into the Irish economy in the foreseeable future. We have a totally false banking system, which is a false economy and which cannot work. I hope Ministers will try to address some of the issues that I have only had seven minutes to raise.
Ministers are coming in here stating that the people can take bad news, they will put their shoulders to the wheel and they have taken €14 billion of cuts already. I do not accept the latter point, certainly not in the past two years. That needs to be corrected. It may be the case over three years, if the Government wants to go into that, but I still do not think there were such cuts. There were many cutbacks in capital projects and maybe the Government is including private capital spend in those cutbacks. On my figures, that is not the Government spend.
The people of this country can accept tough news. They know we have problems and they are willing to help out but they and I have a serious issue with believing anything the Government says. Even now, with the €15 billion figure, there is a lack of data on how that was achieved. I have a fair idea because I went to the confidential briefings at the Department Finance. I can add a few figures together and I know exactly from where they got it but we are not allowed to say.
The Government will not state what it will do in the budget yet it brings us all in here for a two-day debate to discuss cutbacks without the figures we need to achieve. There is no finishing line. It is like running a marathon at the weekend without knowing where it will end and running all day for fun. I will not do it, and nobody else will do it either. Let the Government give us the figure because the Minister knows what it is.
Deputy Coveney is correct in stating that we must bring the deficit down below 10% of GDP next year, and I ask the Government to give us the figure now. Tell us what it is, whether it be €5.5 billion, €6 billion, €5 billion or €4.5 billion, and let us work to that. The people need to believe what the Government is telling them, and they do not believe the Government. It is difficult for me to believe the Government because it is still only opinion unless the Government gives us the facts to back it up.
In trying to figure out how we got here, I looked at the figures for total expenditure from 2000 to 2008. For example, the health spend went from €5.3 billion to over €15.3 billion in eight years, an increase of 187%. The Exchequer pay bill went up by 118%, from €8,880 million to €19,330 million. The figures go on. Those eight years of writing cheques without proper reform or proper policy are the root of the problem, and the people need to be told that.
There is a need to explain what this figure of €15 billion is about. It is separate to the banking bailout, although part of it is the interest on bailing out the banks. The bulk of it is to address the wrong decisions made from 2000 to 2008 to spend money on public services built on false foundations or once-off revenues from housing, as if the Government applied for a mortgage based on overtime earnings only. It does not add up.
I question what was going on in Government during those eight years. Deputy Bertie Ahern needs at some stage to come in here and explain what he was doing as Taoiseach, as does Deputy Brian Cowen as the former Minister for Finance, and every other Minister who sat around the Cabinet table and watched these figures rise and rise. Nobody shouted stop. That is why we are here. When people have made their commitments, borrowed money, and got credit card and other personal debts, they will be hit with massive cutbacks over the next couple of years because of the decisions taken wrongly during those years.
I question what was going on in the Department of Finance as well. I can only assume they were told to keep quiet by Ministers and Taoisigh because nobody with financial training would sit back, watch this happening and not ask, "Hold on a minute, what is going on here?"
I accept there were improvements in some services, but these should have been achieved based on sound foundations, reform of the public sector and savings, rather than by continuing to write cheques left, right and centre. The Department of Finance blames the partnership process and states many of these demands for increases in services were in the context of the social partnership process and reflected in programmes for Government. Ministers and the Government are in charge, not the social partnership process. The social partners are not in charge. They do not run the country. They were there to discuss issues, iron out difficulties, etc. They are not to be blamed for matters going wrong.
On numerous occasions during my nine years in the House, I tried to introduce minor amendments to various Bills and Ministers told me that they could not accept them without going back and checking with the partnership process. That is a joke, and now the Government is trying to blame them. Those are matters that will be confined to history. The people know who is at fault here. They know it is Fianna Fáil and they will deal out that punishment.
The problem is that we in this House are always left trying to close the gap and fix this, and we need the will of the people to do so. That will be difficult to achieve with Fianna Fáil still over there calling the shots because the people do not believe them.
We understand we must try to work with this and we have agreed to the consensus to reduce the deficit to 3% of GDP by 2014. We accept that and we will put forward our ideas to achieve it, and we will work with that. However, the Government must understand that the people do not trust it and we will have a difficulty, even when we know we have the answers, in believing that the Government can implement them.
Hopefully, we will get a chance to go through all the ideas. I could not do so in seven minutes.
We accept the adjustment must be front-loaded and we must try to take on an extra chunk of the deficit in year one, but we must also front-load growth in the first two years. These are the toughest budgets in terms of seeking to protect growth and jobs. There must be a front-loaded growth strategy. We in Fine Gael have plans for that and the Government knows them. The Government has read them but has never tried to discuss them properly. I would ask the Government to read them and let us have a proper debate on them. We have more plans to add to them. We can use private and public pension funds, among other initiatives, to fund growth. The Government must not close the door on good ideas when it is calling for a consensus. Let us debate these ideas properly, as we have tried to do in recent weeks. I ask the Government to give a commitment that the budget will include proper growth strategies alongside cutbacks and other changes.
While I am the first to admit that I have no formal education in the area of finance, as a housewife and mother, I have learned the art of running a home and family on a budget and the cold, hard fact that one can only spend what one has in one's purse and not one penny more. The Government has spent the contents of many a household purse and makes no apology for doing so. Every man, woman and child must now pay the price for its reckless spending and greed.
A generation of people will have to leave home to work abroad because they cannot afford to stay. Our youngest and brightest will leave these shores and many will never return. Fear has become a familiar word, one I hear on the doorsteps of every street as people relate to me their fears for the future. They fear for their children and whether they can afford their education. They fear for their health and whether they can afford to pay medical expenses. They fear they will not be able to pay back bank loans. They fear old age and whether they will have any money to live on in the years ahead. Senior citizens are afraid they will not be able to pay their bills or keep themselves warm and that services, such as home help provision, which allow them to live independently will be removed. Above all, they are afraid the State pension will shortly be cut. Nobody deserves to live in fear, especially when he or she is not responsible for creating the problem.
Those who are guilty of creating the economic crisis have got away scot free. They have been allowed to go abroad, leaving behind their responsibilities and debts. They are enjoying holidays in the sun while their greed and dishonesty have left the country in a shambles. It is not fair that ordinary people have been left to clean up their mess and pay their bills. The reason people are so angry is they want fairness above all else.
As we face into budget 2011 this December, we know the economic outlook is very bleak. Members of the public want to know that we, their representatives in Dáil Éireann, are doing everything we can to improve the economy and lighten the burden on individuals and families who are struggling with bills and debt.
We all know the banking and economic policies pursued by the Government caused a major financial crisis. It is time to put in place a plan for recovery. People want to believe there is light at the end of the tunnel. We need to give them hope but hope is in short supply from the Government benches. The billions of euro in expenditure cuts and tax increases we need to be found by 7 December must not come at the expense of low income families and those on social welfare. The budget must be fair and must protect those who are most vulnerable, namely, the old, sick, young and disabled and those who cannot find employment.
Demands on social welfare assistance are increasing by the day and the annual social welfare bill now stands at an unsustainable €21 billion. We need to address unemployment head on and create new opportunities for young people who are completing school or college and for older people who want to return to the workplace.
The number of people on the live register stands at approximately 450,000, which is a substantial figure. We must get people back into employment. The Government must give a commitment to attract investment and enterprise and support home-grown enterprise. Banks must also open their doors again to small businesses.
I take issue with the manner in which FÁS treats young apprentices who cannot complete their training and obtain the certification they require to move abroad.
The current crisis was summed up for me and my family at the weekend when my young grand-niece was taken as an emergency case to Tallaght hospital where she was resuscitated and placed on a ventilator. She could not be transferred to Our Lady's Children's Hospital in Crumlin because staff were not available there and had to be transferred to Temple Street Hospital where she has been in intensive care for the past five days. Diagnostic tests could not be analysed in the laboratory because staff were not available to do so over the bank holiday weekend, which means we still have not received any results. This is but one story arising from the crisis caused by the Government's poor management of the national finances.
Ba mhaith liom mo chuid ama a roinnt leis an Aire, an Teachta Padraig Ó Ciardha.
The Government strategy to deal with our current economic challenges and put Ireland back on the road to growth has three main elements. These have been set out in previous debates on this issue. The most important of them is the element that is currently under consideration, namely, the stabilisation of the public finances. The second element is the restoration of the banking system to ensure it is operational and we are able to do business international as a small, open economy. There is widespread acceptance that the measures taken in this regard have been necessary. The third element is to restore and enhance Ireland's competitiveness.
In the context of the four year plan, which is the background against which this debate is being held, one of the questions frequently asked relates to the growth figures that will underpin the programme. These figures are determinants in setting the €15 million target we must meet in reducing the Government deficit. It is worthwhile recalling that the growth targets on which every Government operates are based on figures provided by bodies such as the ESRI, Central Bank, International Monetary Fund, European Central Bank and other central banks, the European Commission and a host of banks and brokers active in this area. Officials at the Department of Finance analyse the figures provided by these institutions and, on the basis of the available evidence, produce a likely scenario against which decisions must be made.
Many people have been seeking definitive trends and forecasts. Anyone who does not accept that the business of forecasting is based on the best available information and data is refusing to face reality. We must also remember that Ireland has commitments under the Stability and Growth Pact which predate our current difficulties. This is the background against which measures will be taken.
The current shortfall in the public finances is of the order of €19 billion. This raises two difficulties. First, we must access funding of €19 billion to be able to provide services to the standards we currently enjoy. The second difficulty, which is extremely important in the current climate, is that we must be able to access funding at a reasonable cost. One of the difficulties we have encountered in recent times is that the cost of borrowing has increased dramatically. This has an impact on our capacity to provide the type of services we need.
On the positive side, we do not generally give ourselves credit for the fact that we have, over the past two and a half years, managed to make adjustments amounting to approximately €14.5 billion. This figure is close to the cumulative value of the adjustments we must make in the coming four years. We made the previous adjustments successfully, although I concede that they created difficulties for people and had an impact on growth projections. Nevertheless, we have de facto reached the halfway point in terms of achieving our objectives in that regard, which is highly encouraging. A host of other encouraging figures also need to be considered.
It should be acknowledged that we are trying to achieve growth and address the nation's finances against a difficult economic climate. Across the world, growth levels are negligible and in some cases negative. This creates difficulties for small, open economies such as Ireland. That we need to export 90% of the goods and services we produce - in some sectors the figure is higher - makes the challenge even more difficult for us. In addition, it is an external factor over which we do not have control.
We must also acknowledge that Ireland's GDP figures are in deficit to the tune of approximately 12%. The banking crisis has a once-off impact in 2010 and will not arise in subsequent years. If one considers the historical position in 1986, the GDP deficit then was in excess of 13%. Two years later, however, in 1988 on foot of the adoption of strong measures and of cuts in particular, that deficit had been reduced to 3.3% with a negligible impact on growth. There are counterintuitive indications that, in some circumstances, addressing the fundamentals of a country's finances has the opposite effect to what one might expect in respect of elements of growth. However, in the case of other elements it is clear that cutbacks in expenditure in particular are likely to have a negative impact on growth and this is a judgment that must be made as one goes along.
In another positive feature, particularly when one considers the late 1980s, it must be borne in mind that at present, 1.8 million people are employed in Ireland, which is very close to twice the number who were in employment at that time.
The projections, which are based on there having been little or no growth internationally and less growth in Ireland than was expected, have led to the position whereby we face €15 billion in adjustments. If one looks back at the reasons for the different forecasts made last year, one does not even need to look back that far to find considerable growth, because in the first quarter of 2010, GDP grew at the extraordinary rate of 2.25%. This rate then was followed by a fall in GDP of 0.25% in the second quarter. It is clear, therefore, that a trend did not emerge of growth either quarter on quarter or year on year. However, if one considers the impact on GDP during the recession, I note the decline in GDP in 2008 was approximately 4% while it declined by a further 10% in 2009. This year, in 2010, this fall in GDP value will have reversed and the figure will come out roughly even, that is, either slightly above or below the zero mark. However, this is a strong indication that notwithstanding the removal from the economy of the huge sum of approximately €14.5 billion in real terms, we experienced that change from a decline of 10% to the zero mark.
At one level, therefore, highly encouraging signs are evident. They are even more encouraging if one considers manufacturing output or the growth in exports. There have been quite extraordinary achievements in that regard, particularly given that many Irish exports go to economies in which there is no real growth or that face extraordinary challenges regarding their capacity to buy goods and services. Moreover, one must take into account the currency fluctuations that have created enormous difficulty in some markets for Irish exporters. While it must be acknowledged that the decline in the value of the euro has benefited exporters to the United States market and some others, there has been considerable volatility in the world markets.
When one considers the events of the past year, the cost of addressing the banking crisis has been established, satisfied, done and dealt with. For the next decade or so, there will be an additional ongoing cost of approximately 10% arising therefrom. However, this means the cost of addressing the country's finances constitutes approximately 90% of the problem. Therefore, the great bulk of the problem relates to the issues arising from our own national finances and this is an issue with which one must deal and to which one must face up.
An important element in respect of growth is translating such growth into job creation with as much speed as possible. Against the highly difficult background in which we have operated last year and during the first half of this year, a little more than 50 foreign direct investment announcements, accounting for more than 4,000 jobs, have been made, which is a positive achievement. Moreover, the Minister for Enterprise, Trade and Innovation is on a three-city tour of the United States at present to meet foreign direct investors and he will go on to the Middle East next week with the agencies. One must bear in mind that the impact of such visits and the work of the State agencies is highly positive and succeeds in bringing people into Ireland with foreign direct investment, thereby giving rise to huge job creation opportunities.
One must balance the message. One must realise that notwithstanding the difficult and somewhat daunting challenges we face, the experience of the last two and a half years demonstrates that the policies pursued by the Government have brought us a considerable number of steps along the way. Moreover, continuing to adhere to such policies undoubtedly will address the difficulties that have beset the national economy and will return us both to appreciable GDP growth and to a jobs spin-off therefrom.
Cuirim fáilte roimh an deis seo labhairt faoin bplean eacnamaíochta atá againn chun tabhairt faoi na dushláin ollmhóra atá romhainn mar thír. Mar Rialtas, ní chuireann muid aon fhiacal ann faoi na fadhbanna seo agus míneofar go beacht cad atá le déanamh agus cén fáth. Tá an plean seo bunaithe ar an tír iontach seo a chur ar bhóthar a leasa arís. Is é an plean ceart é agus is é an t-aon phlean atá inchreidte má tá fúinn na dúshláin atá romhainn a shárú. I welcome the opportunity to speak on this important issue. It certainly is the most important period in the economic and social life of Ireland since I first entered the Dáil in 1997. I listened with interest to as many previous speakers as possible and thought that most contributions were both reflective and thought-provoking and that they will contribute to a greater consensus on the serious plight with which the Government must deal.
The Government has stated its intentions clearly to the people. It has outlined its goals and has explained its reasoning and will continue do so in the coming weeks. It has been up-front about the magnitude of the challenges we face. It has engaged constructively with the Opposition and has been clear that there are no easy options or soft decisions, as to pretend otherwise would be to mislead the people about the seriousness of the challenge we face. It would be an unthinkable failure of government to pretend that we somehow can wish away our current difficulties. This is not a challenge that we can put off until some magical tomorrow but we must act swiftly and decisively. While the Government has listened to various alternative views, both inside and outside the House, on how it should approach the task that now faces our country and people, the plan it has set out is the only credible one. It will not be a painless task but any attempt to postpone that pain or sugar the pill would put the economic future of our country at risk. This is not a risk the Government is prepared to take and I do not believe the people wish to do so either. I am not being condescending but wish to comment positively on the worthwhile solutions I have heard thus far. They will feed into the Government's discussions both in respect of the four-year framework plan and regarding the preparation of the budget later this year.
Recently, the Government drew a line under the uncertainty in the banking sector, thereby allowing it to concentrate on getting the public finances back on track. This is not just about gaining the trust of the international markets and ensuring our ability to borrow, but also is about job creation. We have learned from our experiences in the 1980s that unless businesses have faith in the viability of the Exchequer's long-term position, they will not create new jobs. This is the reason the Government is stressing, above all else, the credibility of its plan. Its ability to get people back to work and return the economy to growth depends on that credibility. Again, this is not just about impressing the faceless markets but is about creating jobs for citizens and securing their future. In order to create employment and growth, we must show that we have the courage to be credible and that we have the courage of our convictions. In so doing, we must get the balance right to ensure that our potential to return to growth is not damaged. However, the consequences of failing to act now cannot be ignored.
There is no question but that the Government will strive to be as fair as possible in the decisions it will make. As Minister for Community, Equality and Gaeltacht Affairs, I have seen at first hand the important role played by communities across Ireland in developing the economy. Our communities are the building blocks of our economy and society and the strength of such communities always will depend on their ability to protect their most vulnerable. Both the House and the Government will strive to protect the most vulnerable among us and I reject the simplistic notion that a severe budget is by necessity going to be an unfair budget or one that targets the most vulnerable. Research by the ESRI has analysed the distributive impact of the tax and welfare changes of the 2009, 2009 supplementary and 2010 budgets, and while those budgets were characterised in some quarters as unfair or as excessively targeting the less well off that is simply not the case.
That research shows that households in the bottom half of the income distribution maintained their position and in some cases recorded modest income gains of between 1% and 3%. By contrast, better-off households saw falls in their income of around 3%, with the richest households losing the most, at 6%. This shows that Government budgetary policy during the fiscal crisis has protected the living standards of lower income groups and placed the burden of the tax and welfare adjustments on better-off households. We will continue to make every effort to protect the most vulnerable. So, while we must all bear the burden of these necessary savings, our economic priorities will continue to be informed by our social priorities.
A recent report commissioned by my Department has shown that in recent years Government intervention through social transfers has made a real difference to the lives of the marginalised and has helped to tackle poverty and social inequality. While all sectors of society will have to bear some of the burden of budgetary savings we are also conscious of the need to ensure that the significant progress made in tackling inequality is not squandered.
The Irish people have shown great backbone and resilience in dealing with this crisis. As a people we have held our nerve and as a Government we must continue to hold our nerve. There is no point whatsoever in giving people unrealistic hope about the scale of the challenge we face. The Irish people deserve better than that. There is no point in peddling wishful thinking. We are not playing fantasy budget here. This is a very real crisis that requires a decisive and pragmatic response.
The Opposition parties now accept the need to return to the 3% of GDP deficit figure by 2014. We are also, I believe, in agreement that this target has to be achieved without jeopardizing the ability of our economy to return to growth. That consensus is welcome but we should not now return to the type of posturing that only adds to our problems. Our present situation demands more than platitudes about change and making a new start. I welcome what I have heard today.
We need real solutions to real problems. We know that the best way to get people back to work is to get our house in order and we are doing that by fixing the banking system, restoring order to the public finances, regaining our competitiveness and creating jobs. As my colleague, Deputy Killeen, has said, our economy is emerging from recession with the prospect of stronger growth next year. Our return to competitiveness has been led by our export performance with new figures today showing a 12.8% growth in merchandise exports in the third quarter of this year and a 9% increase in total exports.
Our stability plan is vital to our efforts to return to growth but it is important to stress that it is not being undertaken in isolation from our growth strategy, our smart economy plan, our jobs strategy and our plan for structural economic reform. Our growth and jobs strategy is a comprehensive plan to get people across Ireland back to work and to secure the jobs of those currently in employment.
In my own Department, for example, we have responsibility for the Leader programme which will create 12,000 jobs in rural Ireland. I have seen this programme at work all over the country and I am determined that every last cent of the €440 million available will be spent on job creation in rural Ireland. Leader has the potential to transform rural Ireland, village by village, parish by parish, town by town and job by job. We can see the benefits of Leader already, for example in the work of Farrelly Willow, Ireland's leading company in willow production, based in Kells, County Meath. I visited it recently. The company will be among the biggest producers of biomass in the country and will be selling biomass into the new electricity generating plant in Ferbane in County Offaly. One of the problems which I freely acknowledge we need to resolve, is the excessive regulation faced by such companies. Other companies benefiting from Leader are Spring Water in Lisseycasey, County Clare; McCarthy's Ice-cream in Ballybunion, County Kerry; Dooley Wool Limited in County Offaly; and O' Donnell's Crisps in Clonmel in Tipperary. These are real examples of putting enterprise to work.
In my Department, we are also currently reviewing our White Paper on rural development to ensure that it meets the changing needs of rural Ireland. In the last two weeks I met the EU Agricultural Commissioner and the EU Commissioner for Regional Development about the many issues that face rural Ireland. I am convinced that we are getting a very good hearing from the Commission.
In 2009, Údarás na Gaeltachta, which also comes under the remit of our Department, created 710 new jobs, despite the change in the economic climate and total full-time employment in Údarás na Gaeltachta-assisted companies at the year end was 7,472.
In the coming weeks, I hope to finalise the Government's ambitious 20 year strategy for the Irish language. This strategy is not just about promoting and preserving the Irish language, it is also about ensuring that we benefit from one of our great natural resources.
The Government will ensure that the great qualities of the Irish people continue to flourish. That is the reason we are taking these difficult steps. Our guiding motivation is to return our country to the levels of stability, employment and growth that the Irish people deserve.
Cuímhním ar an seanfhocal cáiliúil: Ní neart go cur le chéile. Tuigeann muintir na hÉireann fírinne an ráitis sin. Tuigimid mar Rialtas chomh maith é agus déanfaimid beart de réir ár mbriathar.
With the agreement of the House, I wish to share my time with Deputies O'Dowd and Clune.
Let me put some scale on the deficit we face. If we pay back one euro every single second it will take us 465 years to pay back the €15,000,000,000 deficit we will face next year, and that is only one year's deficit. Things are not beyond hope. In the 1980s, the International Monetary Fund was at our door and there was much doom and gloom, perhaps even more than now because everything seemed impossible to overcome. However, we did overcome and we had sustainable job creation throughout the 1990s. Then of course, we had the Progressive Democrat philosophy of the noughties, which was shared by some of the leaders of Fianna Fáil who led us down the road of destruction to where we are today. I remember the comments that were made about my colleague, Deputy Richard Bruton, who was ridiculed when he raised genuine questions about what was happening. A former leader of the country told Opposition Members they should consider committing suicide because we were asking genuine and real questions that needed to be asked.
The blame game will not get us out of the mess we are in. Our jobs, as politicians, must be to give a future to young people. The Government is currently focused on the urgent and not on the important. We need to focus on the future, on jobs and on medium-term growth plans not just on the fire brigade action. Without this we cannot provide hope. The most vulnerable in our communities, the working poor, those who cannot work, children, disabled people and the elderly must not be sacrificed to address the budget stabilisation measures. They did not cause the problems or the mess we are in today and they did not benefit from the boom.
We need a Government that is willing to make a real difference and help those who want to help themselves. We have enough of Government being run for the people who are in it. Instead, we need a Government that will work for the people who elect it and pay for it. Deputies and those who are not covered by the Croke Park agreement must lead by example and have their wages cut significantly. We will get absolutely no thanks, or even an acknowledgment, for it but we need to be seen to lead by example. This must be done.
I look to my own constituency of Roscommon-South Leitrim, which is similar to every other rural constituency. The likelihood of creating jobs by bringing a big multinational player into the constituency is slim. In the current climate, we need to focus on what we are good at by supporting local indigenous employment, small businesses and the agri-food and tourism sectors. For example, we should use the public tendering process to support indigenous businesses by making it easier for Irish SMEs to win public tenders. It is critical that an environment be created in which SMEs can cost-effectively participate in public tendering processes. If the system is cost-effective for the small or medium enterprise, it will also benefit the purchasing agency. The tendering process has been structured in such a manner across Europe but this Government never considers indigenous companies.
We need to promote entrepreneurship at all levels of our education system and support access to loans and bureaucracy-free public funding. The Minister spoke about the Leader programme, the problem with which is one needs a degree to complete the application process. Surely it makes sense to streamline the 70 agencies which are at present involved in supporting small businesses.
We need to acknowledge that our agri-food sector is a vital part of the indigenous economy and, with 20,000 people dependent on it for employment, crucial to small and medium enterprises. These are real businesses. We need to get rid of the unnecessary bureaucracy and red tape that surrounds the food industry. A legally binding code of practice should be put in place for the grocery sector to promote fairness, balance and transparency.
Other speakers will address aspects of the tourism industry, such as the air travel tax, but I will focus on the contribution that the artistic and creative economy can make to our economic recovery and to counteracting the negative image fostered by the Government's gross economic mismanagement. On the basis of the report of the Western Development Commission thousands of jobs can be created in this sector, which employs more than 600 people in County Leitrim and a further 500 in County Roscommon. Irish artists can help to portray more positive images of Ireland and its capacity to create and innovate. One of the winners of the Your Country, Your Call competition, a screen writer and digital media consultant called Neil Leyden, proposed a global media hub which would foster the development of an Irish content industry association and anchor the creative economy in this country.
We have to focus on our strengths because we will never balance the books until we create employment. The fundamental flaw of the Government's policy was that it ignored the issue of job creation while writing whatever cheques were required to support the banks in the hope of getting us out of our economic mess. However, this strategy has made our situation even worse and it is galling for the most vulnerable in society to see reductions in the small amount of money they receive simply to bankroll those who got us into the mess in the first place. It is time we focused on the indigenous companies that can get us out of the mess by becoming the international players of tomorrow.
This is one of the most important debates to have taken place in this House for a long time. Our country was never before in such dire difficulties and never was there such a need for leadership from Government and Opposition Members and everybody else associated with public life.
Regardless of who was in power since the foundation of the State, former taoisigh were patriots who had fought in parliamentary elections or, indeed, on the battlefields of the 1916-22 period. They were held up as icons of the nation. Our State was founded on the struggles of Pearse and Connolly and the ideals of Wolfe Tone and others. Now, however, instead of the image of Pearse and Connolly in the office of the Taoiseach, the IMF and the European Central Bank are stalking the corridors of power. The Government has ceded our sovereignty with the bankrupt policies they introduced during the boom to benefit builders and bankers. Now we are left at the mercy of international bankers and the European Union, which, thankfully, are being positive and constructive towards us as we address our difficult financial challenges. We are no longer in control because of the Government's policies in the Galway tent. The Minister can smile if he wants.
Tens of thousands of people are facing negative equity or have loans which they will never be able to repay because they were in effect sub-prime borrowers. There is no getting away from that fact.
The IMF is deciding the limits of what we can do and the next budget will have massive impacts for those who have the least in our society. The Government's policies during the boom fed the avarice of a small number of rich people.
The Minister may not want to listen to me but he will have to listen to the people when he knocks on their doors. We will insist that the Government produces the facts in advance of the budget so that we can understand the basis of its €15 billion projection and hold a transparent and open debate. As the Taoiseach noted today, the €15 billion figure is a forecast but we do not know the basis for it. Fine Gael will set out our budget proposals in this House but only when the Government has given us the full facts. As we cannot base our future on forecasts, we need to know the truth. The Government should not expect us to go along with policies about which we do not have full knowledge.
It is my responsibility to address issues pertaining to education, including FÁS. If anything broke the link between unemployed people and their retraining needs, it was the policies that allowed FÁS to waste much of its €1 billion budget during the boom, both at the top and in the system. We now know that training contracts were often corrupt. We will transform the training system for young people, something which this Government has abysmally failed to do.
Let us have an election in which the Government and the Opposition can present their budgets so that the people can make up their minds. The Government has no mandate and the people want change. Its time is up. Tá súil agam nach mbeidh a leithéid de Rialtas - cosúil leis an Rialtas atá againn anois - againn arís go deo.
This debate is probably the first of many as we head into very difficult times in trying to get the economy back on track. Fine Gael is committed to the target deficit of 3% of GDP by 2014 and in the coming weeks we will be outlining our plans for implementing change and economic policy, particularly in terms of job stimulus and getting this country working again.
It is a sad fact that the recent reckless policy pursued by the Government and the banks means we now find ourselves at the mercy of the faceless markets. We must act now, as we face budget 2011, to ensure we can access funding from these markets in the future, given they are dictating our budgetary policy. The Taoiseach stated earlier today that the figure of €15 billion that must be found between now and 2014 was arrived at by Government decision. However, it is merely a forecast and we do not know what growth factors were included, what decisions were involved, how the Government forecast growth and unemployment or how the money is to be found.
Earlier today, the leader of my party, Deputy Enda Kenny, outlined Fine Gael's plans in various areas, with a focus on an enterprise-led economy. The export figures released today are very good, as noted by many Government speakers, and exports will remain our focus. While competitiveness has improved, it has not improved due to anything the Government has done but because of the relationship of the euro to the pound and dollar, and because wages in this country have decreased voluntarily. However, Government charges, local authority charges and red tape all contribute to a distinct lack of competitiveness. It does not matter whether one is exporting a pound of butter or financial services, all the products and services we hope to export from this country are competing in European and global markets and the weight attached to them by excess Government charges is that of a millstone.
Now is the time to support the indigenous SME sector. Last week in this House, Fine Gael put forward a well thought-out motion, proposed by Deputy John Perry, outlining a State-backed loan guarantee facility for small and medium businesses throughout the country but it was rejected by the Government. We have been asked to come forward with positive suggestions and this is supposed to be an era of consensus. Last September the Minister for Enterprise, Trade and Innovation, Deputy Batt O'Keeffe, stated publicly that he wanted to introduce such a scheme yet he rejected Fine Gael's scheme last week. Why not take it on board? Not every aspect was perfect, but why not work with the Opposition in terms of implementing a measure that would give succour and support to small and medium enterprises?
The return to global growth will be crucial to achieving our targets but that is outside the control of whoever governs this country. What is within our control must be acted upon, however, and barriers to activity must be tackled. For a small open economy such as ours, particularly when domestic confidence is so low and will drop further, our exports are the key component that has the potential to provide growth and to bring known benefits and create jobs in the local economy, thereby creating a ripple effect for small and medium enterprises and resulting in increased revenue for Government. This is the track we should follow but we have allowed ourselves to come off the rails in this area. Property, development and land acquisition was too easy and, as a result, we lost much expertise across the economy in the last decade. We lost expertise in our banking system in regard to dealing with small business and enterprise and we lost the ability to manage a small, open economy that depends on the European and global market to sell its goods and services.
The Taoiseach in his earlier contribution referred to exports. I hope this was not mere rhetoric or grasping at straws but a serious intent to manage this area. Many reports have been produced, including those of the innovation task force and the recent Forfás report entitled "Making It Happen", and these have outlined the areas where local indigenous enterprises can be supported in terms of productivity, research and development, innovation and education attainment. We must develop an approach across certain viable sectors, such as communications, business, finance and insurance services. We have strength in these areas on which we need to build. The area of health care services is one where we have developed much expertise. We must also recognise that there are growth areas, including in regard to clean energy, green technology, the marine and maritime services, health care, particularly e-health care services, and IT, in which we have developed huge expertise. We need to tap into these and sell those services abroad, as well as supporting development in those areas. The area of education services is important and was highlighted today by Deputy Kenny. We can sell this nation as an education island in terms of exporting those services and bringing foreign students here.
Small and medium enterprises are the key to the growth of this country. The Government has the responsibility to create and develop the environment in which those enterprises can function and thrive.
Tááthas orm deis a bheith agam labhairt ar an ábhar tábhachtach seo. I am pleased to have an opportunity to speak in what is a very important debate. There is no question but that we face huge challenges. However, we should analyse all of the issues we face in a dispassionate manner because, if we do so, we might find solutions to the very difficult problems we face.
On the credit side, the budget targets that were laid out last year in terms of income and expenditure of the State will be achieved. The big challenge we face, however, is that both internationally and nationally the growth forecast for the next four years is not as was expected. What will happen in the future is, of course, unknown and a matter of conjecture. What is important is that whatever budgetary strategy we have for the next four years is based on figures that are credible at home and abroad. For that reason, we have had to change the growth forecast.
It was Galbraith who said that economic forecasting makes astrology look respectable. Nonetheless, the big challenge we face is that no matter what we think of economic forecasting, it has a huge effect on the markets and, therefore, we have had to readjust our tack. I compliment the Fine Gael Party for recognising that there is no going beyond the budget deficit target of 3% of GDP by 2014. That is a very important consensus. There is no need for consensus on every issue and a bit of debate and difference is healthy. However, it is important that people can agree on the basic fundamentals and particularly important that this fundamental is agreed upon.
With regard to the extrapolation from there to the figure of €15 billion, the position is quite simple. A forecast of growth has been made - it is no big secret what that forecast is - and that inevitably leads us from where we are at present to a €15 billion amount to be made up. Again, on the credit side, it is important to recognise that Ireland's economic performance has improved dramatically in the past year. We have gone from negative growth of 9% to zero or slightly better growth this year, which is very important.
I listened to Deputy Fergus O'Dowd ask where the money went. It is important to recognise that whereas financial issues arose that we would all have preferred did not arise, the main expenditure increases are very clearly identifiable. Nowhere are they identifiable more clearly than in my Department, which makes transfers to pensioners, those with disabilities, lone parents and the unemployed
The increase in the social welfare budget since 2000 is very significant. In 2000, the expenditure of my Department was €6.7 billion whereas it is €21 billion this year. This represents a threefold increase over a period during which there was nothing like a threefold increase in the rate of inflation. Thankfully, the social welfare rate improved dramatically over the period in question. People will say that is easily explained because there is much more unemployment but when one examines the unemployment cost, one will note the unemployment bill for jobseeker's benefit and jobseeker's allowance is €4.3 billion. Allowing for the fact that there were always approximately 200,000 people on the live register, the extra cost would be somewhere in excess of €2 billion. This explains a small fraction, approximately 10%, of the extra expenditure. The vast majority of the extra moneys spent by the Department of Social Protection were spent because we improved the system.
Carers are very dear to my heart because all of us have family members who are involved in caring for loved ones, relatives and others we know. Caring is a very arduous task. The figures in this regard are very dramatic. In 2000, we were spending €99 million on caring. This year, the figure will be €726 million, which represents a sevenfold increase. When people ask where the money went, they must analyse the figures and recognise that the bulk of it was spent on additional investment in education, health and social protection. These are worth protecting and securing for the future. This is where we face the challenge. If we were to arrive in circumstances in which we could not borrow the money required for day-to-day expenditure while reducing the deficit on a scaled basis and opting for growth, the cut we would have to impose would be horrendous altogether. Therefore, the Government is endeavouring to find a middle way, that is, by trimming expenditure now and encouraging growth to try to find a way to reduce the deficit over time with the minimum impact on our vastly improved services.
When one takes into account the statistic that approximately one in every three euro allocated for day-to-day expenditure is borrowed, it becomes obvious to one what would happen if one's ability to borrow money at a reasonable price on the market were to diminish or, as the Taoiseach said this morning, if one could not borrow at all. Therefore, it is imperative that we make the tough decisions required, even though they are really difficult to make, particularly in my Department, given that one is more than conscious of the effects of those decisions on people. In this case it is a question of the old adage that a stitch in time saves nine. By making the adjustments now and front-loading them, we will save the people from much greater cuts and adjustments in the future.
With regard to my Department, there are other ways of saving money. We must work increasingly harder on control measures. I am introducing many more control measures. I hope to have the identity card in the new year. Every euro saved through keeping social welfare away from somebody who is not entitled to it is another euro that can be paid to somebody who is entitled to it. One of the messages we must get across to the people is that conniving with or supporting people who are defrauding the social welfare system is literally taking money out of the pockets of those who are disabled,old or genuinely unemployed. The black economy can and does do great damage to us. It also has a great effect on those in the legitimate economy because they cannot compete.
I have received support from Members of different parties for ensuring that we employ ever-better activation and control measures in order to abolish opportunities to cheat the social welfare system. I have been working very hard on the question of activation whereby a win-win scenario is achieved and whereby opportunities are given to those who are genuinely unemployed and want to be involved in community work. There is an opportunity to identify those who are not interested in working because they already have an income. We are currently running a number of pilot schemes in this regard and doing much more intensive activation work. It will be very interesting to see the results.
Let me make an analogy concerning what we must do, which analogy my colleagues in the Green Party will like because it is derived from nature. Often, if one wants a tree to grow, one must prune it. If one does not prune it, it will not grow the following year. On the other hand, if one prunes the tree too tightly, one might kill it. Our challenge is to prune correctly such that we will stimulate maximum growth. The means of stimulating maximum growth are those that will allow us to borrow cheaply on the international markets so we will not waste taxpayers' money on unnecessary interest and which will earn international credibility such that people will invest in our country. Such a method of pruning will, in the longer term, achieve the best balance and allow us to maintain the fundamental systems we have put in place.
This leads me to a point about which Fine Gael is particularly exercised and on which I agree, namely, that employment growth and economic growth comprise the key to emerging from our problems in the longer term. I agree with Fine Gael in this regard although I do not agree with every detail of its plans. It is telling us there is money that is not available.
No, because there are aspects of the Labour Party with which I do not agree. It is not looking after ordinary people. I fully agree with the Deputy in that regard. I will stand over my record of over 30 years in this respect.
As I stated, growth is the key. When we consider growth and attempt to create jobs, we must realise there are a number of basic requirements other than grants and other instruments. The first is that foreign investors must believe we have sustainable and stable growth. It is imperative that we get the message across that we do not intend to change the rate of corporation tax. This country has been very successful, over very many years, in attracting foreign direct investment, and we need to continue to do be so.
The second area of growth is within indigenous industry. In recent years, despite the difficulties with the sterling exchange, which were a great impediment to our indigenous industries, we have seen considerable resilience in the agriculture, forestry and marine industries. We must continue to support these industries and encourage native entrepreneurship. One of the great advantages of these industries is that they provide employment of good quality in every corner of the country. We have not exploited fully the potential to upskill and improve the quality of products in these industries. There is a lot of work we can do in this regard although much good work has been done in recent years.
Another industry with potential is the tourism industry.
There has been a major growth in people's interest in rural recreation and marine leisure activities. Tourism is an area in which we have an abundance of natural resources. People from a number of nearby tourism markets wish to come and visit this country. By continuing to invest, through various schemes, including the Leader programme, in the natural resources to which I refer, we can create a large number of jobs.
There are good and bad aspects to the position in which we currently find ourselves. We face both challenges and opportunities. On the downside, we are facing into a huge budget deficit. It is fair to point out that this deficit is far more down to the decline in incomes than to the direct cost of the banking crisis. The international banking crisis led to the collapse of many countries' economies, while the crisis at home led to the collapse of the economy here. When one considers the direct cost in this regard, one discovers that the collapse in tax incomes to the State was the major factor. I accept that it is a significant imposition on taxpayers to oblige them to pay for the restructuring of the banks. The latter is perhaps one of the greatest challenges we face.
I always believe that one should consider one's strengths. On the upside, therefore, we should consider our most important resource, namely, the number of young and well-educated people living in this country. It is important that we should continue to invest in education in the future. The second positive factor I would highlight relates to the strength of our balance of payments. Of course, this is led by the performance of our exports, which is a huge plus because it helps offset some of the problems we face.
People may not want to admit it, particularly as it is a legacy of the Celtic tiger, but the third positive for Ireland is the physical infrastructure that has been put in place. Deputy Ring and I have on many occasions been lobbied by the owners of factories in the west, including those in County Mayo, with regard to the condition of the roads. All of those involved in industry will admit that their ability to transport goods throughout the country has been transformed in recent years. There is now a motorway in place from Galway to Dublin. The motorway runs all the way to Mullingar and the remainder of the road includes some highly improved sections. I am as anxious as Deputy Ring to ensure that roads in counties Mayo and Sligo will continue to be improved.
Yes. De réir a chéile a thógtar na caisleáin.
There are also motorways to Limerick, Cork and Waterford. In addition, there are motorways which run almost all the way to Wexford and the Border. All of these roads have more or less been connected to each other and this has led to two major transformations. The first of these relates to the physical advantage of being able to transport goods and people from east to west.
The second transformation to which I refer involves the psychological advantage - this is incredibly important in my opinion - that has arisen in the context of foreign companies that are considering establishing operations here. Setting up a factory or whatever in any of the regions of this country is similar to establishing operations in the outer part of a city in the United States of America. I have often stated that the motorway system we have constructed means that the position is completely different from that which obtained ten years ago. When representatives from companies in the US consider establishing operations in Galway, Cork, Waterford or Limerick, they are of the view that asking people to travel to these places is similar to requesting that individuals in their home country travel from Chicago to Milwaukee, from New York to New Jersey or from San Francisco to San Jose. In other words, if one is travelling on a good-quality road, one's journey time is reduced. The Americans do not see the satellite cities to which I refer as being in any way isolated or difficult to service. This has made a major difference to our economy.
We must work through the difficult circumstances in which we find ourselves. Those in the farming community recognise more than most that there are good times and bad times. The times in which we are living are extremely difficult. The challenge we face is to build on our strengths and deal with the difficulties that have arisen. I am of the view that this country has major strengths. It is a complete misreading of the situation to compare our current position to that which obtained in the 1970s and 1980s. The country and the services that are provided within it have been transformed.
In the 1990s or early 2000s, if one had informed people that we would have anything similar to the social welfare system that is currently in place, they would have stated that it would never come into being. We have taken huge strides forward and what we want to do is retain, to the best of our ability, the ground we have gained. If this means making short-term adjustments in order to preserve our long-term future, then that is the correct route to take. I appreciate the support the Opposition has given to the main propositions we have put forward in respect of the basic targets which must be achieved, particularly in the context of reducing the deficit to 3%.
I do not doubt that as those in opposition study the position, they will realise that €15 billion in savings will be required. Any amount below that would not be viewed as credible internationally. I have a very simple message for those who ask why we are pandering to the markets rather than to the people of Ireland. If we cannot borrow money at a reasonable rate, we will not be in a position to pay for education, health or social welfare.
Ba mhaith liom buíochas a ghlacadh as ucht deis a bheith agam an cúpla focal seo a rá. Creidim gur am dúshlanach é i saol phobal na hÉireann. Credim go mbeidh an pobal tuisceanach ar na fadhbanna ata romhainn. Tá jab mór le déanamh againn iad a mhíniú. Déanfaimid ár ndícheall é sin a dhéanamh chomh maith agus is féidir linn. Tá mé buíoch don tacaíocht atá le fáil ón bhFreasúra don bhunréasúnaíocht atá ag baint le sin. Tá súil agam gur féidir linn tuilleadh comhoibriú a chothú agus muid i mbun gnóthaí na tíre.
The starting point for the current debate on the economic crisis is centred on the 2014 target for cutting the budget deficit to 3%. I do not believe that the Government has yet made any kind of economically persuasive case in respect of the 2014 deadline. As Deputy Gilmore stated, we simply do not possess enough information to frame a one-year budget not to mention a four-year fiscal programme. Why has the Government not presented a proper cost-benefit analysis for the 2014 deadline, as well as alternative growth scenarios including a longer time period for the achievement of this massive proposed adjustment to the national economy? I am glad that ESRI and ICTU economists, among others, are now also questioning the reality of a 2014 target.
Everybody agrees that there is clearly a structural budgetary gap that must be bridged. However, we must not forget the devastation that has already been wreaked on our economy and society by senior bankers and their friends in Fianna Fáil. The September 2008 blanket bank guarantee given by Fianna Fáil and the Green Party has resulted in the absolute ruination of our national accounts for the better part of a decade. We will be obliged to spend billions, year on year, to pay just the interest bill for the zombie banks that acted in such a criminally dangerous manner during the past ten years.
Almost 450,000 of our citizens are unemployed and thousands of our younger citizens are once again emigrating. Canada, Australia, the US and the UK, among other countries, are again benefiting from the skills and talents of our educated young people. Core education, health and transport services have been under sustained attack for the past two years. As the Taoiseach stated, the Government has already taken an astonishing €14.5 billion out of the economy in that time. There is a very real danger that the its new €15 billion cutbacks plan could have a further devastating deflationary impact. It is not possible to just slash a further €15 billion out of the economy - on top of the previous €14.5 billion - and expect to see economic growth and jobs to magically appear. There is always the grave danger that a total of almost €30 billion in cuts will fatally injure and enfeeble the Irish economy for half a generation.
This discredited Government is extremely keen to encourage everyone to sign up to a four-year budgetary plan. However, it continues to hide the true total cost of its shocking mistakes from the people. The interest bill alone for the national debt repayments over the next decade will be an incredible financial burden. The Minister for Finance, Deputy Brian Lenihan, recently informed me that the forecast for the 2011 interest repayment on the national debt is €5.7 billion - that is, of course, if we are lucky in the international markets after Christmas. Let us consider the current position in the context of the fact that debt servicing interest cost in 2007 was just €1.6 billion and only €1.5 billion in 2008.
My colleague, Deputy Burton, has repeatedly raised the long-term cost to the State of the use of promissory notes, particularly in respect of the recapitalisation of Anglo Irish Bank, Irish Nationwide and the EBS. I understand that a total of €30 billion will be injected into these three financial institutions. As Deputy Burton has noted, the annual promissory note payments of perhaps €3 billion, plus the interest payments of at least 5%, will turn the ten-year payment plan into a financial noose around the necks of the people for the next 15 years at least. To listen to the Minister for Finance, Deputy Brian Lenihan, last week, it is as if the cost of these promissory notes are some sort of a virtual accountancy exercise. The Fianna Fáil and Green Party Government seems determined to make ordinary low and middle income households pay for the disastrous approach to bailing out the banks.
There are credible alternative ways to address the economic crisis. I commend the many groups in civil society, the many academic economists, constituents and citizens who contact me regularly with their valuable ideas on how to address the crisis. The think-tank TASC, for example, has submitted a pre-budget document that sets out a path for recovery through job creation, an economic recovery fund and a fundamental rebalancing of the taxation system grounded in fairness and equality for all citizens. The recovery fund echoes our consistent Labour Party plans for investment, jobs and a strategic investment bank, which this Government has ignored since early 2009.
Analysts like Michael Taft and Fr. Seán Healy have produced proposals that envisage bringing as many as 100,000 new jobs on stream to assist citizens leaving the live register, modelled on Labour's part-time job opportunities programme from our last time in Government in the middle 1990s. Economist Dr. Tom O'Connor of the Cork Institute of Technology has provided a very valuable analysis of the current economic disaster as well as a comprehensive range of suggestions for stimulating the economy and getting people back to work. It is clear that our core focus should be on employment, infrastructural development and rebalancing taxes rather than swingeing cuts.
We repeatedly hear the mantra from Fianna Fáil, the Greens and their supporters in the media asking what would we do. Ministers talk of there being no sacred cows in budget 2011 in terms of front-line health, education and transport services, social welfare benefits and infrastructural investment. Let me once again state my bitter opposition to further cuts to social welfare benefits, public sector pay and pensions given the sacrifices that have already been made and the likely pay freezes well into the future. There should be no untouchables or sacred cows on the taxation side either.
For example, if necessary we should at least have a cost-benefit review of the corporation tax rate. Economist Dan O'Brien of TheIrish Times and formerly of The Economist has suggested that an increase of 2% or 2.5% would generate up to €650 million in tax revenue per annum without harming inward investment. TASC has also estimated that we could raise €1.5 billion on an annual basis by reducing the current exorbitant number of property and pensions-based tax reliefs. We know that the standardised rating of pension tax relief would yield perhaps at least €1.3 billion.
A constant mantra of would-be economist journalists, the modern equivalent of Noel Browne's public house dialecticians, is the demand for a site value tax or for a residential property tax. Such a tax, as always in Ireland, would in real terms impose most heavily on families in modest urban homes like those in the constituencies of the Acting Chairman and myself. Yet that commentariat will never consider an assets tax levied on the most wealthy or a simple wealth tax, which Dr. O'Connor estimates would raise at least €1 billion and which I believe should be part of the solution.
Most tax experts agree that by closing ongoing loopholes in the taxation system to reduce the numbers of tax fugitives we could raise at least a further €300 million. I note that the UK Chancellor of the Exchequer, Mr. George Osborne, has reached a new and tighter agreement to access funds of UK tax fugitives in Switzerland, following a similar deal with Liechtenstein. On a comparable basis to the UK, is there perhaps another €1 billion of Irish tax fugitive funds escaping our Irish tax system? Have we made a similar agreement with Switzerland? There is an EU agreement but is there a specific agreement between Ireland and Switzerland dealing with tax fugitives? There is also a clear argument for a new third rate of tax for the highest earners, perhaps at 50%, and we know from the response of the Minister today to Deputy Eamon Gilmore that Labour's proposed new 48% rate will raise a very valuable €410 million.
The current crisis must be used to thoroughly reform the market economy. One of the more significant areas in need of reform is that of excessive pay in both the public and private sectors. The new leader of the UK Labour Party, Mr. Ed Miliband, has put a high pay commission at the heart of his agenda for reforming the dysfunctional compensation system. It is obscene that senior management in any organisation can earn a salary that is a multiple of a couple of hundred of the lowest paid worker in that organisation. As the great Polly Toynbee long ago noted, the cancer of outrageous pay and bonuses comes directly from the private sector and especially from financial services.
There should be a cap on public sector and semi-State salaries at a maximum of perhaps €150,000. Clearly we want effective, dynamic people leading our commercial semi-State and public sector organisations but a high pay commission that invigilates and regulates pay in the public and private sectors could be a mechanism for curbing excessive salaries that may discourage dynamic people from considering leading public sector positions.
At the opposite end of the public pay spectrum are many low and middle income public and civil servants who signed up to the Croke Park agreement because they believed it would protect them from any further devastating pay cuts and new income levies. As a past member of the Committee of Public Accounts for eight years I am aware of major savings which can be made in enhancing efficiencies in the delivery of public services, which the Government has been incredibly lethargic in addressing. The Croke Park agreement should be adhered to and the pay of hard-pressed low and middle income public servants should not be targeted for a further savage attack in the 2011 budget. It is true there remains an astonishing level of inefficiencies and waste throughout the system of governance and administration. The Parliament and Government could clearly work just as effectively with the Dáil as a single Chamber, with 12 Ministers and five junior Ministers.
To get out of this recession and to create jobs there simply has to be continued investment in key infrastructure, including our critical communications and transport networks. I therefore welcome the Minister's comment this morning that he expects Exchequer capital investment to remain at a significant level in the budget on 7 December, and that PPP investment would continue. There is a clear case for using the metropolitan area networks project to develop a publicly-owned national fibre optic backbone to be fleshed out by Eircom and other providers. I have had debates with the Acting Chairman on the area in the past. We should ensure that small, medium and big enterprises in every part of the country have access to the highest quality broadband services. The construction of major transport projects, in themselves, provides a massive economic stimulus and jobs boost to the economy. As a long-time northside supporter of metro north, I note that €140 million has been spent on the project so far; that the enabling works for metro north will cost just €80 million in 2011; that CPO costs have been wildly exaggerated by vested interests; that the first implementation payment will not be incurred until late 2012 or early 2013 at the earliest; that the detailed cost-benefit analysis is massively positive and that both final bidders have strong Irish-connected companies. The Government would probably be sued by the bidders, as was the case in Slovakia recently, if the metro is axed or badly delayed.
I strongly believe in terms of the ratio of tax adjustments to cutbacks, it is fairer to aim for a balance which is strongly loaded towards tax adjustments given the €14.5 billion already taken from the economy. I reiterate my total opposition to the Government's policy of making low and middle income households take the biggest brunt of the economic pain it is currently doling out. The balance must be tilted towards those who can afford to pay and also the senior banking and developer interests who got us into this mess in the first place. Economic recovery must be centred on a stimulus package that includes an economic recovery fund, as well as the major infrastructural projects that include broadband and transport.
I thank Deputy Broughan for sharing his time and welcome the opportunity to speak on this debate on the macroeconomic and fiscal outlook for Ireland. The economic outlook over the past two years has been very dire indeed and with every day that passes, unbelievably it gets worse. Financial statistics and economic projections emanating from the Department of Finance and the Central Bank have been so wide of the mark as to be virtually worthless. The plethora of economists and ESRI pundits are so hit and miss that they almost sound like astrologers.
The entire banking system, including Anglo Irish Bank, AIB and Irish Nationwide, have been telling such porkies and acting so criminally irresponsibly that the Criminal Assets Bureau should be mobilised and directed to their respective boardrooms. The taxpayer is the beast of burden pressed into service to bail out the private sector which controls the financial pillars of the economy. That elite sector worked in tandem with Fianna Fáil and Progressive Democrat allies, who turned a blind eye to the activities and smoothed the legislative and regulatory path for these actions.
In the past two years the debt burden placed on the taxpayer from defaulting banks has been over €50 billion. The deficit shortfall in the balance of payments for 2010 alone is close to €20 billion, and we have been told after the Farmleigh meeting that €15 billion of cuts rather than €7.5 billion must come from the taxpayer and the unemployed over the next four years if we are to reach the 3% stability pact deficit agreed with the European Union.
Some €14.5 billion, an incredible sum, has already been taken from the economy and the pockets of the Irish people in the past two budgets. To compound the surreal scenario, the Government is proposing after Farmleigh an even more austere front-loading budget for 2011 to reassure bond markets so they can lend billions to the same financial institutions which got the country into a financial mess in the first place. This is capitalism at its worst and is the legacy of Ronald Reagan and Margaret Thatcher to the world.
We thought we had a regulated mixed economy in Ireland with checks and balances that would protect our economy and people from the excesses of the marketplace. It was, as we now know, a mirage.
However, we must now learn the hard lessons and move forward. We must resolve that we will never allow a similar meltdown of our financial system to occur again with the consequent impoverishment of our people for a generation. We must make common cause with our allies in the European Union and elsewhere to exert benevolent political regulation and control of the global marketplace. People must come before profit and we must agree the national and international mechanisms to achieve that. We must rewrite the rules of international finance so that the entire population of the country is not suddenly plunged into crisis and poverty by powerful forces within that country outside of it which are outside it went beyond its control.
The first step for the Irish people is to elect a new Government-----
----- with a fresh five-year mandate. Those who have been in charge of the country the past 13 years have ruined the economy. They created the problems and are unable to resolve them. The chauffeur driven cavalcade of Ministers to Farmleigh this week shows just how out of touch they are with the recession-hit lives of ordinary people throughout the length and breadth of the island.
Hope, vision and leadership can only come from a Labour Party led Government which has the interests of the ordinary people of the country at heart and will regain their confidence. A Labour Party led Government will ensure that the full rigours of the law would be brought to bear on those responsible for this amount of collapse with imprisonment the penalty for the main perpetrators. It is essential that justice is done and seen to be done where white collar criminal antisocial behaviour is involved. We would review existing commercial law with a view to strengthening investigative powers and increasing penalties. Our Labour Party led Government would introduce an effective regulatory framework for our financial institutions.
The current Government's budgetary policy of front-loading cuts across the board is flawed because it squeezes money out of the economy, reduces spending and consumer confidence and deflates the economy. Its assumption that the crisis is a global one and that once world trade picks up Ireland will be able to export itself out of the recession is flawed. Ireland retained a substantial export surplus of €39 billion in 2009 over 2008 figures according to recent CSO figures. Yet, Ireland remained in recession.
Figures provided by the Irish Exporters Association to date indicate a healthy export market in 2010 but there appears to be little or no impact on the economy or employment. Foreign direct investment produces high volumes of exports in pharmaceutical and information technology goods and they are holding up well. However, they produce a poor return on jobs created and tax garnered. The recent revelation that Google made €3 billion extra profit because it was able to manipulate the Irish corporation tax regime to such an extent that instead of paying the exceedingly low 12.5% corporation tax is only paid 2.5% is totally unacceptable. It is a scandal and it has to be dealt with. The Labour Party in Government would ensure that no foreign or domestic business paid less than 12.5% corporation tax.
Export led growth is not the panacea that the Government expects and it has little effect on employment unless indigenous small and medium enterprises can get involved. Our small and medium enterprises are starved of credit and find it difficult to survive at the current time. The Labour Party in Government would target that sector through our new proposed strategic investment bank, availing of the European investment bank funds. We would ensure that small and medium enterprises were sufficiently funded to retain the existing workforce of 800,000, which is well over 50%, and expand into new enterprises and markets including overseas markets in emerging countries which would create real worth and real jobs.
State capital funding would be directed into labour-intensive projects that would breathe new life into the construction industry. Urban regeneration projects, school building projects, while energy, retrofitting, public transport projects and wind and wave renewable energy projects are ready to go. They are only awaiting a stimulus package which the Labour Party would provide by cherry-picking the national development plan and capital investment programme.
The extent of the recession is evidenced by the fact that the haulage of goods throughout the country declined from 246,000 tonnes in 2008 to only 148,000 tonnes in 2009 according to recent CSO figures. This marks a colossal drop of 40% in a single year. The distribution of goods throughout the country is a very good indication of the state of the economy. The economy is not just flat, it is in freefall. Our stimulus package for small and medium enterprises and our capital funding for labour-intensive projects would rapidly pick the country out of the recession and restore consumer confidence.
In the meantime, while this Government remains in office we must seek to protect the less well off, the 450,000 social welfare recipients on the live register, including the 100,000 on disability, and those on low wages and the minimal wage. Ireland remains a wealthy country. Any new taxes must be directed at 33,000 Celtic millionaires, or what is left of them, the 400,000 tax exiles and those with salaries and pensions above €100,000. The new 48% tax which the Labour Party proposes can raise close to €500 million and should be introduced with for those who are well off.
The 148 tax reliefs identified by the Commission on Taxation, which have been recently estimated amount to approximately €11 billion annually, need to be reviewed urgently. Property tax relief should be abolished entirely. If we take 50,000 people off the live register it will save the State €1 billion annually. There are 288,000 people who have lost their jobs since 2007. Clearly, a restoration of the 2007 figures would amount to approximately €6 billion which would be €6 billion less of a burden on the social welfare system.
There can be substantial savings from the Croke Park agreement. It is high time the Government put in place mechanisms to quantify and achieve the savings. Unfortunately, the Government has taken no action to date on any of these issues. It is rudderless and leaderless. It is incapable of action and can only claim to seek consensus on the way forward from the Opposition at the 11th hour of its term in office. The Fianna Fáil and Green Party coalition cannot do the job and should step down.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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At least we learned something from the last contribution, namely, that Labour Party Ministers would do without cars and drivers to drop them at meetings to do with the budget.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The purpose of this debate is to clarify the choices we have to make over the next four years and the fundamental reasons for them. There are, unfortunately, no relatively painless exits from the situation in which we find ourselves. To clear up one persistent misrepresentation, State underpinning of the banks, while adding tens of billions of euro to the national debt, is not a main contributor to the general Government deficit that has to be reduced from an underlying 11.9% of GDP this year to 3% by 2014. Interest on those payments to the banks do, however, add to the problem, and have been one of the reasons for the markets' focus on Ireland, not least because the capital injections have led to a spike in the deficit to 32% this year.
Some 90 years ago, between the Government of Ireland Act, 1920 and the Treaty, the two parts of Ireland went their separate ways. By majority choice, Northern Ireland remained part of Britain, with devolution since restored after a long breakdown on a much different and consensual basis. Northern Ireland faces serious difficulties, in terms of allocating expenditure with a budget much short of what all would claim it was promised by the previous British Prime Minister. The Executive and Assembly have almost no responsibility for raising taxes or the public finances as a whole, for banking supervision or the health and well-being of the much larger economy of which it is a region.
In 1920, Home Rule was also put in front of the people of the 26 counties on the Statute Book. Instead, the people chose, and fought, to become separate and independent, to be ultimately responsible for their and our own economic viability and financial creditworthiness. For a long time, we were relatively poor and fiscally conservative, but we lived within our means, so there was never any question of default no matter what the pain, neither following the Civil War, during the economic war nor the Second World War, although in 1925, as part of the boundary agreement, Britain agreed to write off our estimated share of their national debt. For a long time, we were even a creditor nation.
Partial default is not an alternative to pain. The measures taken two years ago and since to underpin our banking system have so far succeeded, albeit at a previously unimaginable cost. As former President Clinton said on a recent visit to Ireland, "If you do not have a banking system, you're toast". Unless we want to reclassify ourselves as a Latin American country of the 20th century, we have to stick to the hard road. In future crises across the western world, the treatment of bondholders may well be handled differently, by agreement among the EU and the G20, but we cannot change the rules now, unilaterally and midstream acting as a guinea-pig, except at great cost to ourselves and to our reputation as a country in which to invest and to which it is safe to lend. Even the valid and reasonable distinction between senior debt and subordinated debt is, as we have seen, not entirely unproblematic for everyone concerned.
There are three reasons we need to achieve the 3% deficit target by 2014. The most fundamental reason is that it is the level that equals stabilisation of the public finances. At 3%, given minimal levels of growth and inflation, the economy is growing faster than the debt. For 20 years from 1988 to 2007, when the Exchequer was borrowing 3% or less or was in surplus, the national debt reduced steadily in gross terms as a percentage of GDP from a peak of 118% to a low of 23% in 2006 and 2007. The cost of servicing the debt, which was a third of all tax revenue and a quarter of the current expenditure in 1987, declined to a low of approximately 5% in both cases 20 years later. The main reason for reducing both debt and deficit is that otherwise we pre-empt and sterilise large amounts of taxpayers' resources for interest payments, which could be better used for economic and social purposes.
One does not have to be a member of the eurozone to be concerned to bring down the budget deficit to 3% of GDP or under. The British Government has announced a four-year plan to achieve the same in order to stabilise its public finances. As a eurozone member, we do not have the same degree of discretion. The second reason we have to reach the 3% target by 2014, which is already a one-year extension, is that we have agreed to do so with the EU Commission in the first instance and as a commitment vis-À-vis our eurozone partners. It has been clear, particularly since the sovereign debt crisis erupted earlier this year, in the first instance with Greece, that the health, indeed survival, of the eurozone depends on each individual member state, regardless of its size or centrality, taking the appropriate action.
As part of the criteria for membership of economic and monetary union, a deficit of no more than 3% of GDP has been a critical component. That figure first emerged from an informal Finance Ministers' meeting during Ireland's EC Presidency in 1990 in Ashford Castle, County Mayo. It was subsequently written into the Maastricht treaty of 1992, and ratified by the Irish people, with part of the package consisting of very substantial Structural and Cohesion funds, which we have well absorbed.
As a result of the global financial crisis, many countries are in deficit far in excess of that figure. It is not a valid argument to say that because France and Germany marginally exceeded that figure in the early years of the previous decade, the rule no longer applies. It clearly does, since we and others have to find a path back to complying with it. We have been given reasonable, but not unlimited latitude, as our situation cannot simply be attributed to external factors, but was as a result of imprudent behaviour by this country. The third, and even more compelling reason, is the expectation of markets, from whom we will be looking for borrowed funds again from January to be able to maintain public services, incomes and income supports, on which our people and the quality of our society depend.
I welcome the commitment of the main Opposition parties to the 3% target by 2014. It is an acknowledgement by them of the political reality that would immediately face them in Government. There is a public expectation that their approach be set out in more detail. The only comment I would make is that it would be unwise for them to rule out too much in advance, as otherwise there is a risk, as happened with the British Government recently, of having to accept apologetically that in certain particulars they would have misled the country.
The economic argument made by ICTU and the ESRI is that the pain should be more spread out over time. There would be a significant financial cost to that but more importantly, the approach would not be accepted by the Commission, our EU partners, or the financial markets. Heavily indebted states are unfortunately not as in complete control of their affairs as those which are relatively unencumbered. Nevertheless, we want to make the detailed consequential decisions ourselves, not leave them to the IMF.
There is no convincing evidence that Keynesianism works in an Irish context. It did not work in the middle or late 1970s, it did not work in 1980 and 1981, nor was it going to work in the initial phase of our present crisis in 2007 and 2008. The best boost to our economy and to confidence will be to put our finances in order, and take full advantage of recent improvements in Irish export competitiveness, together with any measures we can take to support jobs and improve performance.
Among more extreme and defeatist solutions put forward by one or two commentators are that we should leave the eurozone to permit devaluations, or leave the EU, or become the 51st state of America. Attempting any of those things would be far more damaging and disruptive than anything we must do now. They would effectively spell an end to Irish sovereign independence. We do not have the natural advantages of Norway and Switzerland to stay outside the EU. Few of us want to become an Anglo-American dependency or island tax haven. Geographically, culturally, and politically, we belong to Europe. How few of us would volunteer to apply to join a nuclear superpower militarily engaged all over the world, with the large divides in wealth that characterise the US, and, for all we know in the future, with a "Tea Party" President in the White House? The reality we must face for the moment is that we are closer to Frankfurt and Brussels than Boston or even Berlin. The social market economy patented by Ludwig Erhard and refined by Helmut Schmidt in post-war Germany is a good and successful model for us to adhere to. Unlike the editor of the Sunday Independent, and apologies to one of its columnists, I have no phobias about Ireland becoming more like Germany, as we belatedly internalise the logic, disciplines, and advantages, short-term and long-term, of eurozone membership.
Incidentally, I must compliment the Minister of State, Deputy Mansergh, on stating he learned something from the contributions of the Labour Party Members. I have to state he is a smarter man than I am; I did not learn anything because I heard nothing except the usual lack of specifics. The game of hide and seek continues.
An interesting debate has taken place on whether the deficit should be reduced to 3% by 2014 or possibly extended to 2016. This is interesting but largely irrelevant. Whether the 3% deficit can be achieved by 2014 or 2016 without running the risk of deflating the economy to destruction depends almost exclusively on the level of growth in the Irish economy in the years in between. If the level of growth is not sufficient to enable us to do what we have promised to do then it may be possible to acceptably stabilise the deficit at a higher level. However, as Deputy Noonan mentioned earlier today, if the growth turns out to be in the higher range projected in the recent ESRI report then it may be possible not only to stabilise the deficit to 3% by 2014 but to do so for much less than the €15 billion figure put forward.
The point is that we have committed not only to the EU Commission but also to the European Central Bank that we will achieve this target in the timescale we have agreed, which is 2014. It is also a fact that the people from whom we will borrow money, the international bond markets, expect us to honour and reach that target. We are in a position where the European Central Bank, which guarantees the massive borrowing we have already undertaken and the people from whom we will borrow in the future, demand we adhere to this timetable, so we have no choice but to try and be seen to try.
It would be the height of folly for this or any Government to think an austerity package on its own will be acceptable to the people or that it will work. What we want and what the country needs is an austerity package accompanied by an appropriate stimulus package. I am not speaking about the stimulus package introduced by a Fianna Fáil-led Government in the 1970s, which was clearly unworkable and which the country could not afford. Such a package introduced today would be even more unworkable in the present circumstances and it would certainly be unaffordable. However, there is a type of stimulus we can use. We can target certain areas and do certain things that are not of themselves very expensive - some of them will cost nothing - to stimulate and re-ignite growth and create hope again among the people of the country. We must do this and we are morally and politically obliged to do so for two reasons. The first is that growth is an essential part of the equation. We will not stabilise our debt in 2014, 2016 or 2020 or at all unless we create sufficient growth in the Irish economy.
There has been insufficient emphasis in this debate on the fact that in the interests of the people, we now have to confront the scourge of unemployment. Prolonged, mass unemployment is catastrophic, not just for its victims but for society as a whole. Several learned studies attest to this fact. One of the most notable and most interesting I have read was done by the great Harvard sociologist, William Wilson. He demonstrated graphically how the disappearance of low skill jobs in the United States during the 1970s led to the social collapse of the black ghettos. In this country, we have seen this process in reverse. Rising employment turned what had been sink estates into decent, if not wonderful places to live. Finding a job does more for a person than an army of social workers. It restores a person's dignity and sense of self-worth.
The benefits of the Celtic tiger, despite protestations to the contrary, did not go exclusively to the wealthy; they went overwhelmingly to ordinary people in the form of abundant employment opportunities in their own region, something this country had never experienced before. I have mentioned some of those studies and there have also been interesting studies on the effect of the last decade on the psyche of the Japanese people. However, there is now a danger that we will soon be able to produce our own studies because this country stands on the threshold of an unplanned and unwelcome social experiment. The social experiment will be how mass unemployment impacts on crime, on domestic violence, drug abuse, suicide and a litany of other social calamities.
Along with other people I have been promoting incentives which include a proper workfare programme, not a punitive programme such as a local scheme for cutting grass or cleaning footpaths and if a person does not participate, he or she will lose their dole. It must be something that gives people dignity. Such jobs could be paid for by the State, by a premium on top of the standard social welfare payment, to enable people to be gainfully employed in their own area of expertise and not just a social type of employment. I am referring to everybody, to those with doctorates, for example, a considerable number of whom are unemployed. It could mean everybody could be taken off the live register by postponing one particular capital project I have in mind, called metro north, which is a ludicrous project. The very notion that it is going ahead is ludicrous-----
-----at a time when we are talking about cutting social welfare is wrong.
Another idea would be to look at the banking situation. There is a continuing credit crunch and this is likely to continue for the foreseeable future. Apart from anything else, and apart from the capitalisation and the banks trying to repair their balance sheets, there is the imperative that the Irish banking system will have to bring loans back into line with deposits. This will involve considerable deleveraging. If somebody were to ask me today at what point in time would the Irish banking system be able to give sufficient credit to enable us to get the proper level of growth to reach this target by 2014, I could not honestly answer but I could say that there are alternative sources of funds available. For example, the system has been used in the United States whereby business owners have been allowed to temporarily tap into their own personal pension funds to source much-needed working capital without penalty from the tax authorities. In this country, small and medium enterprises are failing almost daily. Their failure is not the result of unprofitability in the medium term but rather because they cannot source the necessary cash flow. I estimate that approximately €80 billion is in Irish managed pension assets. Having a temporary and regulated access to this money now would help thousands of viable but struggling small to medium businesses to survive.
A new approach to mortgage repayments has been put forward. I support this approach and I have written about it and I understand it is now the subject of representations to the National Treasury Management Agency and to NAMA. Many people who bought their homes at the peak of the property market are now in negative equity. It is likely, if more remedial action is not taken now, that thousands of families will have high debt levels over the coming decade. Such widespread debt levels will have considerable social and economic consequences so it is vital we take action now to alleviate it for everybody's sake.
A number of solutions have already been suggested, including allowing people to extend their mortgages over longer periods and giving some people the option of renting back their houses from the bank. We need to look at this problem differently. It appears there are two distinct and independent identifiable component parts to a house purchase: the house structure itself and the land on which the house is built. By separating the two parts we can devise a solution where the mortgage can be reasonably discharged on the house structure within an acceptable period but the house builder continues to pay a lease on the land on which the house sits for a 90-year period. This approach, or an adaptation of this approach, would not only help to re-ignite the housing market but it would protect people who are trapped in negative equity.
On the subject of turning intellectual property into profits, the path from research and development to economic success is first, research, second, invention, third, intellectual property and fourth, commercial success. Ireland should now adopt a policy of becoming a world leader in the latter half of this path, specifically in the process of commercialising intellectual property and making Ireland a centre of excellence in turning intellectual property into profits. We have the structures, the reputation, the expertise and the people to take intellectual property which has already been developed and turn it into a real income stream.
Time does not allow me to speak about other proposals in detail but I will articulate them both here in the House and elsewhere. I refer to encouraging immigrants to invest in new businesses here; turning the migration of graduates into a positive rather than a negative which it is at the moment; radical reform of the bankruptcy laws; a study of the tax systems of other countries to see where tax changes are being made which would benefit us if we adapted our taxation system, such as the recent measures outlined by the United Kingdom Government regarding a tax on video games. Cash on deposit amounts to €100 billion and it could be a source of business credit. The Institute of Taxation has advanced very interesting proposals in this regard.
This austerity package is needed by the country but it has to be accompanied by measures to create hope and which will give people the belief there is a future in this country. It has to be accompanied by an appropriately targeted stimulus package otherwise, instead of the light at the end of the tunnel, we will be talking about the tunnel at the end of the light.
I came into this House in 1994 from a by-election and in 1995 we were in Government until 1997. Every time a Fine Gael or a Labour Party Minister would rise to speak on the budget, the Fianna Fáil backbenchers would go back in history about what Fianna Fáil had done when they were in Government. I want to put a history lesson on the record of the House about the Government from 1995 to 1997. The media sometimes forget that it was the first time since the foundation of the State that a Government actually had a surplus. This meant we were not borrowing money for the day to day running of the country. We were creating 1,500 jobs a day, from 1995 to 1997. I remember that general election when the Irish Independent headline read, "It's Payback Time". The newspaper was 13 years ahead of its time because it is payback time now-----
-----and we will be paying back for the next 30 years as a result of what this Government has created. It is sad because we had it so good. We had a good country and a great workforce and a great economy. The Irish Independent and its like, with their economic policies, has got us into this mess. The great leader of the day, the then Leader of the Opposition, Deputy Bertie Ahern, adopted the policies of the Irish Independent and now we are in this mess. Low-paid workers are being asked to pick up the tab. Those who are struggling are about to be attacked in the forthcoming budget.
Some journalists have suggested that Fine Gael should say what it would do in government. We will do so when we are in a position of power on the other side of the House and have Ministers. During those times over the last 13 years when the economy was going well, no Minister for Finance, education or agriculture asked Fine Gael or the Labour Party to outline their ideas of what would be good for Ireland. When there was money in the country, we were not asked what it should be spent on.
I remember the day the Fianna Fáil choir applauded the then Minister, Charlie McCreevy, at length after he had made his Budget Statement. They nearly broke the place down in celebration of the wonderful budget the Minister had given to the people of this country. Many people, including journalists, have short memories. The following year, the then Minister said the giveaway budget was going to be one of many. Again the choir got up to clap. Given that he was probably one of those clapping, I am sure the Acting Chairman, Deputy O'Flynn, remembers the day of the decentralisation announcement. Those who were applauding Mr. McCreevy thought he was the greatest Minister they ever had - the Houdini this country needed - but look at the mess this country is in now.
It has been suggested that the Queen will come to Ireland on a state visit next year. Although we have our independence now, perhaps we should hand the country back to the Queen and apologise for the mess we have made of it. When Britain was running the country, at least it did not leave us in such a mess or in the hock we are in now.
I am sick and tired of people saying that we are all the same and that we all created this problem. We are not all the same. I was one of the Fine Gael backbenchers who criticised the Labour Party Minister for Finance, Deputy Quinn, for not opening the purse strings more, or for not doing more in areas like taxation and social welfare. If the coalition had not lost five or six seats in 1997, we would still be in government and this country would not be in the mess it is in now. Deputy Deenihan, who was a Minister of State in that Government, will agree that it acted responsibly and put the country first. We are putting the country first again.
I remind the various commentators that since the foundation of the State, Fine Gael has always put this country first when it has been in government. We will do it again. We will not be dictated to by those who think we should put everything on the table even though we do not know what the Government will put on the table. We were told last week that there might be an over-run of €15 billion. It seems this week that it might be €20 billion.
We do not know what the level of growth will be. Other figures will be published by the Department. I know what Fianna Fáil, the media and the Government are doing. They are trying to spread the blame game. They want people to believe we are all the same so that when the election takes place, they can compare what the Government has done with what Fine Gael and the Labour Party proposed in their pre-budget estimates.
I know this country is in a serious position. Like every citizen in the State, I want to get this country back to where it was. We want to get our people working. We want to give a bit of hope, create a bit of employment and get rid of the depression that exists at present. People are frightened out of their lives about the proposals that are coming down the tracks. As my party's spokesman on social protection, I want to make sure those who did not cause the mess we are facing are not penalised most. I ask the Minister of State, Deputy Mansergh, to ensure marginalised people who need to be protected are protected. They did not create the problem.
The Government should go after the bankers and their wives, who have billions of euro. They are enjoying themselves in the sun, reading newspapers and drinking wine and champagne. We are doing nothing about it. We need a few bankers to go to jail to show there is law and order in this country.
I agree with Deputy Ring that those of us on this side of the House are prepared to share the pain but not the blame. If just one thing comes from this debate, it should be that this House needs to retake responsibility for the running of this country. When it comes to job creation, this House does not have any say as IDA Ireland is responsible for the matter. When it comes to tourism, we have to defer to Fáilte Ireland and Tourism Ireland. If one goes right across the spectrum, one will always find other agencies to which these duties have been devolved. This House does not have any responsibility in most areas. When one is in opposition, one does not get an opportunity to contribute. I agree with Deputy Ring that when the country was going well, nobody asked us for ideas
I had a good experience when I was my party's spokesperson on defence. Every question I asked of the Minister for Defence had to be answered in the House. By contrast, when I ask a question in my current capacity as spokesman on tourism, culture and sport, I find that an agency is responsible for the matter. The sooner this House reclaims total responsibility for public affairs, the better. The Minister for Health and Children, for example, should have to answer to this House when there is a problem in a hospital. When things go wrong, Ministers should take responsibility and resign if necessary. This country's public service will not function properly until that happens. This House has reneged on its responsibility to those who elected its Members to do a job. We are allowing others to do the job we should be doing. We take the credit when they do something good and we run when things are going bad. That is what is really happening in this House.
I would like to mention the latest independent indicator of how well we are doing. The figures we get from the Government are inaccurate because they are all over the place. We do not know what the position is. An adjustment of €30 billion was mentioned this evening following the bond market review. It was suggested that we should provide for such a cut in public expenditure over the next four years. I suppose the company in question, Davy, is fairly neutral in this regard. It has been reasonably accurate to date. It was quite optimistic last year. According to the account it published yesterday, GNP is expected to decrease by 1.5%, in volume terms, in 2010 and to revive slightly in 2011. GDP will be almost flat this year, with growth of just 0.3%. Next year could see volume growth of 1.9%, supported by demand for exports. If those figures are correct, we face major trouble as we attempt to sustain the services we currently provide.
As Fine Gael's spokesman on tourism, culture and sport, I would like to focus on tourism before I conclude. If leadership is shown in Ireland and in overseas markets, we can regain some of the tourism market share we have lost. Ireland is not realising its full potential as a tourist destination. If its wide range of natural and cultural assets were developed in a sustainable manner, Ireland could acquire a clear position in the market and be re-established as an outstanding tourist destination. The significant downturn in overseas tourism demand since 2007 has had a detrimental impact on the tourism sector and the wider Irish economy. In the three years since 2007, Ireland has lost 2 million overseas visitors and at least €1 billion in revenue, with a consequential loss to the Exchequer of approximately €500 million in tax revenue. That is an indictment of those who are supposed to be attracting tourists to this country.
The difficulties currently being experienced by the tourism sector go back further than the current recession. Marginal growth rates in overseas tourism since 2000, allied to a net decline in overseas holiday trips, have resulted in the loss of profit share to key competitors. It is all about competitiveness. One of the reasons people are not coming here is due to competitiveness. In its Travel & Tourism Competitiveness Report 2009, the World Economic Forum benchmarked the tourism and travel sectors of 133 economies. While Ireland is the 18th ranked country in terms of overall competitiveness, a closer examination of these rankings reveals issues of concern for Ireland. These issues can be summarised as follows. Ireland is ranked seventh out of nine countries in overall competitiveness within the north western European competitor set behind Sweden, the UK, the Netherlands, Denmark, Finland and Iceland.
In regard to access, as we know the €10 travel tax is definitely having an effect on the number of people coming to this country, and I have mentioned it on a number of occasions. Whether one agrees with Michael O'Leary of Ryanair or not, he stated that if it was removed, he could bring an additional 6 million tourists to this country over a five year period and create 6,000 jobs.
I heard Deputy Noonan mention that a large number of Chinese people are visiting the UK but they cannot use the same visa to come to Ireland. Surely, given the relationship between both islands that the visa, which will have been well checked by British intelligence and so on for security purposes, should entitle them to come to Ireland as well. They are two very simple initiatives which the Government could take in the morning that would certainly boost the number of tourists coming to this country.
I am pleased to speak in this very important debate. Arising directly from the incompetence of a succession of Fianna Fáil-led Governments, our country has been hit by a savage economic crash. The consequences of the failure of Fianna Fáil are visible everywhere in the country, including in the record unemployment levels, in the resumption of forced emigration of a new generation of well-educated young people, in the massive drop in the standard of living for ordinary citizens, in the closed down factories, in the empty housing estates and in cutbacks in health and education and services for the disadvantaged in society. No part of the economy and no public service is safe from Fianna Fáil cutbacks and close downs. There is no confidence and credit in the economy.
We had a budget in October 2008 which was presented as a minor adjustment to facilitate a soft landing for the economy. Then in April 2009 we had a supplementary budget. It is now clear that this budget was also based on an evasion of reality. The April 2009 supplementary budget was followed by the NAMA legislation and then by the 2010 budget. For some national and international commentators, the 2010 budget was acknowledged as the first budget to truly face the reality of the economic crisis now engulfing both the national economy and the Government finances. The 2010 budget was followed by the emergence of the true scale of the banking disaster and the cost of bailing out the banks, which is immense at €50 billion. There have also been indirect costs in that it has stifled enterprise and closed the economy. As we await the 2011 budget, we see that everything until now was just the calm before the storm.
This debate is a lead-in to the toughest budget in the nation's history, not only for 2011 but for the next four years. With the emerging picture for the 2011 budget, we all clearly see how far Fianna Fáil has failed. This budget is almost exclusively about starting to fix the Government finances, with little or no reference to protect existing jobs and create new jobs.
In terms of specific policy areas, I would like to see more attention being given to the local small business sector which employ one to 50 people. From the small acorn, the large oak grows but there is no respect in this country for the business person and entrepreneur who is creating a small number of jobs. There is nothing for them.
If the economy is to grow again, we must create jobs in small companies and especially in the six emerging sectors of health care, creative industries, bio-technology, post modern agriculture, green energy and tourism, all of which are full of potential. Small and medium sized local companies are of central importance in economic policy because of their degree of integration into the national economy. Our party leader dwelt very much on the role of small companies in his contribution.
There is an urgent need to review the effectiveness of the policies and incentives used in the development of the small business sector. The Government must bring forward a range of measures to tackle the challenges faced by the small business sector. These policies must unlock their potential for long-term sustainable growth and job creation. We are back to the acorn and the small company.
There must be an environment in which entrepreneurs and family businesses can thrive and be rewarded. We must put the interests of small companies at the top of the political agenda. Over the past number of years, the emphasis has been on Enterprise Ireland and IDA backed companies. We must have a new direction for small enterprises and companies. We must think big in regard to small business. The significance of the sector must be formally recognised and we must examine closely the structure of the support service delivery for the sector.
To make self-employment a potentially attractive career option for young people, we must provide them with the necessary supports and skills to turn their ambitions into successful ventures. Successful transfers of existing businesses preserve more jobs on average than those created by new start-ups. The transfer of businesses and the skills associated with them should be simplified and should, therefore, be given the same support as setting up a new business. We must look again at issues around taxation policy to ensure that it supports the transfer of businesses from father to son or otherwise.
A large number of small companies are going out of business in the current recession. Each of these business owners has a worthwhile re-start potential and that must be recognised. We must give them a second chance. Making a new start, however, is a lengthy and complicated procedure - it is almost impossible. We must urgently reform our bankruptcy laws in order that in the case of non-fraudulent bankruptcy, entrepreneurs quickly get a second chance and are treated on an equal footing with new start-ups.
The biggest complaint from small business is about compliance with administrative regulations. Small companies believe they bear a disproportionate red tape burden in comparison to larger companies. Urgent Government action is required to eliminate the red tape burden on small business. In addition, there are a range of other costs arising from direct and indirect Government imposed charges on the small business sector, such as energy costs, rates, leases, rents and dispute resolution procedures. To date, Government efforts have not delivered lower costs for business. The Government must take action to save small companies time and money, thus freeing resources and time for innovation, business growth and job creation.
Raising the right kind of finance can be a major difficulty for small companies and entrepreneurs. The Private Members' motion last week related to support for small companies but it was voted down by this Government. Risk aversion often makes investors and banks shy away from financing firms in their start-up and early expansion stages. Small companies must be better assisted to fully unlock their potential for long-term sustainable growth. Access to finance for small companies must be facilitated.
In addition, small companies are often undermined by a late payment culture. Much insolvency is directly due to late payment. There is an urgent need for Government action on late payments and a credit guarantee facility. So far, all we have is talk but no action.
Given the expected weak state of domestic demand over the next few years, small manufacturing and service companies will have to look to export markets for growth. The Government must give more support and encouragement through identifying business opportunities, providing advisory and networking services and upgrading of personal skills in the areas of market development and management competence. That is very important. These are some of the policy areas where the Government can bring forward practical proposals for the development of small companies and job creation. There are other opportunities in other areas.
Fine Gael is the only party with a sense of urgency that the country needs bold new approaches to tackle the growing jobs crisis. It is the only party to present concrete, effective measures to protect existing jobs and create new ones as well as bringing down business costs and helping struggling companies to stay afloat. What the country needs most of all right now is an election, not a budget.
I very much welcome this debate in Dáil Éireann.
It is hard to think of many debates in Dáil Éireann which have assumed greater importance than the debate we are having today and tomorrow. What needs to emerge from all parties, irrespective of our differences, is a clear pathway which has credibility and can be executed with confidence.
Firstly, I want to put on the record of the House my absolute conviction that we, as a nation, have the wherewithal to deal with all of our own issues, independently and without outside intervention. I, for one, am tired of the complete sense of defeatism, which is propagated throughout the media on even an hourly basis, when any sense of objectivity or impartiality has been long since abandoned, even by former respected pillars of the Irish media.
There is another reason I welcome this debate, that is, that it provides us with an opportunity to have a real contest of ideas between the Government parties and the Opposition. The politics of being against everything and for nothing are over. The fact is that it is decision time now and hard choices need to be made.
Nobody is asking for the Opposition to set out exactly where every cut should be made and where every euro of tax will be imposed, but rather to set out a macro-economic position which has real credibility and is capable of execution, whether we agree with it or not. That said, I welcome the Opposition's firm commitment to the target of cutting the deficit to GDP ratio to 3% by 2014.
For those outside the House who do not subscribe to this target, I would say the following. First, it is simply not credible at this stage, when every other European country has agreed, to abandon the 3% target by 2014. This is a simple issue of credibility which is not negotiable.
Second, to abandon that target now would, not alone close the bond markets to Ireland in the new year but, effectively, close off any opportunity for foreign direct investment. We should remember that even in the midst of an extremely difficult recession, Ireland still remains perhaps the most highly attractive place for global companies to do business. Unless we send the clearest of clear messages that we will credibly address our budget deficit issues, global investors will simply not invest here. I would appeal to those who suggest that there is an easier longer way of doing it to reflect on the reality of the position in which we find ourselves.
As a nation and as a people, we must stand up, be totally honest and state that we are serious about this business. My own view is that if the crisis is tackled head on and take much of the pain up front, then the burden will lighten over the four years of the programme. The opposite is also true. If we take the easy option at the outset, the burden will get increasingly difficult over the latter years of this programme.
I accept others hold a radically different view. They state that this programme should be suspended or expanded out over for another three or four years. That has no basis in reality and flies in the face of the position in which we find ourselves.
It is not as if we are in unknown territory here. One may draw direct comparisons between the perilous state of the public finances in the mid to late 1980s and where we are now. At one stage in the 1980s our debt to GDP ratio stood at 129%. We are nowhere near that figure now, and yet within a relatively few short years we brought the situation under control and below the 60% debt to GNP ration in the Stability and Growth Pact guidelines. If we adopt fair, but tough, and equally-spread policies, we can achieve that success again.
Equally, the public and business particularly will respond if we demonstrate in the clearest possible way that we are serious about this. If there is a clear pathway towards getting our own house in order, it will provide a major injection of confidence into the economy, both in terms of inward investment on which we rely so much in these times and also in terms of indigenous business.
The simple reality confronting the country is not so much the extent of the adjustment which needs to be made, although that will undoubtedly be profound, but rather the message we wish to send to those who invest in Ireland and those from whom we borrow, that we have a clear understanding of the nature, size, magnitude and scale of the problem and the measures necessary to correct it, and then, most importantly, to execute those measures with decisiveness and authority.
The question of whether to front-load out not to front-load the fiscal adjustment has been much discussed in the media in recent days. I am firmly of the view that we need to front-load this adjustment and made bigger corrections at the outset of this path of economic recovery. As I mentioned, our own economic history in the 1980s proves this to be the best way of doing so. More importantly, not to do so at this time would be to take a risk in terms of the global confidence in this country. It is my strong conviction that this would be an unacceptable risk for a Government of any colour to take, and the initial correction needs to be in the region of a reduction to 10% in the deficit to GDP ratio.
Having said that, it is also my view that if we take sharp corrective action in the short term, the fundamentals, which have caused so many problems for us, for example, in the banking system, the bond market and the world economy, and which cost us so much on a weekly basis, will being to stabilise and improve. In these circumstances, we could easily foresee a lessening of the load in the latter part of the plan, in other words, much can be gained by taking very decisive action now.
In my view each party needs to set out, over the coming two weeks, how this front-loading should be done. As this is a macro economic debate, no party should be asked - it would it be realistic to do so - to set out exactly where they would make cuts on a Department-by- Department basis.
However, it is vital for each party to set out its position in four broad areas: first, the extent to which it would cut capital expenditure; second, the extent to which it would cut current expenditure; third, revenue raising and taxation; and fourth, which is linked to the third one, pro-growth policies which promote increased revenue. In this respect, I have a real issue of the Fine Gael position and I have been critical of it. The Fine Gael leader has consistently ruled out tax increases. His finance spokesman has consistently stated that the capital budget will be protected. That can only leave the bulk of adjustment to be made on the current expenditure side, in areas such as health, education and welfare which make up by far the biggest proportion of Government spending.
-----while over 50% of the adjustment will have to come from reductions in current expenditure, the balance should be divided more or less equally between reductions in capital and increases in revenue. The Fine Gael position is very unbalanced in this respect.
I am reluctant to increase personal income taxes too much. It has not worked in the past and it has always proven to be a disincentive to work.
This debate is properly called a macro-economic debate, but we simple cannot ignore the core values which we have as a society in making the choices which confront us. We must have uppermost in our minds the need to provide the greatest possible protection to the poorest and most vulnerable in our society, especially the elderly, consistent with a solid foundation upon which to protect the vulnerable in the future.
The Government is rightly proud of the major gains in social protection and support for vulnerable people in recent years, especially in the area of the State pension. Of course, a key part of the plan should be incorporate a total focus on a return to growth and jobs, but - this is where we fundamentally differ with the Fine Gael Party - to not reduce expenditure and to not increase taxes does not give enough room in which to bring about required economic and fiscal adjustments. This means also that we need to increase our competitiveness, continuing to reduce our unit labour costs - huge progress has been made here - and providing a business environment conducive to foreign direct investment.
Each party must credibly demonstrate four key ingredients. First, it is an absolute prerequisite that the plan is credible to the international markets. Second, it must convey a message of determination to the international community. Third, it needs to protect the most vulnerable and, fourth, it must have the protection and creation of jobs at its core.
This debate is being watched by members of the public who want answers. They want us to seek consensus and show generosity to the Opposition. I believe the Government has shown such generosity in listening to ideas from the Opposition and providing its spokespersons with figures and information. I note with interest the welcome statement by the Minister for Finance that the Opposition will be given access to any figures or information it requires.
The Government side does not have a monopoly on wisdom. Some of the ideas presented by the Opposition must be taken into account. A job of work remains to be done to convince people of the scale of the challenge facing us. This applies equally to parliamentarians and public representatives. Have we asked ourselves what €15 billion in savings will mean over four years? Will we all be shocked by the extent of the four-year plan that is vital for economic recovery? It is difficult to imagine €15 billion in cuts and tax increases.
The most important part of the four-year programme is economic growth. Cutting expenditure and taking a creative approach to the tax system present opportunities to secure economic growth. Without wishing to take a Thatcherite view, I believe the private sector would do better in some areas in which the State is involved. In doing so, it could contribute to economic growth and reduce costs to the State.
As the Minister for Social Protection, Deputy Éamon Ó Cuív, stated when he visited Kells in my constituency, we must protect the poor, the weak and the most vulnerable and examine in a creative manner those areas in which the private sector could do a better job than the State. We must focus specifically on areas of current expenditure in which the Government should not be involved. If the private sector could become involved in these areas, it would generate economic growth while reducing costs to taxpayers.
There is no doubt that we face massive problems in terms of our budgetary strategy for the coming years. The announcement of €15 billion in savings was shocking. I do not have any desire to make cuts for the sake of it. We must, with determination and without any doubt in our hearts, meet head on the challenge of bridging the gap of €15 billion over the next four years. To do otherwise would be to derail the hopes, dreams and aspirations of future generations.
We must treat the challenge facing us as an opportunity to get our house in order. We have to ensure we balance our books and avoid national bankruptcy. The prize at the end of the process will be to restore hope and confidence to citizens. While the task ahead is a cause of worry and concern, people should be conscious of the ultimate goal which, as the Minister stated, is the maintenance and improvement of our living standards.
Failure to reduce our deficit would undermine confidence in Ireland's ability to meet its obligations and responsibilities and delay a return to growth. It is vital that we do not delay because to do so would stall growth. On the other hand, getting our financial house in order will facilitate economic and employment growth.
We have choices to make. We can increase the tax burden on those who are working or we can cut expenditure. While neither option is palatable, the gap must be bridged. The Fianna Faíl Party, the Green Party, Independent Deputies, Fine Gael and the Labour Party have given a commitment to the European Commission and other European countries that the deficit will be reduced to 3%. This figure must remain our target and cuts in expenditure must be the main mechanism by which we achieve it, although there is scope for tax increases.
I concur with the Labour Party's proposal to introduce a higher rate of income tax of 48%. The problem, however, is that such a measure would close the gap by only 3%, leaving a balance of 97%. While the proposed initiative would grab headlines, the Government would still have 97% of the work to do to achieve the €15 billion target. Calls to tax the rich may sound great but the Labour Party's proposal would only solve 3% of the problem over four years. The party must accept that the problem is much broader than simply taxing the rich. If we had more rich people, perhaps we would not face such severe problems.
The Labour Party also points out that tax reliefs amount to €11 billion. However, tax credits or tax free allowances as they were known account for most of this figure. These reliefs are not shelters for hotels or property development but part of the tax code for ordinary people.
We should work together constructively to address the problem before us. The Government has taken a constructive approach and I welcome the fact that the Opposition is becoming more constructive by the day.
I am pleased to have an opportunity to speak in this important debate. I welcome the decision of the main Opposition parties, Fine Gael and the Labour Party, to sign up to the need to reduce the deficit to 3% of GDP by 2014. I listened with interest to Deputies argue that they do not have sufficient information to make decisions. All the information required is available and can be sought. Consensus, which I hope is attainable, is important because it would result in a reduction in the cost of borrowing for the State. While I do not expect to achieve consensus on every aspect of the forthcoming budget, a general consensus on the four-year budgetary plan to be published in mid-November would send out the correct message. In contrast, Portugal today sent out a message that it could not achieve consensus, a failure that affected the bond markets and the cost of borrowing.
In recent years, corrections amounting to €14.5 billion have been made, while a further €15 billion in adjustments is required. As Deputy Thomas Byrne and many other speakers noted, our job is to ensure that the vulnerable and those most in need are protected. This requirement must be the cornerstone of the forthcoming budget and all other budgets in the four-year plan. None of the decisions the Government makes will be easy.
The purpose of the corrections we have made and will make in the coming four years is to return the country to economic growth. While economic growth forecasts have been revised downwards, the situation has stabilised. Unemployment rates, although high, are lower than previously anticipated. Last year, for instance, the unemployment rate was forecast to reach 15% this year but currently stands at 13.5%. We must ensure the unemployed are given opportunities to return quickly to the workforce.
There are many positives. Costs have reduced and foreign direct investment in 2009 amounted to almost €20 billion or half of the total figure for the United Kingdom. Many more new investments are in the pipeline and I commend the IDA and Enterprise Ireland on the work they have done in this regard. The county enterprise boards have also provided support for the small and medium enterprise sector which employs more than 800,000 people.
We must be creative with regard to the SME sector in the budget by supporting indigenous businesses. This can be done in several ways, including through expenditure under the capital programme. In my constituency of Dublin North, I can see the benefits of the work being done to build new schools and work done by local contractors under the summer works scheme. The State is getting more for less, which must be at the centre of its efforts over the next four years. It is crucial, therefore, that we press ahead with the capital programme.
I concur with Deputy Burton on the need to cap tax relief on pension contributions. It is, however, incorrect to argue that €2.7 billion is given to wealthy people through tax relief pensions. We should also liberalise the options available to PAYE workers on retirement. At present, a PAYE worker who receives a tax free lump sum on retirement must effectively put the remainder of his or her pension into an annuity. Annuity rates have not improved and many people ask why the system cannot be liberalised to allow retiring PAYE workers to avail of other options. For example, they should be able to access the guaranteed returns available under the national solidarity bond. These are measures on which I believe broad agreement can be reached across the House and that would get more money for the State from the €80 billion that is sitting there. However, we must be creative on such matters.
One final area concerns procurement, as this State spends €15 billion per year on procuring goods and services. It would not take much to derive savings of 10% in this regard and many private sector experts believe this could be done. This also should be at the forefront of this budget, as 10% of €15 billion would yield €1.5 billion.
At the outset, I congratulate my party leader, Deputy Kenny, for insisting on this necessary open debate regarding the crisis facing our country. Many young people now live in homes and have large mortgages that were based on the property boom. Consequently they now live in negative equity with either decreased income or with no job at all in some cases. During the boom, the Government transferred the national debt to personal debt. While all Members appreciate that the Taoiseach at last appeared to tell them a little more today than he has been in the habit of doing, the possibility of a necessary reduction of €15 billion over the next four years is extremely serious. Although it is vital to meet our commitments with Europe and elsewhere, equally it is vital to do so in a way that does not destroy growth but gives an impetus towards job creation, which is our only way out of the present mess. In the limited time available to me, I wish to concentrate on two areas, namely, the wanton waste in the health care system and the need to recognise the value of the agriculture and food industry to our nation.
As a supporter of the Monaghan General Hospital project in County Monaghan, I note the county has been the guinea pig for the removal of services to local people. While the HSE has cut the cost of running Monaghan General Hospital, it has increased the number of staff at management level right across its structures. No matter where one meets an individual in the HSE, one finds at least ten other people in the room, all of whom have great titles and travelling expenses. Although the Minister for Health and Children, Deputy Harney, has stated that up to €1 billion must be cut from the health budget, she has refused to deal with the cost of medicine. Can she explain the reason that a drug in a pharmacy north of the Border costs one third or less than the same drug south of the Border? Clear savings of up to €200 million can be made in the HSE with regard to this area alone.
Despite all the high technology that has been available to the HSE for the past 20 years, doctors on call in either a home or their dispensaries cannot get information from an aged person's medical cards. As a result, such an aged person in Monaghan will finish up on a trolley in Cavan General Hospital, if it still is on call, or much further afield. However, had the basic history of the patient been available, a doctor may have been able to prescribe accordingly and save all the hassle. The list of areas in which savings could be made within the HSE is endless but this will require leadership. I assure the Leas-Cheann Comhairle that there would be an enormous change within a very short period under Deputy Reilly. The Dutch and others have shown this to be possible.
As for the farming issue, with proper leadership and new thinking, the Food Harvest 2020 vision outlined by the Minister for Agriculture, Fisheries and Food, Deputy Smith, could become a reality, thereby retaining employment in agriculture and increasing employment in the food industry. We have a green industry of which we should be proud. It is vital that the Minister, Deputy Smith, and the Government recognise the farming industry is just emerging from an horrendous period of low incomes, due to the problems arising on foot of three years of extremely bad weather and prices. Farmers acknowledge that if they earn a reasonable income, they are liable to pay tax like everyone else. However, it is important for such tax to be based on actual income and not on gross output. It is important that the Government should think twice before introducing a property tax or similar measure that would completely undermine any possibility of growth in farming. For instance, in an area such as my constituency of Cavan-Monaghan, many farmers were obliged recently to invest major borrowings to ensure that all cattle were removed from the land during the winter. Such farmers would be much more heavily penalised by a property tax then would some of the farmers in the deep south. The agriculture and forestry sectors are key to the economy and must be supported.
There are many indicators that should send a clear signal to all Members that this is not a time for politics as usual. One such indicator to which reference was made repeatedly today is that more than 450,000 people are unemployed and this is the human face of the crisis that Members are attempting to confront. However, another statistic emerged on the news this evening. It is an abstract point with which people have had difficulty in grappling but is of great significance, namely, today the bond markets sought a yield of 6.9% or in other words, the cost for Ireland to borrow money has returned right to its peak. In itself, this is a clear signal that we cannot have politics as usual. The real challenge faced by the country is how to bridge the gap between annual spending of €50 billion and income of €30 billion. This debate is useful regarding the ideas that are put into the mix because unless the bond market can be reassured that Ireland will be able to effectively borrow at sustainable rates in January, it will not be a question of whether we must cut €5 billion or €7 billion. We would be obliged to bridge the entire gap in a single quantum leap, which would not be sustainable for the long-term viability of the economy or when balancing the need for growth with the need to get our fiscal policies correct. Our sovereignty, that is, our capacity to manage our own affairs is at stake, with the IMF at the door waiting to come in. Today I tabled a parliamentary question to the Minister for Finance on what the procedures would be in such an eventuality.
I have heard repeatedly in recent days from absent friends in the Green Party and more recently in tweets from the vanguard in Fianna Fáil about the need for consensus, to stretch the hand across the floor and to have greater co-operation on this national crisis. While I agree with that approach to politics, its cornerstone should not be another Tallaght strategy from Fine Gael. Its cornerstone should be that the same policy that applies to bankers, directors and chief executive officers of banks also applies to the Government in respect of accountability. I could hold my nose and countenance the idea, not of another Tallaght strategy, but of a national approach to government with Fine Gael members taking Cabinet seats. I could do so if I saw real intent on the backbenches of Fianna Fáil to have a palace coup and to tell Deputy Cowen and his cohorts, who have lead us into the mire we are in at present, that it is time to go, that democratic accountability applies to them as much as it does to Mr. FitzPatrick, Mr. Goggin and others in the banking sector, as well as directors. If the Government pursues that line with such individuals, it must apply the same or higher standards to its own members. I take with a grain of salt the tweets and public statements I read and hear on consensus when I do not discern the willingness for a palace coup within Fianna Fáil to have that level of accountability.
Were one to need any reassurance regarding the Government's culpability, one should consider the report by Professor Honohan on the banking crisis in which he states, "in short although international pressures contributed to the timing, intensity and depth of the Irish banking crisis, the essential characteristic of the problem was domestic and classic". He then continues with further evidence which, due to time constraints, I will not go into in greater detail.
Within the one minute that remains to me, I wish to deal with the Croke Park agreement. There has been much talk on the sustainability of that agreement, which obviously is something that comes into sharp focus today. However, one should make haste slowly as far as tearing it up is concerned because it contains much that is good. For example, it refers to how the parties will work together to implement it and how the introduction of new, improved technology service provision, and on-line and electronic fund transfers will be the norm. It also says merit-based competition and promotion policies will be the norm and promises significantly improved performance management across all public service areas. It contains a host of things that we have long advocated for the public service.
The number employed in the public service in 2000 was 247,343. In 2008, there were 319,000. That is an increase of 73,000 in eight years, built substantially on the basis of unsustainable tax revenues from the construction sector. We have a real problem there.
The missing chapter in the Croke Park agreement is any commitment to timelines or targets for savings. A document that is full of good intentions is being thwarted by the heavy hand of unaccountability. People who are charged with its implementation are thwarting the benefits that could accrue. When we are looking for billions in savings there is no commitment to timelines for achieving this. Trade unions and employers, whose interests it serves, would need to wake up to this fact. We need targets for its implementation.
This is a serious debate. I listened intently to every word the Taoiseach had to say this morning. I was extremely disappointed and I will tell the House why. In the last two or three weeks, I had already heard every word he had to say today. I heard nothing new whatever today. With the build-up to this debate, I thought alternatives would be put forward and proposals made, loose though they might be, to raise the necessary tax. We did not get that. We got the same ráiméis we get all the time. The Taoiseach does not seem to be able to get across to the Irish people just how serious this is and what will have to be done.
In the last couple of days the only topic on people's lips is the sum of €15 billion, where it will come from and how it will be raised. We are all agreed that by 2014 our budget deficit must be 3% of GDP. I understand that in the last couple of hours an agency in London has suggested that we may not have any growth at all next year. I do not know where this came from but I am told it is currency around the world at present.
The Taoiseach goes to great lengths to describe any proposal that emanates from the Department of Finance, or wherever else, as a forecast. I did not hear too much about forecasts until lately. Before now, we were told that so much research was put into these matters that what was being said was likely to be the figure that would eventually turn up. We are now told these are forecasts. This brings us to the weather forecasting business. It could be right and it might not be right. Unfortunately, over the last two years the weather forecasts have been terribly wrong.
When I hear of the sum of €15 billion, I have no idea on a personal level whether that will be the figure or not. Unfortunately for most people in the country, I do not think anyone on the Government side of the House knows it either. It is against that background that Irish people are extraordinarily worried about what will happen in the first week of December.
There are so many variables in this matter. If there is average annual growth of 2.75% over four years we are told certain things will happen. What will happen if the growth rate is far less than that? What will happen with the bond holders and the interest rates? I heard the Minister for Tourism, Culture and Sport, Deputy Hanafin, on the radio this morning saying that while €15 billion is a terrible crucifixion on the Irish people we have already taken out €14.5 billion over the last two years. We did not get too many brownie points from the bond holders and bankers throughout the world for the €14.5 billion we took out because, as of this evening I understand the rate has gone up again.
This is a very difficult time for every Irish person. Various sectors must be protected in some shape or form. The Taoiseach mentioned that today. I am talking about the elderly and the disabled. I am also talking about one specific cohort, and I am sure everyone in the House will agree with what I say. They are the young people who bought houses at three times their value. Not alone are they not able to pay back their loans, they are not even able to pay the interest on their loans. Whatever deal is made on 7 December will have to ensure that some help is given to these people. They are hugely important to the country and we will ruin their lives forever if something is not done for them.
I welcome the opportunity to contribute to this debate. The majority of the 4 million people in this island are not economists or fiscal experts and they are probably fed up hearing about deficits, front-loading, GDPs, GNPs, €5 billion, €30 billion, etc. The only thing they know for certain is that in four weeks time they will face one of the harshest budgets in the history of the State. They are desperate for clarity and certainty as to how the budget will impact on them and their families. Along with that clarity and certainty, they have to be given some hope of a brighter future they can look to with confidence. Instead of clarity, certainty, hope and confidence, PAYE workers, business people and the unemployed are confused and uncertain. Many are in despair and lack any belief in their future.
I will illustrate with an example of a small businessman who telephoned me about two hours ago. He is a sole trader in a village in my constituency who breathed life into that community - I would call it a crossroads - 13 years ago when he opened a small grocery shop, adding to it gradually and sensibly over the years and increasing the number of his employees to 14 people overall. He never reneged on one debt or to any of his suppliers. He had an overdraft facility of €50,000 and facilities for direct debits to be paid to suppliers. At all times, he has been in communication with his bank and has done all the things bankers tell their customers to do. Last week, the overdraft and direct debit facilities were withdrawn without notice. The first he heard of it was when some of his suppliers telephoned him to say they had got a letter from his bank. He contacted his local bank manager, who know nothing about it. It had been done from headquarters. When contact was made with the decision maker that night, not only did he refuse to explain, he stated that he would sleep easily in his bed that night and accused the man of trying to put him on a guilt trip.
Is that giving hope to that sole trader, all of whose possessions are on the line, even though he is giving employment to 14 people in his local parish and breathing life into his community? Is it any wonder that small business people like him feel a disconnect with what is going on at Government level. I asked if I could use him as an example and promised not to use his name. He said I could give his name if I wished. I will not do so, for obvious reasons. He is willing to come before any committee and explain his case.
The Government has asked for consensus in this House in order to deal with the massive financial crisis. That would be a reasonable request, if the Government would put their hands up and say they got us into this mess. It is also reasonable for that businessman, whose example I have outlined, to look for a consensus approach from his bank on how he can face his problems. It is not acceptable for his bank guru, whom the taxpayer has saved from extinction, to act in such a high-handed and arbitrary manner. How dare he? Perhaps that hard-working shopkeeper would have got a better hearing if he had belonged to a large company that walked away and disowned a few hundred million pounds worth of debt. This is why there is such a disconnect between the people and politics. Let us have a consensus here, forcing the banks to be fair to our small businesses.
We in Fine Gael recognise the need to apply corrective measures sooner rather than later. We have committed to the 3% target for 2014 but the Government must send a clear signal that it is playing to the same rules as the people. That has not happened in the past. The waste and squander mania continues. Parliamentary questions I tabled in recent weeks have revealed that a number of Departments are not observing the job embargo. Twelve Departments paid out almost €70 million in hiring 4,268 agency staff over the past two years. This includes €16 million from the Department of the Environment, Heritage and Local Government but does not include the Department of Health and Children, which was reported to have spent €100 million on agency staff. Is that living by the same rules as the aforementioned businessman? I say "No".
I welcome the opportunity to contribute to this debate. It is clear that both sides of the House have reached a consensus that we are in a difficult situation with limited wriggle room. I pay tribute to Opposition Members who are prepared to leave politics to one side and put their shoulder to the wheel to reach agreement on addressing our problems. We owe that to the people we represent. We must develop a coherent policy framework and, even if we do not agree on the specific elements, we will go a long way towards giving confidence to the markets and to those from whom we seek to borrow if we can agree on the broad principles.
I agree with the previous speaker on the necessity to deal with the banks in concise and clear language. There is too much mumbo jumbo in circulation and Government Deputies owe the people an admission that mistakes were made in the past. However, we must also recognise the nature of the advice that was available to us at the time. We cannot dwell in the past or continue to flog ourselves for mistakes that were made in good faith.
We must work together to develop policies that will get us out of our mess. Deputy Connaughton spoke about the projections on which we must base a four year strategy that will give confidence on the market. Clearly projections can be wrong on occasion. The growth levels predicted for this year have not held up but the projections behind them were not picked out of the air to suit the Minister for Finance. They were based on international trends and expected growth in European economies. The global economy has not recovered to the extent we hoped. We should not blame politicians for getting economic forecasts wrong. Forecasts are scientific and are based on certain facts and assumptions.
While our current difficulties are often explained in economic terms, the biggest impact on many of our citizens and their families is the loss of employment. I agree with Deputy Connaughton that the most vulnerable elements of our society are families in which both breadwinners are unemployed. Their lifestyle was supported by single or double incomes and often they owed significant amounts on mortgages and loans. I hope specific measures are introduced in the budget to deal with these families. While those who are on social welfare are certainly in difficult circumstances, many have built lifestyles around their incomes, meagre as they may be, and have been able to support themselves. A similar argument may be made in respect of pensions. If an individual knows how much his or her pension will be, a change of 3% or 4% will not be the end of the world. However, the loss of a significant income can create a crisis for a family. The burden is on the Minister to introduce measures to support such people.
We must create a framework for job creation. I pay tribute to the tremendous efforts of the IDA, Enterprise Ireland, the county enterprise boards, local authorities and the Leader companies in this regard. Improved competitiveness is contributing to job creation, particularly in the export sector, but we must introduce additional measures to get people back to work. Deputy Joe Carey and I have witnessed significant job losses in the Shannon region in recent weeks and we want to see measures that give fresh opportunities to the hardworking people who have lost their jobs.
The straightforward and frank exchange of views in tonight's debate has been very valuable. As public representatives, the feedback we get from people is that they are sick of bickering and populism. The blame game is important because someone must be made accountable. The sooner the ongoing Garda investigation results in people being brought before the courts to answer for the reckless behaviour of our banks, the better. However, there will also be political accountability. Members on this side of the House have accepted responsibility and, as public representatives, we are all accountable at election time. Judgment day comes to all of us, regardless of whether we are in Government or in Opposition.
I was appalled to hear the case outlined by Deputy O'Mahony in respect of the difficulties one of his constituents faced in getting credit. I was also appalled to learn that a mere 20 people made formal applications to the Credit Review Office for a review of credit refusal or reduction. We have a responsibility to make people aware of this independent agency. Last week I received a telephone call from a business person who was coming under heavy pressure from the banks but was not even aware the office existed.
Closing the gap between what we take in and what we spend will require a mixture of taxes and cuts. More importantly, we must encourage growth by stimulating areas of the economy. The National Pensions Reserve Fund can play a vital role in this regard and I would like to see its money being invested in Ireland. Much of the funds is invested in projects based outside the country. We need to invest it internally to have the money in circulation.
We need to see a sustained focus on the sale of some of our State assets. There are many assets that are in State ownership which are huge corporations and we need to expedite the process Mr. Colm McCarthy is examining at present in terms of moving on those assets and offering them to the market. Some of the major international corporations - the world players - will consider taking these off the State's hands for a fair price, which will give the citizen a fair return.
In the meantime, we need to see in the budget a clear focus on the salaries paid to some of the CEOs and senior management within these State organisations. We know of some who are paid a salary three times that of the Taoiseach. Nobody in the civil or public service, or any of the State agencies, should be paid a salary higher than the Taoiseach. Nobody in a Department should be paid a salary which exceeds that of the senior Minister of the Department. We have allowed that situation to pertain. These staff did not come under the pension levy or any of the different reductions in salary that have happened over the years. That sector is getting away scot free and we need a focus on it.
We must have a capital programme and, while it might have to be reduced, I would like more emphasis placed on public private partnerships, a model which has not been utilised enough. We have seen the delivery of some roads, school and hospital projects but we need to roll this out more and break it down into smaller projects and get the model working. The Department of Finance and the National Development Finance Agency are taking years to process these projects. I do not understand why it takes so long to cost a project or a model. We should bring it to delivery and get on with it. We are sitting back and the process is taking years. For example, sewerage schemes are often put into bundles. Six schemes were bundled in my county of Limerick and 15 years later we are still waiting for them to arrive. Why not give them a fast track model, get them out there and get them working?
With regard to the HSE, society wants to see a voluntary early retirement scheme for staff. We know it is a bloated administration. Much good has been done by the HSE, which has improved in many ways. It gets much criticism, which is unfair in that it works better than the old health board structure, but at the same time it is a very big organisation and it needs to be more streamlined. We need to get out that layer of middle management and administration which is not contributing to the overall goal of the HSE.
We need to consider other areas. The tribunals were mentioned on the Order of Business today. Tribunals of inquiry have been operating in this country for more than 15 years. At this stage, whatever they will find is irrelevant or confined to history. They were established by this House and we should have a serious debate about them in this House and work towards shutting them down. It is dead money. What they will tell us, we know already, and they will not inform us further.
I welcome the opportunity to speak in this important debate. It is important to acknowledge that all of the political parties accept the need to reduce the deficit, and the main Opposition parties accept the target of reducing it to 3% by 2014, although the Sinn Féin party does not subscribe to that view.
We need to acknowledge just how dependent we are, as a country, on Europe for support at present. Our banks are relying almost exclusively on support from the European Central Bank, though I note Bank of Ireland successfully managed to raise some funding on the international markets today. The support of the EU is critical to Ireland's ability to continue to raise funds on bond markets and we can continue to bridge the deficit between income and expenditure with borrowing.
We have to accept that no one owes Ireland a living. At the end of the day, we have to show a commitment across the political system to reduce and over time eliminate the fiscal deficit that has built up. The cost of borrowing, which has crept back up again today to approximately 6.9%, is a crippling level of interest and underlines the scale of the enormous challenge we face, as politicians, in the weeks before the NTMA returns to the bond markets in the new year to raise money to ensure this country can continue to function. Clearly, those interest rates will have to come down because that is not a sustainable cost of borrowing for a sovereign country to pay. It needs to come below 6% and we need to do whatever is required in the coming weeks to convince the international markets of our commitment in that regard.
I want to be as practical as possible in my contribution and will cover some key areas of policy. First, I welcome the recent allocation of funding of €3.3 million for the enterprise boards. However, I was surprised how little money the Government is giving to enterprise boards in general - I understand the €3.3 million was on top of €15 million provided already in 2010. Given the intention is that the €3.3 million will create 450 jobs, that works out at a cost per job of €7,300, whereas if one is paying somebody jobseeker's benefit or allowance, one is paying a single person €10,000 a year. It represents excellent value for the Government to invest a lot more money in the city and county enterprise boards if they are delivering a return of that level of employment. I would like to see a far greater focus and emphasis in that area. Perhaps some of the money invested in the national solidarity bond, which has in the region of €260 million already invested since May, could be diverted to enterprise support across the country. We would benefit from a very significant dividend if we were to do that.
We need to divert as much capital spending as possible next year to labour intensive projects and, rather than focusing on a small number of large iconic projects, we should spread that money across as many individual projects as possible. When one considers the return we are getting from the home energy savings scheme, for example, which is an exceptionally efficient and effective scheme, as well as the housing grants that are made available, such as the adaptation grants for people with disability and the mobility aids for the older person scheme, we get a great return from those investments. If we spread the capital investment across schemes such as those, we will get a far better return in terms of employment and in terms of generating activity in the economy. I firmly believe that if we give people a small incentive to spend money, even if it is only a few hundred euro, they will end up spending multiples of that.
The other major issue I want to touch on is the black economy. My sense is that at present the black economy is thriving in this country. We have to devise a system to capture as much of the activity happening in the black economy as possible. It is impossible to quantify the loss of revenue to the Exchequer by the amount of activity in the black economy but it almost certainly runs into hundreds of millions of euro a year. One idea to tackle this would be for the end customer who can produce a valid VAT receipt for work done to be given a small refund of VAT, which would incentivise more people to ensure the work carried out is done through the system and, as a result, the Exchequer would benefit.
With regard to the Croke Park deal, we need to see real savings, a timeline, deliverables and the objectives being achieved. In general, we will have to aggressively tackle the issue of bureaucracy and red tape, which has become almost an industry in recent years. It is very difficult for anyone with a business idea to get up and running and to tackle all of the bureaucracy and red tape that must be confronted.
I have raised the issue of local authority costs in the House previously. We must be radical in this area and do something really ambitious in regard to local authority rates, water rates and development charges, which are stifling the enterprise culture that is in every community. If we do not get to grips with this, we will not come out of the economic downturn as well as we should. I welcome the very positive report today in regard to exports, which are doing exceptionally well, but we need to focus on stimulating domestic demand. We must try to rebuild consumer confidence and improve consumer sentiment. It is clear a lot of money is being saved and we need to give people targeted and imaginative incentives to spend that money, or at least some of it, such as the car scrappage scheme, which has proven very successful.
The Minister for Social Protection, Deputy Ó Cuív, is seeking to reform the social welfare system. He will have to ensure it is worth people's while to go to work. The reality is that a married couple with two or three children relying completely on welfare would need to be earning approximately €35,000 to €40,000 per year to make working worthwhile. We must ensure that, in whatever we do with taxation and welfare, we do not reduce the gap further between welfare and work and that we incentivise people to go to work. The economy in general will benefit if we do so.
This debate presents a welcome opportunity to consider the economic emergency we face as a society. People are desperately anxious about the burden they face not just in the coming budget, but also for years to come. They are looking for leadership and direction from those charged with running the country.
I took the time to read the Taoiseach's speech closely. I was at a committee meeting when he was delivering it. I regret that there was not much in his speech to inform us as to how the Government intends to lead us out of the mess. The Taoiseach promised us there would be a clear plan but we were none the wiser by the end of his speech as to what plan he has in mind. Instead of offering a plan, the Taoiseach stated: "We must be hopeful, optimistic and energetic, and yet we must be clear-eyed, realistic and thoughtful." This reads like an extract from the Little Book of Calm. Such an entreaty is actually an insult, coming as it does from the man who, as Minister for Finance, led us blindly into a financial sewer largely created by him and his predecessor, Deputy Bertie Ahern. Today, instead of providing clarity, the Taoiseach gave us clichés. The people deserve strategic leadership in these dark times. Surely, if that is not on offer, they deserve decent rhetoric at the very least.
The lack of ideas on the part of the Government is deeply worrying. It has battalions of civil servants, experts and consultants to advise it on the way forward. However, there was nothing concrete in the Taoiseach speech about public finances, job creation or economic stimulus. The Government is clearly past its sell-by date and should be thrown out of office.
In desperation, Ministers and their spin doctors endlessly criticise the Labour Party for not having proposals. Today's debate has shown that, despite our limited research capacity on this side of the House, and the limited information provided to the Labour Party by the Government, there were more clear-eyed, realistic and thoughtful solutions in Deputy Gilmore's is speech than in any speech from the Government side. It is time for the media, in particular, to bury the canard about Labour not having policies and to start scrutinising the paucity of solutions emanating from Government Buildings.
We may be down as a country but we are not out. We have natural resources that can be harnessed to create jobs and get people off welfare. I refer to construction jobs in particular. The first step to recovery, however, must be a general election. A new Government with a mandate from the people will have the energy and drive to do what the current Government is incapable of doing.
We need a fresh start. The severe economic problems will still have to be tackled but the Labour Party in government will work more smartly to resolve them. There are opportunities. Curtailed funding will be a real limitation on future growth but if we change the way in which public policies are delivered, without necessarily spending extra money, we can deliver on growth and jobs. In the energy sector, for example, there are continual complaints about bureaucratic slowness in responding to innovation. The wave and wind sectors, particularly the offshore wind energy sector, are hampered by the lack of a strategic approach and a streamlined planning process. A recent study by the European Wind Energy Association showed that the onshore wind farm developers in Ireland experience average delays in planning of 33 months. They are required to contact, directly or indirectly, 14 governmental or local authorities on average before they can proceed. This is simply unsustainable.
Another renewable resource is geothermal energy. It is also held back by the lack of legislation, despite a promise made by the Minister of State, Deputy Conor Lenihan, that legislation would be published early this year. There is no sign of it yet and I doubt that it will be published until well into next year.
According to Forfás, the global environmental goods and services sector is expected to be worth $800 billion by 2015. This presents real opportunities for the economy to capitalise on the growth of the clean technology sector. In order to reap the benefits of the renewable energy revolution, there must be a co-ordinated, planned approach to maximise potential. We need a new Government but also a smart one.
I was struck by the extent of the measures and proposals made today by the leader of the Labour Party in his speech, but the key must still be job creation. The bulk of people who are unemployed have skills, many in the construction sector. Thousands of them could be put to work immediately if the Government lived up to its own commitments. In his budget speech of 2009, the Minister for Finance, Deputy Brian Lenihan, promised a national retrofit programme. There is still no sign of it although we are now approaching the 2010 budget. Thousands of people could be put to work under such a programme and energy bills would decrease. Energy efficiency would increase in every home, school and hospital if the Government had the drive and focus to deliver on its promises.
If one looks at the record, one will note circumstances are worse than one might imagine. The reality is that the Government could not even spend the money that it allocated for energy efficiency programmes last year. Some €35 million was handed back into the maw of the Department of Finance at the end of 2009 because the Minister for Communications, Energy and Natural Resources, Deputy Ryan, a Green Party Minister, was not up to the job of delivering on his own policy of energy efficiency.
We must ensure that our competitiveness is not hampered by a lack of IT infrastructure. The Minister, Deputy Ryan, promised a one-stop shop to enable the development of fibre connectivity across the country. It does not cost money and only requires Government intent, yet it has not materialised. Broadband speeds are disturbingly poor in large parts of Ireland, that is, in the parts where broadband is actually available. Good regulation, targeted investment and streamlined public processing can make a real difference in the growth of information technology.
All the main parties in the House agreed to the framework for reaching a reduction in our deficit of 3% by 2014. There will be hard decisions to be made but, as Deputy Eamon Gilmore said, they must be the right hard decisions. The first that should be made should be to allow the people to exercise their electoral mandate and choose who will govern them in these challenging times. This is the first stimulus we need to see to ensure we get the good governance, forward thinking and clear plan this country so desperately needs.
Politics should be about progress; that is the whole point. Why are we here only to make things better than they are? For voters, politics is about hope. At least these are what politics should be about. Politics is about optimism and it is an incremental activity. One does not achieve progress overnight but builds on the progress that has been made by our predecessors in the Dáil, Seanad, local authorities and local communities. Now when politics is discussed, the opposite of what I have described is regarded as a virtue.
People receive kudos in respect of the cuts they propose to introduce and the amount of dismantling they promise to do. When Deputy Varadkar announced that he would make €7 billion rather than €4 billion in cuts, he was the hero of the day as far as some members of the press were concerned. That is not the type of political discourse with which I wished to be involved when I became a member of the Labour Party. Politics has become so denigrated and people are so cynical about it because we have forgotten the fact that it is about progress. The latter is the aspect which is absent from the debate.
We are in a bad situation and it is difficult to resist the temptation to be extremely pessimistic about the future. However, progress can be achieved. This has been done in Ireland and other countries in the past. I am of the view that the greatest example in this regard is what the British Labour Party did in 1945. When Britain was in ruins at the end of the Second World War, that party won a landslide victory and went on to establish the National Health Service, NHS, introduce the idea of people making social contributions in order to pay for pensions and set up the comprehensive education system. These developments still stand as a testament to that particular Government and the fact is that the initiatives which brought them about were launched in extremely difficult circumstances.
The debate on ideas which took place in Britain both during and after the Second World War was quite different from that which is occurring in Ireland today. Such a debate did take place in this country in the past. Universal children's allowance was first introduced here in 1943. Ireland was not wealthy at that time and there was rationing of food, etc., but still the progressive move to which I refer was made. The welfare state was established - out of the ruins of two world wars - in very difficult times in Sweden and other Nordic countries. Those examples have stood the test of time.
If, during the Celtic tiger years, we had focused more on politics as a way to make social progress as opposed to any old type of progress, we would have built homes rather than constructed houses which we just do not need. My party and I have a social democratic view of what constitutes progress. However, whether one favours the type of politics espoused by the former Progressive Democrats or by the Labour Party, there is no doubt that all politics should be about progress.
Politics should also be about ideas. I do not refer here to a "Your country, your call" type of approach. A very good article was published in The Sunday Tribune during the summer. Even though it related to politics, the article in question was written by that newspaper's television critic and focused on the concept of people coming up with an idea that will solve all of our problems. It states:
For some time, we've been encouraged to think like consumers, not citizens (we've been calling the state Ireland Inc for over a decade now). It stands to reason that we might think we could remove our recessionary stains with some form of New Daz idea ...
There is a need to reinstate the concept that politics is about ideas. One such idea relates to the type of society we might build out of politics. Lately, however, the debate has focused on numbers rather than ideas. Everything now appears to be about sums, subtraction, number crunching and reductionism. The debate appears to be an ideology-free zone but that is not the case. In reality, it is the same old ideology we have had for the past 13 years and which has led us into ruin.
There is a need for a new approach based on old ideas. We must reintroduce the concept of social solidarity to our society. It does not come down to whether some judge or other is being paid child benefit, it is about whether it is good for society to invest in its children. We must focus on the idea that equality is a good thing and that we should do our best, through politics, to bring about equality in society. There is major evidence which shows that citizens - even the wealthy - in societies with more income equality do better over a range of indicators. Those to whom I refer live longer, have better lifestyles and quality of life and enjoy a better environment. In addition, fewer of these people go to prison and there are fewer teenage pregnancies. The societies in question also have better education systems, etc.
Everyone benefits from a public health service. People also benefit from investment in a good education system which takes individuals through from preschool to third level. It does not matter whether we or our children enjoy the upside of such a system. Everyone benefits if a society encourages people to think, develop and create. Some great cross-party ideas have been introduced to Irish society in the past. This could be the case again in the future. However, the current debate features very little ideology. What, for example, is the ideology which underpins what we are doing at present?
The budget should not focus on numbers. Rather, it should focus on the ideology which underpins it and the progress we are intent on achieving. As Deputy Gilmore stated, when the Canadians contemplated this matter, the question they asked related to the type of services they wished to provide. What services do we believe should be part of the public realm and what things should be a matter for the private sector or the markets? Asking this question is the starting point from which the debate on the budget should be launched. It is certainly the point from which the newspapers should start. However, they are not doing so. They are more interested in what cuts people will introduce and what they will dismantle or abolish.
We need to begin to consider the type of society we can build out of that which we possess. Our country has been brought to ruin but politics will extricate us from the mess. In that context, we must contemplate the type of society we wish to construct and the type of health system we want to develop. We must ask ourselves whether we are of the view that we should have a public health system or whether there should there be universal health care. We have been well served by our investment in education. Before it draws up the budget, the Government should consider the amount it is going to invest in education. It should also give consideration to the type of skills it wishes people to learn and the type of training it wants to provide. Instead, the debate is focusing on the amount we intend to cut from the education budget.
The Government appears to believe that there is nothing wrong with people being on the dole. Much of the discourse in the media reflects the same view. It is all about satisfying the markets and then hoping the markets will solve all our problems. Forget about the human side of what it means to be unemployed. I have been unemployed in the past and it is not a good place to be. When I was unemployed, I would much rather have been working for nothing. We must focus our imagination on how we can ensure that there are opportunities for those on social welfare to move into the workforce. This could be done through community employment schemes, graduate placement, the creation of new jobs or whatever. Such considerations must be central to whatever budget is passed by this House.
Unfortunately, it does not appear that the approach I am advocating reflects the thinking of the Government. I read a number of newspaper reports this morning which highlighted the Taoiseach's comments to the effect that the focus is going to be on cuts rather than on changes in taxation. During the Celtic tiger period, it was all about the level to which taxes could be reduced. The same old philosophy is still being adhered to and certain people state that the tax system should not be reformed. Who is the Government afraid of offending by reforming the tax system in order that it brings about more income equality and a fairer society? What is its problem? The more we focus on cuts, the more people will become unemployed and the more those who vote for us to represent them in this House will suffer.
We need to bring back the passion for politics in this House. We must remember that politics is not about numbers or about being the most macho in respect of how much one can cut or the amount of things of which one can get rid. Politics should revolve around making social progress and should focus on the type of society we wish to build. It should also give people hope.
I welcome the opportunity to contribute to this debate. Slowly but surely we are getting some degree of consensus, which is very welcome, although there are still people who want to throw criticism around. That is the nature of politics.
Today I listened to Deputies Enda Kenny and Eamon Gilmore; in his opening remarks to the Taoiseach Deputy Kenny said the days of bluffing are over and Deputy Gilmore argued that today's debate should be about solutions. I fully agree with those sentiments. The time has moved on from bluffing, spoofing and not offering solutions. It was quite ironic that Fionnan Sheehan in the Irish Independent today had a headline which read "Fine Gael's proposals for savings lack the ring of truth." He also criticised Deputy Gilmore for speaking out of both sides of his mouth.
We must move on as the country is in a fairly severe crisis. Criticising each other on what happened five years, ten years or 20 years in the past does not achieve anything and certainly does not provide a solution. The public has moved on and wants to hear solutions from this Chamber to the problems which they are experiencing, whether it is with a mortgage, a job or pay. On this side of the House we accept a share of the blame for the mistakes made with tax on property sales. I put on the record my abhorrence of the reckless banking decisions which led to buildings in the middle of nowhere; such decisions were wrong but they should be acknowledged and we should move on. Society expects us to formulate solutions to those problems.
I welcome the commitment given by the Minister for Finance, Deputy Brian Lenihan, that he would give all financial data to all parties, including facts on taxation, employment etc. I would like to think that on 1 December, all the facts relating to VAT receipts and the self-employed tax receipts which have a deadline at the end of this month will be made available to the Opposition. It can then put forward a realistic four-year plan that we have all agreed with a target of a 3% of GDP deficit by 2014. It should be upfront and the people should be able to see exactly what each party is doing.
This is not just about answering questions from constituents and we must realise that the money men and women in Europe who lend us the €20 billion per year now are watching us. If they are not satisfied that, as a country, we are taking corrective action, they will either increase interest rates or not give us the money. We need that money now.
In returning to a healthy economy we must be innovative in how we consider solutions and job creation. We agree that the tough budgets to come, irrespective of who will be in Government over the next three to four years, must be fair. We all agree that we must protect vulnerable people. I have made the case before and will make it again that we should not cut old age State pensions. That is one group which has put so much into Ireland, people who have worked all their lives, paid their taxes and built up the country.
On the jobs front, having a reasonable capital budget is absolutely vital. I am not being parochial in mentioning metro north, as it not only applies to my constituency of Dublin North but includes all constituencies north of the Liffey, including Meath and south Louth. It is the single biggest contract in Europe currently and I hope and have requested that the Government sanctions the metro north project. I am slightly disappointed in the attitude of Deputy Eamon Gilmore in a recent interview, as he said he would not be in favour of the project now. That is slightly contradictory given that Labour is rightly making the case on jobs, with an unemployment figure of 440,000. This project will create 4,000 jobs directly, and as per the Indecon report prepared for Fingal County Council, it will create another 37,000 jobs indirectly.
This is the single biggest project that would create 4,000 jobs overnight, costing in the order of €3 billion. There would be substantial VAT payments and significant direct employment. It would be of major benefit to the country not just the Dublin North region. We cannot ignore the need to have proper modern infrastructure that a country like Ireland requires. We are one of the few European cities without a rail link to an airport.
On the jobs front, the Government might take cognisance of a delegation that came in here from the Insurance Brokers Association, which made a presentation about using private pension money to put into the Irish economy; there are currently restrictions in legislation in this regard. The Minister for Finance and the Government should give serious consideration to getting every avenue they have available to them in people willing to invest in Irish infrastructure and development.
One of the big problems we have on the jobs issue is the lack of spending. There is over €80 billion saved in personal bank accounts and if only 2.5% of that could be released into the economy, it would amount to €2 billion, which would be a substantial spend in all our local communities. We must come up with innovative ways to make this happen. I do not blame people for not spending as they constantly hear doom and gloom day in and day out. I recommend that the Government consider a voucher scheme in which the Government and retailers would put forward €10 each for every €100 spent by a consumer. This would be a great fillip for consumers, who never look good value in the mouth.
The car scrappage scheme introduced this year has proved a point as motor sales have increased by over 60%. This does not simply apply to cars over ten years old, and through good marketing and innovation on the part of the motor industry, people have changed their cars. There has been a significant uptake in car sales this year as a result. I believe that the voucher scheme I propose, with €20 from the Government and retailers for €100 spent by shoppers, would be self-financing. It is something I hope will be considered.
I have always felt the €10 travel tax was a reasonable proposal by the Government and it is taking in over €120 million. At this stage I would call Michael O'Leary's bluff and give him the incentive to bring millions of passengers to the country, along with Aer Lingus and other airlines, by dropping it. We must get to grips with the significant pay packets in our semi-State bodies, the political arena and in the Judiciary, which I have mentioned before. Only 75% of judges pay the levy, which is unacceptable in this day and age. We must all play our part and show leadership.
We have heard much about the Government getting forecasts wrong. I read a report yesterday indicating that the OECD advised President Obama that there would be a 3.2% growth rate in the US this year but that has been revised down to 2.6%. Ireland is not the only country getting forecasts wrong.
I welcome the debate, although it is about three years too late. We seem to be rehashing what has gone on in the economy and what we are prepared to do in the forthcoming four-year plan. The only reason we are at this point is that the IMF, the European Central Bank and many others in Europe are now dictating the trend of play in Ireland and they, along with Germany, are demanding that we do this and enforce this austerity package in the budget if we are to get things right or be credible as a country. We need to focus on what we want as a country and as political parties.
I have listened carefully to this debate and while I was impressed by what people said, I question the commitment of political parties to enter into the type of reform that is necessary in the context of correcting the fiscal position from 2011-14. That is the real challenge with this House, namely, to connect the brains of the House to some sort of political backbone to make the decision. However, political backbone has been absent, not only in this debate but in the context of the decisions which have been taken up to now. People were confronted with this problem three years ago. It did not just happen today. It did not just happen with the banks. Prior to that was a huge downturn in terms of how business was being conducted, the volume of business and particularly the small and medium enterprise sector.
It down-sized, and got on with it, and what we did here, as a Government and an Opposition, was talk about it and did very little. The same thing is happening today. Sometime in 2009, Mr. Colm McCarthy delivered his report on what should be done and set out quite clearly that the game was up and we needed to have the reforms which were necessary to make this country get back to work again, create efficiencies and cost effectiveness and give value for money to the taxpayer. Nothing has happened
The Croke Park deal was signed and very little has happened in any Department. If we want to get real value for money and get people back to work we need to have a back office or public service which is the envy of Europe, that is efficient, that is streamlined and that is delivering on a daily basis for this country. That requires real public sector reform. I am not talking of doctors, nurses, gardaí or those on the front line because when I raised this question in 2008 the Labour Party jumped on it and said I was piling pressure on the lower paid in the civil and public sectors. That is not my position. I would protect those people.
However, I ask the middle and senior managers what they are doing to implement the Croke Park deal and from where the €1 billion in savings will come, because not one cent has been saved since the deal was signed. If we are to be real in this debate while protecting lower paid workers, with which I agree, we must recognise that the greater part of the deal is simply not workable or sustainable. It was agreed at a time when the economy was not facing the type of downtown or measures which we now propose to bring our fiscal position back into line. We need to consider it.
I was delighted to read today that the Minister for Finance is looking for a greater reform package in the public sector reform part of the Croke Park deal. If we do not get it immediately, as every other business is getting from its enterprise, then we will simply want more from the taxpayer. What is happening regarding the taxpayer? We are getting the Revenue Commissioners to collect taxes and squeeze everyone in terms of what they owe it, and we are then handing that money over to the soft centre which is spending it on what, having looked at the Committee of Public Accounts, are outrageous inefficiencies in the State.
There is poor value for money and it is giving this House a bad name in how we govern this country. We have to correct that or we are not correctly serving the people that we represent and we are not bringing in the reforms necessary to save the kind of money we want. We need to examine governance and ask ourselves what senior civil servants are doing. That little group, comprising 600, managed to exempt itself from the levies last year when push came to shove. That is not leadership. How much is it getting and is it giving value for money? What decisions is it taking? What management skills does it have? How is it pressing for reform? They are the questions we need to ask in what needs to be done in terms of the governance of the country. This is central to the recovery of Ireland. Such staff will be the drivers of the country regardless of what political party is in power. We have had umpteen reports stating 2,000 to 6,000 people are surplus to requirement in the management of the HSE. The report compiled by Colm McCarthy, who has done a service to the State, detailed the savings that can be made and nothing has happened. How much of that money could have been channelled to front line workers, patients or clients of the services to make things better for our citizens? They could have received much more than they got until now. This is about the Government implementing political policies agreed by the people, driven by the Secretaries General of every Department. If they are not up to the job then we should get somebody else. I have examined the recruitment of those people and I found that there are very few, if any, who have been taken directly into positions from the private sector. If one looks at the implementation body of the Croke Park deal one will find the taxpayer is not represented. I find that remiss, in terms of how we deal with the sector.
In terms of business, most speakers in this debate have said that the small business sector will take us out of the economic crisis we are in. It employed 800,000 people at one stage, a figure which has now dropped significantly. It has cut its costs to a minimum. The owners of small firms and businesses work 24 hours a day, seven days a week just to keep their doors open. The one cost which has not reduced is the cost of doing business here. Businesses are strangled with red tape and bureaucracy. The costs of local authority rates should be cut by 25% this year, which would certainly force efficiencies in the delivery of local government. Planning fees and charges should be examined to enable anyone who is willing to take a risk to get planning permission sorted out at real value.
The cost of doing business has not reduced in the State even though the reports from ISME and other national representative bodies of business state that the only cost which has not been touched has been the cost of local government and national Government. That, in a time of crisis, is nothing short of a disgrace. The Government could easily make the decision and make it happen. In terms of job creation we should look to nuclear energy and other forms of energy. I note the Minister, Deputy Gormley, dealt with Poolbeg. One talks about political correctness. He should have stood back from the issue. It was in his constituency. We should have examined the issue in the context of job creation and what could be done for Ireland but that did not happen.
My message is that it cannot be "business as usual". We have to take political decisions and risks in the context of those decisions. We can get advice but we need to follow it. We can look to county enterprise boards and Enterprise Ireland. I find it hard to stomach that the Government would say it is reviewing the role of county enterprise boards. I do not mind reviewing the efficiencies within the boards but it should pump money into county enterprise boards to improve local economies, give businesses that are in trouble a different focus and direction and be involved in mentoring. It need not necessarily involve a grant; it could involve financial assistance of some kind. Enterprise Ireland should be supported and put out into the markets of the world 24 hours a day, seven days a week with Government support, to ensure that people who are doing business abroad can do more to sustain the jobs which they are creating at home.
On NERA and the minimum wage, we need to examine the entire area. NERA is closing down small businesses up and down the country. It cannot cope with the red tape. I listened to Deputy Tuffy who said it would be better to work for nothing rather than be unemployed. I am not attacking the minimum wage; I am simply saying that there has to be an economic basis for the value we put on it in the context of where we currently stand as a country.