Tuesday, 7 December 2010
Budget Statement 2011
Before calling on the Minister for Finance, I remind Members that the budget documents being circulated remain confidential until the Minister has announced them. They should not be taken or sent by any means from the House before the conclusion of his statement. I now call on the Minister for Finance, Deputy Brian Lenihan, to make his Budget Statement.
This has been a traumatic and worrying time for the citizens of our country. They are concerned that we had to seek external support to help us with our economic and financial difficulties. They are worried about the impact of this momentous and difficult decision on all our lives. Yet, in fact, even in this most intractable and complex crisis, there are clear signs of hope.
Amid the turmoil in the financial sector over recent months, it is very easy to lose sight of the fact that economic activity in this country has stabilised. From a drop of 7.6% in 2009, GDP will record a small increase this year. Recovery in the real economy is beginning to take shape. As anticipated, this recovery is being led by exports. Our exports increased by nearly 7% in real terms in the first half of this year. Output in the manufacturing sector was up 12% in the third quarter, while surveys point to continued strong growth in export orders for both goods and services. Agriculture and the agri-food sector has strengthened this expansion. The growth is broadly based and is being driven not only by a pick-up in demand in our trading partners, but also by the significant improvements in competitiveness that have been achieved in recent years. Yes, domestic demand remains weak, as households and businesses continue to work off the excesses of the boom. However, continued export growth will protect and expand high-value employment and stimulate domestically trading sectors of the economy. This, in time, will reduce unemployment, help build confidence among households and firms and stimulate renewed growth in consumer spending and investment.
There are signs too that conditions in the labour market are beginning to stabilise. The live register has fallen for the third month in a row, the first time since early 2007. Redundancies in the past three months were more than 30% lower than in the same period last year. Our underlying budget deficit has stabilised at 11.6% of GDP. Our tax revenues are ahead of target, despite a weak start to the year, and our spending has been brought under control. So our actions to stabilise the public finances have made progress. The balance of payments is expected to record a small surplus next year, meaning that the economy as a whole will be paying its way in the world. These data taken together paint a picture of an economy that is returning to growth after a deep and prolonged recession. For the period out to 2014, real GDP is forecast by my Department to increase by an average of almost 2.75% per annum with real GNP growing by an average of just more than 2% per year in the same period.
So if the real economy is poised to grow, why do we need the help of the IMF and the EU? The answer is that we need their support to break the vicious cycle that has threatened our national finances and our banking system since the second quarter of this year. Following the Greek crisis this spring, funding for the State and our banks became increasingly expensive. The rising costs of dealing with the banks that became evident during the autumn and the growing concerns about the prospects for the global economy reinforced doubts among international investors about the sustainability of our public finances and our capacity to fix the financial system unaided. The joint programme of assistance, involving stand-by resources of up to â¬85 billion, provides us with the firepower we need to restore market confidence, strengthen the financial sector and press ahead with our plans to reduce the budget deficit and facilitate the economy's return to sustainable growth.
Without this support, there would have been serious doubts about the ability of the State to raise funds at reasonable cost to pay for key public services and to provide a functioning banking system to support economic activity. That is the reality. We are in a position to contribute one fifth of the fund ourselves from the National Pensions Reserve Fund and domestic cash balances. As I said last week, it is not credible to suggest we could have retained a sovereign wealth fund while expecting others to make resources available to us. The policies set out in the joint programme, which closely reflect our national recovery plan, are not a new departure. They are a continuation of the Government's strategy for recovery which has remained steadfast since the onset of the crisis.
Over the last two and a half years, the Government has worked hard to get its spending back under control. We have made very difficult decisions and our citizens have demonstrated enormous forbearance in accepting the need for those decisions. We have secured an overall adjustment of â¬14.6 billion. Without this adjustment, our underlying deficit would already have ballooned to more than 20% of GDP.
The budgetary adjustments we plan for the coming four years are large. But if we postpone them, even bigger and more wrenching adjustments will be needed at a later date. Our proposed budgetary measures have been laid out in considerable detail to give certainty to households and firms so that they can plan for the future.
It is the Government's strong view that the economy can continue to grow while we make the budgetary adjustments outlined in the national recovery plan. We need to ensure our economic growth is built on solid foundations that are sustainable socially, economically and environmentally.
The Government has committed to the introduction of a new national performance indicator to allow a variety of quality of life measurements to be assessed and reported on a regular basis, complementing traditional economic data. This will be used to guide policy development. It will allow the public to assess the progress being made across a range of indicators.
The CSO is working on the development of this new national welfare index. Our attractiveness as a country in which to live is an important part of our overall competitiveness.
This time last year, it was assumed that an adjustment of â¬7.5 billion would lead to a deficit of 3% of GDP by 2014, the target year agreed with our European partners. Given the medium-term growth prospects have been revised down and our debt interest costs have risen, this adjustment has had to be revised upwards to â¬15 billion.
In the national recovery plan, we have set out the timetable for achieving this adjustment over the next four years. These targets are reflected in the joint programme of assistance. As the European Commission has more conservative forecasts for the medium-term, we have been given an extra year to reach the 3% deficit target required under the Stability and Growth Pact. But this changes neither our targets nor our timetable for reaching them. As outlined in the plan, â¬6 billion of the overall adjustment is being made in today's budget. The scale of this adjustment is demanding but it demonstrates the seriousness of our intent.
In simple terms, the gap between Government receipts and spending is almost â¬19 billion this year. This gap must be closed. We got into this position by seeking, with the full support of those opposite, to spread the benefits of the boom across every section of the population. Between 2000 and 2008, public spending increased by over 140%, while the consumer price index increased by just 35%. Working-age social welfare rates are now more than twice their rate in 2000. Over the same period, the State pension almost doubled. These increases were well ahead of the cost of living.
At the same time, taxation was reduced and the proportion of income earners exempt from income tax increased from 34% in 2004 to an estimated 45% this year. All of this was made possible by the very large property-related tax intake during the boom years. In our dramatically changed budgetary circumstances, it is clear the State can no longer afford this level of social provision.
The changes I am announcing today are substantial but it is important to keep things in perspective. The current spending reductions set out in the national recovery plan out to 2014 will bring total gross voted current spending back only to 2007-08 levels. The income tax measures in the plan will bring us to levels prevalent as recently as 2006. Those years were not times of hardship. The reductions will impact on living standards but the fact is social welfare rates are still high in this country and much higher than our nearest neighbour.
Budget 2011 continues the task of bringing the cost of our public services back to levels that can be sustained by our economy. I do not propose to repeat here today the spending reductions that have already been outlined in the national recovery plan and are set out again in the Estimates published today.
The one area of expenditure in which decisions have not yet been detailed is social welfare. First, I want to confirm that the Government has decided there will be no reduction in the State pension this year. We have significantly increased the State pension over the last ten years and it is the Government's view that the security this has brought to older people should be preserved.
In the case of working-age rates of payment, there will be a reduction of about 4%. The Government has maintained these payments at a rate which far exceeds total inflation since 1997. The 2011 basic working-age payment will be almost 117% more than it was in 1997. Cumulative inflation over the same period was around 40%.
Regrettable as they are, the impact of the reductions is lessened by continued low inflation. The rates in question will still be slightly ahead of the 2007 working-age rates of payment. We have built up a generous level of welfare provision over the last decade and though they must now be reduced somewhat, our record of commitment to those in need stands up.
Over the next four years, further reductions in social welfare spending are unavoidable if we are to reduce the budget deficit. The size, nature and composition of these reductions will depend on the rate of decline in unemployment; the effectiveness of anti-fraud and control measures; and the reform of the benefits system. Our number one priority for 2011 and onwards must be economic growth and maximising employment creation. That demands improved competitiveness which is at the heart of the social welfare and labour market measures we have proposed.
There will be a â¬10 reduction on both lower and higher child benefit rates with an additional â¬10 reduction for a third child only. These reductions will bring rates of payment back to the 2006 rate for the first and second child and to 2005 rates for the fourth and subsequent children with the rate for the third child reflecting the 2004 rate. The new rates are still three times higher than they were in 1997.
Details of the specific social welfare measures are set out in the summary of budget measures-----
-----along with a number of other changes to social welfare schemes and entitlements.
Extra Fuel Allowance Payment
In view of the harsh weather conditions experienced in recent weeks, I am allocating an additional â¬14 million to the fuel allowance scheme to enable a payment of â¬40 to households that receive the fuel allowance payment. The Department of Social Protection is putting measures in place to roll out this additional payment as soon as possible and many households will receive this payment this year.
Helping the Unemployed
We know from the 1980s the importance of equipping the unemployed with skills and keeping them close to the labour market. To that end, we are refocusing the national employment action plan to establish clearer pathways to employment by ensuring that State agencies interact early and often with those who have lost their jobs to provide opportunities for education, training or work experience placements as appropriate.
Building on the work placements and training places that have already been introduced, I am providing for an additional 15,000 activation places and supports for the unemployed at a cost of about â¬200 million.
- The skills development and internship programme will provide up to 5,000 places in the private sector with a contribution from that sector of an additional â¬38 million or so to pay some of the costs of the internships.
- The work placement programme will provide up to 5,000 places in the public service. The TÃ¡naiste announced the scheme in the education sector last week and similar announcements for other sectors will be made by Ministers over the coming months.
- A new community work placement scheme will provide up to 5,000 additional places in the community and voluntary sector.
The labour activation measures will be complemented by the extension of the employer job (PRSI) incentive scheme to the end of 2011 and by the transformation of the business expansion scheme into a new employment and investment incentive.
The national recovery plan provides for reform of the labour market and the removal of barriers to job creation resulting from the current level of the minimum wage and inflexible employment agreements. The aim here is to provide more job opportunities, especially for the young.
We will continue to spend significant sums on investment to sustain growth and jobs. The Exchequer capital programme will amount to some 3.6% of GNP in 2011. This programme will be augmented by the investment programmes of the commercial State sponsored bodies.
In addition, the National Pensions Reserve Fund has confirmed it is willing to invest in Irish infrastructure assets on a commercial basis in partnership with third party institutional investors. The Government will help identify opportunities for the NPRF and other private investors.
I want to acknowledge the substantial contribution made by public servants to national recovery to date. In my Department I see, day in day out and at weekends, the commitment above and beyond the call of duty shown by civil servants who have accepted significant pay cuts. More work is being done with fewer staff at lower cost. This is real public service reform.
To meet our targets, the cost of delivering public services must fall further. Savings will continue to be made through planned reductions in the number of public servants and through greater efficiencies in the way public services are delivered.
Despite the economic constraints, the Government has abided by the Croke Park agreement on pay, compulsory redundancies and pension terms. Public servants, their unions and their managers, for their part, must keep their commitments to pursue flexibilities and reforms in every part and level of the public service. We have made commitments to a continued reduction in the cost of the public service. If the Government is to be held to its side of the agreement, those reductions must be delivered.
The Taoiseach and Ministers have already taken substantial reductions in their pay. The effect of the pension levy and the pay cuts introduced earlier this year amount to 28% in the case of the Taoiseach and 23% in the case of Ministers. The changes in PRSI introduced in this budget as they affect officeholders will bring about a further reduction in net pay for all office holders. Nonetheless, the Government has decided to introduce another reduction in the salaries of the Taoiseach, TÃ¡naiste and Ministers. The salary of the Taoiseach will be reduced by over â¬14,000 per annum and the salary of Ministers will be reduced by over â¬10,000 per annum. This brings the overall reduction in the gross pay of the Taoiseach to over â¬90,000 and in the case of Ministers to over â¬60,000. Details to changes in the Government's transportation arrangements and Ministers' pay and pensions are set out in the accompanying documentation.
The Government believes there should be a maximum salary rate of â¬250,000 in the public sector. Only a few officeholder posts have salaries above this level at present but there is a larger number in the State agencies. While there are issues about the contractual position of incumbent post holders, I think the position of the Minister for Finance as a shareholder or statutory stakeholder in these companies can be used to enforce the objective of the maximum salary within a reasonable timeframe.
The 10% reduction in the pay of new entrants to the public service contained in the national recovery plan will be applied to the salary rate of those appointed to hold office in the Judiciary in 2011. The â¬250,000 maximum will be applied to all such offices.
A reduced maximum rate of pay of â¬250,000 will apply to the next President of Ireland. I want to record the significant contribution made by the current President who, since this downturn began, has waived a significant portion of her remuneration.
I intend to make provision for these reductions in legislation.
In addition to reduced pay rates, all new recruits to the entry grades of the public service must start at the first point of the relevant pay scale without exception. Although recruitment will necessarily be limited over the next number of years, this measure will ensure a medium-term reduction in the overall cost of public service pay.
The cost of providing public service pensions has increased significantly in recent years. Pensioner numbers have grown from 76,000 in 2006 to about 103,500 this year. That is an increase of 36%. Expenditure has risen by 56% from â¬1,433 million to â¬2,235 million in the same period.
Public service pensioners have so far been unaffected by the reductions imposed on serving staff. The Government considers it appropriate that those pensioners who can afford to should now share the burden of adjustment. Accordingly, public service pensions above â¬12,000 a year will be reduced by an average of 4%. Those on a pension below â¬12,000 a year, roughly equivalent to the value of the social welfare pension, will be exempted. The reduction will be applied fairly. Those on higher pensions will pay most. It will apply to former political officeholders, retired members of the Judiciary, and their survivors or dependants.
Public service pensions have until now been unaffected by the pay reductions. The grace period, under which previous salary levels are to be used to calculate pension entitlements, was due to expire by the end of 2011. This is being extended by two months to prevent a build up of public service retirements in 2011 and to spread the extra pension lump sum costs over a more manageable period in both 2011 and 2012. However, I want to make clear that public servants or officeholders retiring during the grace period will be subject to the pension reduction I am introducing today. Legislation to provide for this reduction will be brought before the Oireachtas later this week. Further details are provided in the summary of budget measures.
Reducing the income of pensioners is an exceptional measure, but these are exceptional times. The Government has to make savings, and pensions costs are a very significant part of public expenditure. Failure to reduce the cost of pension provision could undermine the longer-term viability of the public service pension system. Furthermore, it would be unfair if highly paid pensioners remained unaffected while serving staff on low pay have had their pay reduced.
A new single pension scheme for new entrants, which I announced in last year's budget, will come into effect in 2011. This will bring future public service pensions more in line with private sector provision. Pensions will be based on career average earnings rather than final salary, the pension age will be increased and post-retirement increases will be linked to retail price inflation rather than to pay. This new scheme is a crucial part of the longer-term reform required to put the public finances on a sound basis. The legislation will be published very shortly to ensure that the new scheme can be put into operation for new entrants in 2011.
A Cheann Comhairle, the primary purpose of the tax system is to provide the resources to pay for the services the public expect from the State. Our tax system no longer fulfils that purpose well. The line of least resistance would be to increase the rates, but revenue is generated by economic activity and not by increased tax rates. High tax rates on a narrow base of economic activity may raise far less revenue than lower rates on a much wider base. We cannot have a tax system that damages our potential to grow. That is why the Government has decided in the national recovery plan that two thirds of the required budgetary adjustment over the period from 2011 to 2014 should be through expenditure reductions and one third should be raised by taxation.
Our income tax system, as it stands today, is no longer fit for purpose. At one level, too few income earners pay any income tax. This year, just 8%, earning â¬75,000 or more, will pay 60% of all income tax while almost 80%, earning â¬50,000 or less will contribute just 17%. At another level, too many high earners have opportunities to shelter their income from tax. Both of these structural defects must be addressed. Our system is also unduly complex. With four separate charges on income, each rational in its own terms, it contains too many distortions, steps, and discontinuities. Our goal must be to create a system that is rational, sustainable and fair, and that delivers the resources needed for essential public services.
Such a system cannot be created in one budget, but today we take a major step forward in the reform process. In this budget, we will
abolish the income levy and the health levy;
replace both with a single universal social charge, governed by one set of rules on a broad base;
remove the employee PRSI contribution ceiling;
increase the PRSI rate for the self-employed, higher earning public servants and officeholders;
reduce the value of bands and credits by 10% in line with overall reductions in incomes;
tackle excessive reliefs associated with private pension provision;
abolish or restrict many tax reliefs that higher earners use to shelter income unfairly, and
target the remaining reliefs more clearly on employment growth.
By broadening the base at both ends of the income spectrum, the nominal rates of tax can be kept lower while the effective rate can be raised in a way that is fair to all. In the measures I am presenting today, those on the new reduced minimum wage will not be brought into the tax net. The top marginal tax rate will be kept at 52% for all taxpayers.
As I said in the 2010 budget, the universal social charge requires that everyone makes some contribution, however small, to the provision of services. This charge is separate from income tax which is levied proportionately as income increases. The universal social charge does not apply to welfare payments.
The changes made today generally either maintain or enhance the incentive to work relative to social welfare. For a married couple with no children earning â¬25,000, their net income will fall by 2.8%, or â¬12 per week. For a similar family with two children, net income will fall by just 1%, or â¬5 a week. We must always ensure an appropriate balance between the rewards from work and income support from welfare. I believe that in these most difficult of circumstances we have struck the right balance in today's budget.
Our objective is to move steadily in the direction of an income tax system that is fair, universal in its application and more easily understood. This budget marks a decisive step towards a unified income tax system with a minimum of tax shelters, the broadest base and competitive rates. A unified income tax system with appropriate tax credits will facilitate the closer integration of tax with the welfare system.
In last year's budget, I said high earners availing of tax incentive schemes must contribute more in the current difficult circumstances. The restriction of reliefs measure, which increased from 20% to 30% last year, is already having a significant impact. But we can and must do more. The national recovery plan contains a commitment to the abolition or the curtailment of tax expenditures and to the phased abolition of property-based legacy reliefs. The 16 measures identified in the plan will be given full legislative effect. Today, I will abolish or restrict a further nine reliefs bringing the total to 25. Full details are set out in the summary of budget measures.
Many property-based reliefs have been already abolished, but some legacy costs remain. Such costs will be further restricted as a result of today's changes. Three new measures in particular will be targeted at passive investors: restrictions on the carry forward capital allowances will start in 2011 and impact progressively over the next few years; from 2011, section 23 relief will be restricted to income from section 23 property; and a "guillotine" provision will ensure that all unused capital allowances after 2014 and section 23 reliefs are lost. This last provision will effectively terminate all property-based reliefs in 2014. Again, full details are set out in the summary of budget measures.
The base for capital acquisitions tax on inheritances and gifts is being broadened by reducing the tax-free thresholds by 20%. This reduction follows the economy-wide fall in asset values in recent years and builds on a similar measure introduced in supplementary budget 2009. Finally, I am increasing the deposit interest retention tax rate on ordinary deposit accounts by 2% to 27% and on longer-term deposit accounts by 2% to 30%.
The national recovery plan contains a commitment to significant reform of pension tax relief. Today, I am abolishing employee PRSI and health levy relief on pension contributions. I am reducing the annual earnings cap for tax-relievable pension contributions. The portion of retirement lump sums above €200,000 will be subject to tax and the maximum allowable tax-relieved pension fund will be reduced. Employer PRSI relief on employee pension contributions is being reduced by 50% from 1 January next.
The effective tax rate on approved retirement funds will be increased by raising the deemed annual distribution of assets in those funds from 3% of end-year assets to 5% per year, with that distribution subject to full income tax each year. Details of all these measures are in the summary of budget measures.
Two weeks ago, all political parties in this House supported a motion calling for the maintenance of the 121⁄2% corporation tax rate. Our commitment to the 121⁄2% rate was restated in the national recovery plan. I welcome recent comments by European finance ministers who understand the importance of this issue to Ireland. There will be no change to Ireland's corporation tax rate.
Small and medium sized companies are the wellspring of employment and innovation in the economy. The business expansion scheme has helped companies to gain access to capital investments. But given that job creation and protection is the top priority, it is essential that schemes like the BES and the three-year corporation tax exemption for start-up companies are targeted and evaluated against jobs created or retained. Accordingly, the BES is to be revamped and renamed as the employment and investment incentive. This incentive will come into operation once the necessary approval from the European Commission has been received. In the meantime, the existing scheme will continue to operate.
Under the new incentive, the limit that can be raised by companies will be increased from €2 million to €10 million, and the amount that can be raised in any 12-month period will be increased from €1.5 million to €2.5 million. In addition, the certification requirements will be simplified. The new incentive will expire on 31 December 2013.
I have decided to extend the three year corporation tax exemption for start-up companies commencing a new trade in 2011 and to amend it so that the relief will be linked to the amount of employers' PRSI paid by the company. This change will focus the relief on employment creation, rewarding new companies that create jobs. I have also decided to extend the accelerated capital allowance scheme for energy efficient equipment for a further three years. Further details of the changes are set out in the summary of budget measures.
I am undertaking a fundamental reform of stamp duty on residential property transactions with immediate effect. This has three aims: to stimulate the property market, to provide necessary valuation information and to increase market transparency for the smooth operation of the market. There will be a flat rate of 1% on all residential property transactions up to a value of €1 million with 2% applying to amounts above €1 million.
In line with the base-broadening approach adopted in this budget, I am abolishing all existing reliefs and exemptions for stamp duty on residential property. This means that 1% will be paid on all residential property sales, new or old. If this system had been in place instead of the previous volatile one, it would have lessened the effect on tax revenue of the booms and busts in the market. The information gathered from this new regime can be used to compile data on house valuations to inform a valuation database. This data will bring a far greater degree of transparency to the operation of the housing market that has been previously absent. Markets operate best where buyers and sellers have reliable information available to them.
The new rates will apply to property transfers on or after tomorrow, 8 December 2010. A transitional provision will be put in place to ensure that anyone who has entered into a binding contract to purchase a residential property before 8 December 2010, and who executes the transfer of that property before 1 July 2011, will not lose out.
The tenant purchase scheme allows local authority tenants to purchase their homes at a discount. Today, I am announcing a short-term improvement in this scheme. This will allow greater access to tenant purchase by introducing a higher discount for existing tenants. The details of this enhanced scheme will be set out by the Minister of State with responsibility for housing.
The construction sector has been at the vortex of this economic downturn. It will be some time before the sector returns to a sustainable level of output. In the meantime, the Government wants to ensure that existing employment levels are protected and allowed to grow by reducing black economy opportunities in the industry. Today, I am proposing significant reform of the relevant contracts withholding tax regime which applies to contractors in the construction, meat-processing and forestry sectors of the economy.
To foster compliance, a new withholding rate of 20% will apply to subcontractors registered for tax with an established compliance record, with the existing 35% rate retained for subcontractors not registered for tax. In addition, the system will be strengthened to enhance its effectiveness and reduce the opportunities for fraud. The proposed changes provide a cash flow benefit to registered subcontractors that will enable them to compete for business on a level playing field.
The recent cold weather conditions once again demonstrate the benefits of ensuring that homes are as energy efficient as possible. Today, I plan to introduce a new tax incentive in this area which will support employment while improving energy efficiency in homes. The new incentive will complement the grant aid that is available through the home energy savings scheme currently available from the Sustainable Energy Authority of Ireland.
Standard rated tax relief will be available on expenditure up to €10,000 on a list of approved works. The total relief available under the scheme in any one tax year will be €30 million which would allow for remedial works to be carried out on a minimum of 15,000 homes. Contractors employed to complete the work must be registered with the Revenue Commissioners. This incentive, together with the proposed changes in relevant contracts tax will support construction businesses operating in the legitimate economy. Full details of the new incentive will be provided in the Finance Bill.
An air travel tax on passengers departing Irish airports was introduced on 30 March 2009. The tax is expected to yield €105 million in 2010, despite the impact of volcanic ash on air travel earlier this year. Similar taxes apply in the UK, France, Australia, New Zealand and the US. An air travel tax will apply in Germany and Austria from January 2011. There had been calls for the abolition of the tax, which is blamed for the reduction in our visitor numbers. Having examined the issue in detail, I have decided to introduce a single revised rate of air travel tax of €3, to come into effect on 1 March 2011. I wish to be clear that this reduced rate is being applied on a temporary basis until the end of next year.
I do not want to see the reduction in the tax being used by airlines as an opportunity to raise their fees and charges. In conjunction with this initiative, the Dublin Airport Authority is prepared to introduce an incentive scheme for Shannon, Cork and Dublin Airports for 2011, to provide, subject to certain conditions, a full rebate of airport charges for any additional traffic above the current levels. The Dublin Airport Authority will provide further details of the scheme.
I have also decided to extend the VRT relief for series production hybrid and flexible fuel vehicles for two years to end-2012. The rate of relief provided will be up to â¬1,500. The VRT relief for plug-in hybrid electric vehicles will continue at up to â¬2,500 until 31 December 2012.
A review will be undertaken of the excise duty payable for licences for on-trade and off-licence sales of alcohol products during 2011 to ensure that the system is both transparent and fair.
I am making the necessary arrangements to ensure that bets placed on the Internet by domestic punters are subject to the same level of betting duty as applies in main street betting shops. Details are set out in an annex in the accompanying documentation.
Full details of these measures and related measures are contained in the summary of budget measures.
This is not the case. As the Governor of the Central Bank has previously indicated, over the period 2008 to 2012, the total loan losses of the domestically-owned banks are expected to reach â¬70 billion to â¬80 billion, equivalent to approximately half of this year's GDP. Loan losses on this scale are unforgivable. They reflect the recklessness of lending decisions during the bubble years and the weakness of the previous regulatory framework. We must ensure they never happen again.
What is almost entirely overlooked, however, is the fact that tens of billions of these losses have been absorbed by the private shareholders in the banks. It is clear there has been no taxpayer bailout for bank shareholders. Neither has there been a bailout for holders of banks' subordinated bonds. These bondholders have absorbed losses of about â¬7 billion to date and legislation to facilitate further burden-sharing by subordinated bondholders will be submitted to the Oireachtas next week.
There is a limit to burden-sharing. As I said in this House last week, there is simply no way this country, whose banks are so dependent on international investors, can unilaterally renege on senior bondholders against the wishes of the our European partners and the European institutions. This course of action has never been an option during this crisis.
It is true the State has had to inject large amounts of capital into the banks. In return, the State will own the bulk of the banking system. The use of funds in the National Pensions Reserve Fund to recapitalise the viable banks is necessary to ensure that these institutions serve the needs of the economy.
The approach to fixing the banks agreed under the joint programme will not reverse any of the Government's banking policies. In fact, the very opposite is true. The programme builds upon and intensifies the measures introduced to date. The most senior members of the international team negotiating the programme have endorsed our policies.
This budget is the first instalment of the national recovery plan. The plan plots a course to sustainability for our country: sustainable public finances, sustainable public services, sustainable growth and sustainable employment. It is a sensible, rational plan that is proportionate and equitable in the circumstances in which we find ourselves. Everybody pays and those who can pay most will pay most. The plan calls on us all to take more responsibility for ourselves, to contribute to the support of local services and to pay more towards the support of college education. This budget is not captured by any sectional interest. The focus in the distribution of the tax burden, in the reductions in public spending and in the reforms it introduces, is the common good.
There has been much public debate about political reform during the current crisis; some of it has been the stuff of cheap headlines, and some of it has been constructive and innovative. Any reform proposals, whether they relate to the DÃ¡il electoral system, the future of the Seanad, the composition of Departments or the size of Government, must have as their objective the pursuit of the common good.
Since I was appointed as Minister for Finance in May 2008, I have been dealing with the worst crisis in our history and one that has few international parallels.
This is my fourth budget in that period. In every measure that has been introduced on behalf of the Government, we have sought to stabilise our public finances. In doing so, we have sought to protect those most in need. Analysis using the ESRI model has shown that the measures I have introduced on behalf of the Government's have been progressive and have distributed the burden of adjustment fairly.
It is clear to us all what went wrong in our economy.
In the period leading up to the crisis, the construction sector and property prices grew to unsustainable levels. The appetite of a rampant building industry for labour and other resources put upward pressure on our cost structure. As a result, our competitiveness was damaged and we lost market share for our goods and services.
Excessive public spending on the back of the enviable but transient taxes of the boom added to the overheating of the economy. A huge expansion in bank borrowing for property and construction-related investment was the final and most lethal domestic ingredient in the causes of our crisis.
The international financial crisis added pace and severity.
The Government has accepted that analysis: more should have been done to counter imbalances in our economy. I am not convinced that any alternative government would have done better.
We have taken steps to ensure that the mistakes that led to this crisis will never be made again. We have broken with precedent in key appointments. Professor Patrick Honohan, our foremost academic expert on banking, is a widely regarded Governor of the Central Bank. Mr. Matthew Elderfield, a highly qualified and experienced professional, is our new Financial Regulator. We have introduced new legislation to reform the regulatory framework for our banks and the Central Bank has greatly increased its resources.
We have set out a programme of budgetary reform in the national recovery plan and legislation providing for a fiscal responsibility law is in preparation. This will ensure that the principle of keeping the public finances on a sustainable footing is binding in law.
In other words, the Government has faced up to its responsibilities.
We have acknowledged our mistakes, worked might and main to rectify them and put in place the measures to ensure that these mistakes can never be made again.
Our country must now move forward with confidence and purpose. The underlying strengths of our economy, built up over many years by our citizens and by the actions of successive governments, have survived this crisis.
We continue to have a highly skilled, flexible labour force with one of the highest levels of formal education in the OECD.
During the boom, we built a world class road network; we invested in our public transport, our education and social infrastructure. Continued capital investment in the next four years will ensure that the economy is well equipped for recovery.
We have developed a highly competitive, pro-enterprise taxation system which incentivises innovation and high-value economic activity. The measures I have introduced today will benefit our domestic sectors that have been especially badly hit by this downturn. We will defend our 12.5% corporation tax rate against all comers.
The actions we have taken in Government over the last two years have helped us to regain competitiveness. Wages have adjusted and costs have fallen. More needs to be done but we are pricing ourselves back into global markets and the performance of our export sector is the proof of our success.
We know we can have sustained, balanced, export-led growth in the economy. We had it in the past and we have what it takes to win it back if we pursue the correct policies. We have been through a tumultuous two years culminating in our application for external assistance. Today's budget is our first step in ensuring that we can get back firmly on our own feet. It is a substantial down payment on the journey back to economic health.
We can emerge from this dark time as a stronger and fitter economy to provide sustainable jobs and decent public services for all our citizens.
There is every reason to be confident about the future-----
This is the budget of a puppet Government, which is doing what it has been told to do by the IMF, the EU Commission and the European Central Bank. It is doing so in order that the State can draw down the bailout funds now that the country is insolvent. This budget is in an ironic way a fitting tribute to this failed Administration. Fianna FÃ¡il, like the Bourbons, has learned nothing and forgotten nothing, and it is destined to continue its mistakes in this its last budget. These mistakes are easily recorded, but their consequences are tragic.
The Government's policies have wrecked the economy, destroyed the confidence of the people, put 450,000 people out of work, forced more than 100,000 of our young adults to emigrate, increased poverty and undermined any concept of social justice in our society. The Government has made three major mistakes and it continues to make them today. The two harsh budgets, which were introduced to correct the fiscal crisis, were incoherent in policy and undermined their own objectives. The Government never learned that one cannot cut and tax one's way out of a recession. One can only grow out of recession.
Consequently, its slash and burn policies were counter-productive and it failed to include measures to grow the economy and to protect and create jobs. The Minister has fallen into the same trap today - there is not a single progressive idea in the budget to support job creation or to get our economy growing again.
On fiscal correction, the intentions of the Minister for Finance, Deputy Brian Lenihan, were sound but his policies were woefully misguided, so the more he did the worse it got. Then some months ago the country became insolvent, or to put it bluntly, we went bust.
The misguided budgetary policy would not on its own, however, have destroyed the country. The destruction of the county is due to the fatal banking policy. Think of the hubris of a small country guaranteeing â¬450 billion of funds, think of the decision to bail out Anglo Irish Bank at a cost of â¬32 billion to the taxpayer, and think of the extraordinary imprudence of NAMA. Think of the failure of regulation, think of the child-like belief that the banks were telling us the truth and think of the failure to hold anybody to account. Think of the decision to keep the directors of the banks in place and the decision to recruit new management from the second tier of existing management. Think of the failure in the third year of investigation to forward a single file to the Director of Public Prosecutions.
Think of the fatal ignoring of the principle of moral hazard, so that although shareholders were wiped out and those who borrowed recklessly were punished, those who lent recklessly were not punished but had their losses underpinned by the taxpayer. How could anyone have confidence in an Irish banking system underpinned by this set of policies promoted by the Minister and his colleagues in government?
The financial problems of the sovereign State were difficult but they were manageable. When, however, bank debt became national debt, the position became unsustainable.
The current budget deficit has shot up to 32% of GDP and the Government can no longer borrow. That is why it is out of the bond market because if it went to it, it could not borrow any longer. Ireland has become insolvent and that is why we have to be rescued by Europe and the IMF.
In case anybody on the Front Benches or the backbenches thinks that this happened by accident, it did not; it is a direct result of the Minister's banking policies, which we pointed out to him, when he promoted them in the House, would not work. We pointed out that they would cause extra trouble and they have caused it now and that is how we find ourselves where we are. I wonder do members of the Government ever feel ashamed?
I felt ashamed when I read the obsequious letters of the Minister for Finance when applying for assistance to Messrs. Juncker, Reynders, Rehn, and Trichet and separately to Mr. Strauss-Kahn of the IMF. The first two sentences in both of the Minister's letters reads as follows:
Ireland faces an economic crisis without parallel in its recent history. The problems of low growth, doubt about fiscal sustainability and a fragile banking sector are now feeding on each other, undermining confidence.
What a self-indictment; the Minister's critics could not have done better. It is an absolute indictment of his own policies as set out in both of the letters he wrote to our new masters in Europe and in Washington.
If it was not so serious, it would be funny. When one reads the letters, they sound like confessions beaten out of him, as if one were reading a thriller. It is as if they water-boarded the Minister in Merrion Street and made him sign the letters, or perhaps they were motivated by the mock humility of the gombeen culture to think that he would get the â¬85 million more easily if it was a handout.
The third and biggest mistake of the Government is to think that the purpose of all the pain and suffering is to restore Ireland to where it was in Bertie Ahern's time. The dream of restoring a lost Camelot is always a huge mistake. Bertie Ahern's Ireland is dead and gone and it will never be restored. The Galway tent is gone, the FÃS trips to Florida are gone, the subsidised travel from the SIPTU slush fund is gone.
The flipping of property in the fashionable pubs of Dublin after work on Friday will not happen again. The bubble cannot be re-inflated and the Government policy designed to restore lost times cannot succeed. We need a new Ireland, a lean and more generous Ireland, where we support strong families and strong communities, where volunteerism is again honoured, and where people work hard and are rewarded for their work.
We need a reformed political system and a talented, fit for purpose public service needs to be developed once more. We need new policies to support growth and jobs. A fatal flaw in this budget is that there is nothing in it to get the economy growing again. The Minister will recall that even though his four year plan published two weeks ago is based on a growth rate in 2011 of 1.75%, on 29 November, the European Commission marked that down to 0.9%. His figures will not reach target unless we have growth in the economy. He has been advised of that by the European Commission and he is still persisting in proceeding without any growth or jobs strategy.
We need a fair and just society where the test of any policy is in the answer to two very simple questions Is it a fair policy and does it protect the most vulnerable in society? It is against these objectives that I intend to measure this budget.
The Minister was very sparse in his detail today. Two minutes before he sat down we got a rÃ©sumÃ© of the main features of the budget. It is difficult to know quickly when he does not read out the major detail of the budget what exactly are the full implications of it. If we take the public expenditure area first, of the â¬6 billion correction, to which the Government has committed, â¬4 billion amounts to public expenditure cuts and â¬2 billion amounts to taxation. It is very difficult to know what the expenditure cuts are in the documents presented. We had an experience in the olden days when Mr. Haughey was king of country where a budget would be presented and when we came into Government we found the figures did not add up.
Conor Lenihan (Minister of State, Department of Education and Science; Minister of State, Department of Communications, Energy and Natural Resources; Minister of State, Department of Enterprise, Trade and Employment; Dublin South West, Fianna Fail)
Link to this: Individually | In context
The Deputy's party would provide excuses for two years.
The Taoiseach will be in here tomorrow and I want him to state clearly the policy decisions that will underpin the expenditure cuts registered in the tables at the back of the circulated document. I hope the Government is not faking it. I want the Taoiseach to explain the expenditure cuts.
I notice that in the four year plan there is a figure of â¬700 million for the sale of State assets. The tables in the back of the circulated document put the figure at â¬660 million but there was not one reference to this in the Minister's speech. I am told the figures come from the intention to sell Bord GÃ¡is and the Minister has permission from the European Commission to pay this into the Exchequer by way of dividend; yet the Minister was totally silent on it in his speech. When I see such things I worry about the accuracy of the Minister's figures.
He made no reference to a reduction in capital spending today but a quick look at the tables at the back of the document suggests the Government is taking approximately â¬1.8 billion out in capital spending. He has not nominated the key projects in those cutbacks. Is metro north proceeding, for example?
As two thirds of the adjustment to get to â¬6 billion derives from public expenditure cuts, there is an onus on the Government to explain the figures. As the Minister for Finance did not do so, the Taoiseach could come to the House tomorrow morning to spell out the policy decisions taken that will underpin expenditure cuts up to â¬4 billion. The Minister for Finance did not do it today.
The income tax adjustments are equally puzzling. The Minister stated he would cut the tax credit by 10%, which is fairly obvious, although the universal social charge is still a mystery. This charge, as those with a long memory recall, comes from an announcement last year by the Minister that he intended to put the health levy, PRSI and the income levy together. When questioned in the budget debates, if I recall correctly, the Minister said the tax neutral position for this charge would be 7.5%. It would be tax neutral in that it would collect the same amount of revenue but have a distributional effect; it would be harder on poorer people and less onerous on wealthy people.
When I prepared the alternative budget proposals in the past few weeks, which were announced on Friday, we ran the proposals by the Department of Finance, which did an independent costing.
The Department of Finance was of the view that the tax neutral position is now in excess of 9%, and if one wanted to collect extra income one would have to go beyond that. Curiously, the Minister mentioned in today's speech the introduction of a universal social charge but did not nominate the rate at which it would be introduced. That is not fair and when a budget is presented, it must be transparent. He cannot fool the people by announcing a universal social charge and not nominate in his speech the rate at which it will apply.
The Minister does not have a high regard for carers with his income tax provision, as the tax credit for carers has decreased from â¬900 to â¬810. On top of that, he has cut the carer's allowance and did not exempt it like the old-age pension.
Why would he do this? Why would he cut blind persons' and invalidity pensions, as well as carers' pensions? The only exemption forced on him is the old-age pension. I do not understand why a Government would be so socially blind as to include vulnerable persons where the total tax take is so small anyway. The Minister could have got most of what he wanted from the main social welfare headings but he has hit invalidity and blind persons' pensions, along with carers and widows. That is what we mean on this side of the House when we say the Government does not really care about the most vulnerable. Our policy is to protect the vulnerable in our budget cuts.
The Minister has cut jobseeker's allowance by â¬8 and made no increase in the child dependant allowance in social welfare; it remains the same as last year. Child benefit is down by â¬10 per child for the first and second child. What has the Minister got against third children? In his speech he stated there would be an extra â¬10 cut from the child benefit of the third child only. The fourth, fifth, 16th or 20th child's payment will not be cut.
Some of the changes in stamp duty are welcome as somebody has to act to get the property market going again. NAMA has destroyed the property market as it has taken everything out but put nothing back. Before leaving office the Minister should call people from NAMA into his office and tell them to put â¬2 billion or â¬3billion of property on the market at fire-sale prices. These may be sold too cheaply but at least that would establish a floor in the property market and people would start again. Currently, everybody is watching prices continually falling and nobody will get into the market because they believe prices will fall further and people are waiting until they hit bottom. Somebody must put a floor on this and the only people with a big enough pool of assets is NAMA.
A tranche of assets should be sold, even if they must be sold cheaply, to get the process started again. The 1% universal levy on all property, with 2% on properties worth more than â¬1 million, is onerous enough. It means nothing now because there is no market but it will be a heavy enough charge when the market picks up. I suggest that in the course of the finance Bill the Minister should consider a capital gains tax on the family home, which would be much less onerous. The problem with the proposal is it will hit everyone who is in negative equity and all those who paid significant stamp duty over the past ten years. If one made the change through the capital gains code, one could exempt these categories, from which one would not make a profit in any case. I am suggesting an alternative means of raising tax through stamp duty.
Many of the changes in public service pensions had been announced. While public servants will not like the levies, which had been announced previously in the four year plan, many of the former public servants to whom I have spoken told me that, ultimately, they do not object to being treated on an equal basis with existing public servants. In the times that are in it I will not quarrel with that view.
The Minister did not do anything for people in negative equity, which is serious gap. The Fine Gael Party has a proposal in this area for which it will not charge the Government a penny if it is implemented in the finance Bill. If one were to increase to 30% the tax relief available to those who bought at the top of the housing market between 2004 and 2008, it would save those with a mortgage of â¬300,000 about â¬900 per annum. This is a targeted relief which one could pay for by withdrawing mortgage relief for sales completed from June 2011 onwards. My party had this proposal costed by the Department. Anyone who buys a house from next June is buying at the bottom of the market. They do not need assistance through the tax code to buy property because they are buying at knockdown prices. I ask the Minister to examine these proposals and try to make some adjustments.
The Minister proposes a whole series of excise duties. We will examine these in the course of the debate on the financial resolutions tonight. He has also made proposals on the salaries of Ministers and Deputies and proposes to cap public servants' salaries. If we, in this House, do not start cutting our own prospects and salaries, we do not have the moral authority to prescribe tough medicine for others. It is not clear what the Minister proposes to do regarding Members. Will a Deputy of 30 years standing be considered a new Deputy if he or she is re-elected in March next? If so, will he or she be hit by the 10% reduction in salary for new public servants? Is that the Minister's intention? The phrase he used is ambiguous. The position should be spelt out explicitly and without riddles because members of the public want to know what is happening with our pay and conditions.
I thought the Minister would take the opportunity to introduce the changes in VAT he announced in the four year plan. It is the Government's intention - it has negotiated this in the deal with the IMF - to increase the 21% VAT rate to 22% in its second or third budget and 23% in its third or fourth budget. While the retail sector will not like this change, much of the goods on which the higher rate of VAT is charged are imported. The Minister should restructure his proposal in this regard and try to do something for employment by reducing the lower 13.5% rate of VAT to 12%. While it should be reduced further, if possible, the Minister can certainly afford to reduce it to 12%. The lower rate of VAT applies to domestic sectors such as the building and service industries, including restaurants, the food trade, bars, hairdressers and newspapers. Service industries are significant employers who have low margins. A small adjustment in the VAT rate would get people back to work in these sectors.
I am not making a political point in stating that the Minister could introduce a series of supply side measures to get more people back to work. Reducing the lower rate of VAT is one measure that would work because it would reduce costs and get people back to work. The Minister has tried to achieve this goal by reducing the minimum wage by â¬1. My proposal is an alternative approach which would probably provide good value.
The Fine Gael Party has also proposed that the 8.5% rate of employers' PRSI should be abolished for employees earning up to the level of the minimum wage. This, too, is a low cost measure which would save an employer who takes on a new worker â¬30 per week. It is difficult to employ low skilled young people at the bottom end of the market. For this reason, the Minister should consider what economists describe as supply side initiatives. While I am aware he does not have billions of euro to spend, the measures I propose are focused and targeted at increasing employment and securing more growth in the economy. They also have the great advantage of costing very little.
The Minister was silent on carbon tax. I thought the Green Party had convinced him that he should move again on carbon tax but he has chosen to move on excise on fossil fuels. He must make up his mind on how he will tax fossil fuels. Will he continue on the excise route or opt for carbon taxes? When one takes both options everyone is hit twice. It is not long since a significant increase in carbon taxes was introduced and now we have another increase in excise.
My primary objection to what the Minister is doing is that he does not have a jobs and growth industry. He did not mention the agricultural and food industry which is back on its feet, thank God.
Overall, the budget is incoherent, soft on the rich and hard on the poor.
The times ahead will be hard. The Government has sought to tie the hands of its successors with a series of very specific commitments over the next four years. If the Fine Gael Party is part of the incoming Government, we will stick to the targets set down but will renegotiate the specific measures envisaged for the next three budgets. I have been assured by Commissioner Rehn and Mr. Chopra of the IMF that they will co-operate with us in doing so.
There is a flaw in Ireland's approach to Europe, one which arises from the hubris of the Celtic tiger years. Since we joined the European Union the Department of Foreign Affairs has taken the lead role in our relationship with the EU and individual member states. When Garret FitzGerald, whom I see in the Distinguished Visitors Gallery, was Minister for Foreign Affairs and Taoiseach, it was common for Ireland to enter into informal alliances with other member states, particularly smaller countries, to advance our interests. We had close alliances with the Benelux countries in particular. In the past decade we have lost our way and forgotten the friends who used to protect our interests.
At a time when boastful Irish Ministers could clear any bar from Berlin to Barcelona with their lectures on how to get rich through property speculation and how Ireland was the wealthiest country in Europe and a model for all to imitate, it was easy to forget our friends. When Irish Ministers were the braggarts of Europe it was easy for our friends to forget us. We must now mend our hand. Our skilled diplomats must again be instructed to build alliances with member states who share our interests. The central role of diplomacy in protecting our interests and relationships in Europe must be restored.
In this regard, it was disgraceful that Ireland was not represented by a Cabinet Minister when a major new initiative, the issue of euro bonds, was being discussed at yesterday's meeting of the Council of Ministers. This is an example of neglect. While the Minister for Finance may have been busy with the budget, the document was completed at the weekend. Why did a Minister not attend yesterday's meeting which discussed a far-reaching proposal to introduce a euro bond given that acceptance of such a proposal could solve many of Ireland's problems? The president of the euro group, Mr. Jean-Claude Juncker, who is Prime Minister of Luxembourg, a country that is a traditional diplomatic friend of the Irish, was the main proposer of the introduction of a euro bond. No Irish Cabinet Minister was present at the meeting to push along a project that is in our vital interests.
Despite everything that has happened, I do not believe our country is ruined beyond repair. If it were not for the banks, our problems would be manageable. With the recently announced initiatives to downsize the banks, we can come through this. The foundation stone of everything is certainty. The Fine Gael Party is committed to reducing the deficit to 3% of GDP by 2014 and to a total adjustment of â¬15 billion because we want to give people certainty. Once we have certainty we can build confidence in this country. This is the reason Fine Gael is committed to an extensive jobs and growth programme.
Once we have confidence people will grow in hope and optimism and begin to spend and invest again. This is the reason the Fine Gael Party believes the marginal rate of income tax must be kept low, the 12.5% of corporation tax is an essential component of our industrial policy and the 13.5 % rate of VAT should, as I proposed, be reduced to 12% when the standard rate is increased. fine Gael wants a pro-jobs tax policy so that the economy can grow and jobs can be created. My party believes we can meet our budgetary targets for the next two years and we hope that after two years of meeting our budgetary targets we will be back borrowing in the bond market at a much less penal rate than the 5.8% negotiated by the Government in the bail out package.
Fine Gael wants the IMF out of here. We are an educated, talented, accomplished people, well capable of running our own affairs.
At times of crisis we tend to turn to the heroes of the past for inspiration - to Collins and Griffith, de Valera and Lemass. I know Members on all sides of the House do that and therefore I shall finish by reference to a quotation attributed to Michael Collins which we might all ponder. Collins said, "Give us the future. We have had enough of the past. Give us back our country to live in, to grow in, to love".
At the opening of his speech, the Minister, Deputy Lenihan, referred to households and businesses that continue to work off the excesses of the boom. He made the adjustments and cuts sound like a walk in the park just after the Christmas dinner or, alternatively, like joining the gym or going to Unislim. It is a way of working off the excess built up during the boom years. It is a pity that such slimming of income has been applied to working people and those on middle incomes because they are the people doing the heavy lifting in this budget. I daresay the Minister must be aware that people with children took the biggest cuts this year and last year. Let us remember child benefit is paid almost universally to women. I suppose that is a comment on how few women are Members of this House and what little political power women exercise compared to bankers. The Minister always says "Yes" to bankers but in his different budgets he always finds it difficult to make payments in respect of children.
The table of reductions in expenditure is spot on. Well done to the Minister, who has passed the first test in the memorandum of understanding. It is spot on for the IMF and the European Central Bank. The reductions of â¬2,192 million are very close to the figures in the memorandum so when they are sent over on Friday, as per the memorandum of understanding, I imagine the Minister will get one star for getting so close to the required figures. However, it is very noticeable that out of cuts of â¬2,192 million, the Department of Health and Children will take a cut of â¬746 million and the Department of Social Protection will take a cut of â¬873 million. Those two Departments, Health and Children and Social Protection, will take a hit of â¬1.6 billion from total cuts of â¬2.1 billion. That is a really heavy hit on a particular sector which, more than any other, encompasses the notion of social solidarity and need. We should remain a one-Ireland society. Yes, we had our billionaires but we should remain close to that notion. The principle of the Labour Party is that we are a one-Ireland society and those who have most should contribute most.
Coming after 13 years of Fianna FÃ¡il misrule, this budget might be described as the last sting of the dying wasp but it is a fairly vicious sting and one that carries a long tail life, not only for today but for the coming four years. The people who will feel the biggest sting will be those with children. I shall return to that issue presently. There is enough austerity in today's announcement by the Minister, Deputy Lenihan, to make even the most ardent Tea Party fan grin in delight. There is pain for the poor, money for the rich, particularly for the bankers, and the rolling back of the State.
In Ireland, we are now entering our third and a quarter year of fiscal austerity. It is very important that all the international cameras and press which have been covering this country should understand this fact. This is our sixth budget or adjustment statement since July 2008, shortly after Deputies Brian Cowen and Brian Lenihan were elected to their current offices. The first five budgets and adjustment statements took â¬14.6 billion out of the economy but those in the austerity and hairshirt camp want more. The Irish are a little like Oliver - "Please sir, give me some more austerity". Today, â¬6 billion of further austerity will bring the total taken out of the Irish economy over three and a quarter years to an eye-watering â¬21 billion, or 16% of GNP.
I and my party met with the IMF on a number of occasions during the recent talks and it was very clear to us that those people clearly understood there is no modern example of a developed economy deflating to this extraordinary degree but claiming it can grow like Topsy. The â¬21 billion of deflationary reductions risks putting Ireland into the dreaded deflation spiral, the terror of the Hoover years of the Great Depression in the United States. That is why the Labour Party argued for an adjustment of â¬4.5 billion, which, of course, would be extremely tough. There is no doubt about that. However, we wanted to promote and leave room for the certainty of growth. I met Mr. Rehn when he was here and discussed the magic figure of â¬6 billion which had appeared. I talked with him about what had happened in Finland and Sweden during those countries' banking crises. Mr. Rehn told me that the Swedes had learned a great deal from the Finnish banking crisis and what the Finns did, in nationalising and taking the banks into temporary public ownership, and so on. Then he said, "And Ireland ... " but he left any further comment unspoken. Ireland did not learn from Finland or Sweden. This budget smacks of Ireland having done case studies in Japan, with all the unfortunate effects of zombie banking on that economy. Unfortunately, we have mirrored that situation to an extraordinary extent. Japanese people who live in Ireland talk continually about the close parallel between what happened in their economy and what is happening now in Ireland. Japanese people I know tell me what the next thing will be.
It is very unfortunate. Mr. Rehn, having delivered the â¬6 billion adjustment, I presume on behalf of the ECB, last week came back and reduced his forecast for the Irish growth rate to 0.9%. What has all the austerity and deflation done for us as a country so far? In more than two a quarter years of austerity, unemployment has risen from 4% to 14%, which is 435,000 people. Austerity has slashed growth, it has killed consumer confidence and turned us into a nation who are busy paying down debt or saving - anything but spending. Those who study the behaviour of people in depressions, in particular shopkeepers and not just economists, can tell one that in a great depression such as we in Ireland are enduring, people change their spending patterns permanently. People who know people who lived through the great depression in the USA know that those people remain what the Americans call "frugal" and "tight" right to this day because they had the searing experience of what happened to them then. Many people fear that all this austerity is doing the same to Ireland. When walking down Grafton Street, one used to see people with two or three shopping bags. One would need to be a very dedicated, well off fashionista to come from Grafton Street with two or three shopping bags nowadays. One is lucky to see one shopping bag, often just a tiny one tied up in a bow.
What else has austerity done? It has brought the return of the emigrant aeroplane. It is reckoned by the ESRI that by next April 100,000 people will have left this country, some of them our brightest and best young people who will have left during the austerity period of the first quarter of this budget. It is very sobering, particularly in regard to people who came home and began to build a life here and then left again. We know that GAA clubs throughout the country, not just in rural areas but even in Dublin, can no longer be sure of getting the guys and girls for teams at weekends because they have gone away to get work as, unfortunately, many of their grandfathers and grandmothers also did. It is very sad for people in Ireland to have to relive this experience.
The European Commission and ECB are understandably outraged at what they see as Ireland's fecklessness but should the punishment be visited disproportionately on the more vulnerable sections of Irish society? Ever since the fall of Lehman Brothers, the Government and orthodox economists have insisted that bank losses should be socialised whereas bank profits during the boom years were privatised. The debt burden which Ireland now carries, and which this budget is designed to ensure we repay, smacks more of reparations than of repayments. A more holistic approach adopted by our international "helpers", with burden sharing of the bank restructuring, including by bondholders and foreign banks, and a longer timespan would leave us better placed to repay and to be part of a European wide reflation. In the end, this would be better for Germany as well.
In one of Keynes's best known works, The Economic Consequences of the Peace, he predicted that reparations to be paid by the German people after the First World War and the Treaty of Versailles would produce an economic and political catastrophe. To quote Keynes, "If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp."
Europe and the European Union has an extraordinary range of achievements to its credit and membership of the Union has been exceptionally beneficial for Ireland and its people. The European Union rests on a fundamental concept of solidarity. Without the glue of solidarity, Europe as a concept could be fatally undermined, not just in Ireland but in all those weaker countries, from Greece to Portugal and even to Spain, Belgium and Italy. A new Government should seek, as a priority, to renegotiate the terms. We need a cheaper interest rate, a longer timeframe and the kind of interest rates the IMF would normally apply to a country like Ireland, which could be as low as 3.2% and as high as 4.2%. That is the kind of interest rate the Government and its negotiators should have negotiated for our people.
I know that many people are nervous of market reactions to large public deficits and sluggish growth. Let us imagine the market reactions to no growth and much larger deficits. What has driven the panic in the bond markets over both Ireland and Portugal is just that. There was the belief that both economies would be stagnant in the coming years and, therefore, would become even more indebted because we were so mired in the consequences of our banking failure. Growth matters desperately to Ireland's prospects. Ireland, Spain and Portugal - all very different economies - are crudely lumped together in a bond market sin bin. We can escape from that sin bin if we can restore confidence in future growth from all sectors of the economy, not just the export sector. This means getting ordinary people buying and spending again, not just saving.
Who are the winners and the losers in today's budget? The winners are undoubtedly the banks, both Irish and foreign, which are hoovering up our money, not just to bail out Irish banks but to bail out the bondholders who so foolishly lent to our out-of-control bankers and developers. There is no doubt Ireland had exceptionally greedy and foolish bankers and developers, who borrowed like crazy when the flow of cheap money from the euro zone seemed literally like the gold at the end of the rainbow. There is no doubt Ireland and its failed system of governance and regulation carries the major share of the responsibility. However, some responsibility must be borne by those foreign banks which lent so recklessly and greedily. The ECB, from its lofty perch, should have been more familiar with bubbles.
Another class of winners are those developers and property tycoons whose comfortable exile has been enabled and abetted by our kind and generous Government regime, which permits those who owe billions of euro in unpaid loans safe and easy transfer of very large amounts of assets to spouses and family - perhaps all those tycoons with their multi-million pads in nice places like Connecticut, within easy commuting distance of New York city, like Mr. Dunne and Mr. Drumm. We read all about them in the newspapers, this weekend and every weekend. To use the Minister, Deputy Brian Lenihan's phase, "they continue to party on" - it is Unislim for the rest of us but party time for them.
Who are the losers? A family with three children will lose â¬40 a month, which is in addition to the previous cuts in child benefit last year, where they lost a significant amount. Jobseeker's benefit is being reduced by â¬8 and there is a cut to disability benefit. Most of those on disability benefit have limited capacity for work and their expenses are normally higher due to their disability but their benefit is being cut by â¬8 per week to â¬188. In addition, a payment to a person who is blind is down by â¬8 to â¬188 per week and carer's benefit is also being cut by â¬8 to â¬204 per week. Payments for those with adult dependants have been decreased by â¬5 per week. Therefore, a couple in these categories will experience a reduction of over â¬13 per week. That is tough when one is on a fairly tight income. People in these categories are certainly losers.
Other losers are the small and medium businesses, in respect of which the budget does not mention the flow of credit. We were promised credit would flow like milk and honey once NAMA got under way. Instead, NAMA seems to involve a reverse proposition sucking life out of the economy because its operations are so large. NAMA is probably the biggest property company in western Europe and it dominates a huge sector of commercial activity. The people who provide professional services charge service fees of up to â¬240 million per year and NAMA is sucking the capacity out of banks to give credit to SMEs in the villages and towns of Ireland.
I believed the Government, including the Minister, would have had something to say about the people who are under water or in difficulty with their mortgages, particularly after the Government Members' experience of campaigning in Donegal. These mortgage holders are facing Christmas terrified that they may lose their homes. The Government, in addition to saying "Yes" all the time to bankers, could make an effort to provide people with certainty that they will not lose their family homes, particularly when those family homes are also the homes of their children.
A popular show that many teenagers like and produce is called "High School Musical", one of the hits of which is called "We're all in this together". Bearing in mind all the catch-phrases and soundbites that come from this dejected set of Ministers, nothing grates more than the sound of our two Brians repeating, "We're all in this together". I have news for them: nothing in this budget offers a shred of evidence that they really believe this themselves. Every line of the budget suggests the exact opposite.
At the end of this set of Fianna FÃ¡il budgets and as a direct result of the Government's policy, the gap between rich and poor will have widened. Ireland, after this budget, will be a more divided society than ever. It is the disadvantaged who will carry the bulk of the cost and those whose reckless antics caused the disaster will survive best of all. While their wealth will be diminished, they will have escaped, waiting for the chance to strike and come back again.
The experience of past recessions shows the legacy of the past three years will be long-lasting. Unemployment at an early age can leave permanent scars. Many studies have shown that someone laid off during a recession suffers an earnings loss even when he returns to the labour market. He returns to less well-paid employment and earns less than those fortunate enough to remain in work. Even 15 to 20 years later, these losses continue to take their toll. There are wider social costs. The loss of a job has a marked impact on health and results in an average loss of life expectancy of one to one and a half years. Children suffer when their parents are laid off. They are more likely to fall behind in school and tend, on average, to earn less than the offspring of those who stay working.
It is remarkable how standard orthodox policies have come a cropper in the past few years. Unemployment is a case in point. According to the Tea Party types, countries with flexible labour markets and low minimum wages find it easiest to adapt to the more challenging environment while those countries that insist on higher wages for workers reap the consequences of being soft. However, it has not turned out like this. Remarkably, Spain, which took the orthodox route, has a youth unemployment rate of 40%. Germany and Norway, which have protected workers rights, have kept their jobless rate at a low level. Therefore, I do not buy the argument that there should be a reduction in the minimum wage.
We all know about the famous three Rs that are the bedrock of early education. There is another set of three Rs that became the bedrock of economic recovery in the post-Depression era and formed the basis of the post-war politics in Europe, irrespective of the country or party in power. These three Rs are reflation, redistribution and reform. If the Labour Party is in Government after the next election, reflation, redistribution and reform will be what its participation in government will be about.
Governments have abandoned financial regulation with the calamitous consequences that are evident today. Where would we be now if there had not been some international reflation in 2009 after the shocks of 2008? The Taoiseach constantly points out, correctly, that our export sector does well. It has continued to do well because of international reflation. However, if the rest of the world had experienced the deflation that Ireland has experienced, our export sector, which unfortunately is not as employment rich as it once was, would not be doing nearly so well.
The Government must bring the budget into balance by a reasonable target date. The least plausible way of doing this is to starve the economy excessively of money in the short term. An adjustment of â¬6 billion is excessive at present. Next year is not the first year of a four year plan. As stated, we have already endured two and a quarter very difficult years, and adjustments amounting to â¬14.6 billion in the past two years. Can the Taoiseach honestly state the adjustments have achieved their objectives? If he cannot claim this, how can he prescribe more of the same medicine?
Why is the Government doing what it is doing? To some extent, it is because it is mixing with the wrong people. It has forgotten the advice of religious teachers in school on the dangers associated with keeping bad company. The Taoiseach and his party mixed with developers for years and wined and dined with them. They gave the developers every tax break and subsidy they demanded. They now associate with bankers, who are totally obsessed with the security of their position and, therefore, with budget harshness. Do Members remember that after the Taoiseach very kindly bailed out Anglo Irish Bank on the first occasion, Mr. SeÃ¡n FitzPatrick stated on the radio, without a moment of self-reflection, self-awareness or shame, that he wanted cuts to the old-age pension, child benefit and all the social welfare payments. He asked people to take their medicine and to give the money to him. This is what the Taoiseach achieved; he gave the little people the medicine and gave Mr. FitzPatrick's bank, Anglo Irish Bank, the money.
-----to understand their position and what savage deflation has done to this country in this third year of adjustments. The Taoiseach is proposing that we have six full years of adjustments. That is the deal with the IMF. There have already been two years of savage deflation and the Taoiseach's deal with the IMF is for four more years. This amounts to six years of savage deflation.
The Government has many economists that work for it. The IMF and International Labour Organisation have carried out detailed studies. A recent study by them contains a message for the Government and the Taoiseach's party. The IMF-ILO study states:
Fiscal plans should be fair. There should be specific measures to protect the most vulnerable from the effects of the consolidation.
The risks involved with high levels of unemployment mean that economic policy should have a bias towards growth. There should be no fetish for austerity and targeted measures aimed at vulnerable groups of workers should be retained. Alongside that, countries should boost minimum wages, offer social protection and encourage collective bargaining.
When America entered the war after 1941 and the attack on Pearl Harbour, the anniversary of which is today, Churchill went to Newfoundland to meet Roosevelt where they set their aims for what their countries would be like after the war. What did Roosevelt insist, and Churchill agreed, on inserting in the war aims of the new society that would emerge after all the difficulties? He insisted on building in social protection and employment and the growth of a society that had a social construct.
One day this recession will end. We know that. If the Taoiseach keeps having much to do with it, it will be a long time before it will end.
It must be remembered that after the war the United Kingdom built the British national health service. What did the Finns do during their period of banking collapse? They built a universal preschool education system to put people back to work.
-----world class indigenous companies.
Fianna FÃ¡il aims or objectives will not lift the country from its incredible area of difficulty onto a higher plane where people become proud of their capacity, proud of their children's educational achievement-----
In terms of the statistics in the budget, I want to ask the Taoiseach about the universal social charge. It is very telling that his Government has chosen to use the term "charge" and not "contribution". When the welfare state was built, the term that was always used was "contribution" because a contribution implied that if one contributed to one's country and one's State during one's working life, one's child or children would be assisted with their education. When people became older, society would also assist but instead of a contribution we now have a charge. In terms of the rates on the charge, the new charge will start at 2% for people earning from nought and â¬10,000, 4% for people earning from â¬10,000 to â¬16,000 and 7% for people earning over â¬16,000. For many people on the lowest levels of income that is a fairly hefty additional level of charge. It is significant.
The tables in the budget dealing with who pays tax are interesting. The numbers of people who are paying the standard rate of tax is increasing by 53,000. An additional 53,000 will be paying the standard rate of tax and 91,000 people will be paying the higher rate of tax. A total of 144,000 people will be in the tax net.
When we bear in mind the number of people who have become unemployed, it is quite a shift and it is borne in the tables at the back of the Budget Statement particularly by people in the middle income range. People in the middle and lower income ranges are taking quite an amount of the hit.
The Labour Party's approach was very clear. We suggested that the tax shelters, particularly the property-based tax reliefs which have cost this country so much, be closed this year. That would have allowed a slight easing in terms of people at the lower income level or people on social welfare. We also suggested that the pension reliefs, 80% of which are targeted at the top 20% of earners, should be drawn back. We proposed taking a leaf out of the Conservative Party's book in England and reducing the size of the pension pots and the draw downs. The Taoiseach has done a little of that but this yellow document before the House tonight containing the resolutions is actually a mini-finance Bill. For the first time ever, there will be only a couple of hours discussion on the finance Bill at the most.
In 2006, I advised the Taoiseach that withdrawing the 1% stamp duty on contracts for difference would turn the Dublin exchange into a casino. I was right and he was wrong. I advised the Taoiseach, from the time he took up his stint as Minister for Finance, that he should get rid of the property-based tax reliefs by bringing them down slowly but what did he do?
I understand the Taoiseach's regrets but all I can say to him is that the reduction in tax breaks should be a down payment by those people against a more general tax reform in Irish society. He has not done that in the budget today. He is rushing through these measures, such that the Greens will be able to go home to bed early. They will hardly have time to read it.
What are we going to do?
In the White Paper on Government expenditure published on Friday night, the bill for interest this year for Ireland is â¬5.1 billion. Three years ago Ireland was paying â¬1.5 billion a year in interest. I ask the Taoiseach to bear in mind all those women who will lose their child benefit and the heavy lifting, so to speak, they will have to do as a result. Of the â¬6 billion adjustment, â¬5.1 billion will be the extraordinary bill for interest to be paid by Ireland under this fantastic deal the Taoiseach negotiated for us.
The people who were negotiating that deal, and the people in the Commission and the ECB, lost the run of themselves. Irish civil servants are good enough to produce quarterly figures instead of having the humiliation every Friday-----
-----on the nail. It is like going back to the time when one was a child and one went to meet one's Dad to collect the wages from him. Instead, officials from the Department of Finance will be going on a Friday afternoon, cap in hand, with their list of figures. Could the Taoiseach's negotiators not have spared us that little extra humiliation? Look at the IMF deals for other countries. I have compared a number of them and when I read the Irish deal, I cringed for the small humiliations that were included in it, in my view, entirely unnecessarily. The Government ought to have had the courage to say, at least, "No", to a few of those.
This budget is a disgrace. It is a full-frontal attack on the lowest income earners, those who are unemployed and those who are dependent on social welfare. What it amounts to is a recipe for economic suicide. It is another deflationary budget being brought in by this Government.
It is being brought in by a Government which claims to act in the national interest, by a political party which claims to be republican. It is at times like this that one must ask what would the founders of the State think about what has gone on earlier today in this Chamber. What would people who struggled to bring the Republic into being think - the people who gave their lives and the people who laboured to bring the DÃ¡il into being and to bring the dream of the 1916 Proclamation into being? We have not got their yet, but I am sure that they would be ashamed of what has gone on in this Chamber today.
Before I walked in here and before the Minister for Finance rose to his feet to announce this budget I watched our national flag being taken down above this building, and I am glad that it was done because what has been done in here is economic treason. Not only is the Government happy to sell out our economic sovereignty to the IMF, but now it is selling out the Irish people.
I think back to a poem penned by PÃ¡draic Pearse nearly 100 years ago, "Mise Ãire", lines of which states:
MÃ³r mo nÃ¡ir:
Mo chlann fÃ©in a dhÃol a mÃ¡thair.
My great shame:
My sons who sold out their mother.
That is what has happened here. The Minister has sold out the ordinary average people, who caused no harm to the Government and who have done nothing wrong in the State but try to get on in life. These people have tried to build the public services which we want to be proud of and have tried to go to school and to third level education so that they can be the entrepreneurs of the future. These are people who, through no fault of their own, are dependent on social welfare.
The Government has decided in this budget to launch an all-out attack on those people while at the same time protecting the elite in society, protecting the backsides of Members who sit in this Chambers. I have read through the documents accompanying the Budget Statement. Not one penny from a Deputy's gross salary will be reduced. How does the Government think the people listening to this at home or on the radio as they travel home from work can understand that a Deputy on over â¬92,000 per year should not take a pay cut but somebody on social welfare, somebody who is out working who has a child with a disability or who is on disability benefit needs to take a 4% reduction? Is that fair? Those are the questions people are asking. Ministers are talking about taking token wage cuts of â¬10,000, which, in reality,-----
The token gesture that is being taken by Ministers in this budget does not go anywhere near far enough.
The Government is cutting the liveilhoods of people who are trying to get on in this State. What have they done? What have the public sector workers done to the Government that it will sack 9,500 of them - 4,150 from health, 1,023 gardaÃ who will lose their jobs by the end of next year, and 1,063 teachers and front-line staff working in the education system? A total of 9,500 public sector workers are to be made redundant under the Government's plans.
What did the farmers do to the Government, which will reduce the REPS payments by â¬36 million? What did the students, who want to get educated in third level, do to the Government that it will increase the student fee to â¬2,000 and introduce a new fee for those on PLC courses of â¬200? God forbid, what did the primary school students do to the Government? It is introducing a new transport charge of â¬50 and increasing up to â¬350 the charge for those at second level. This budget is a disgrace.
Last year we heard the Minister for Finance tell us that the worst is over. Now we hear that low and middle-income families are to be hit with more punitive taxation increases and spending cuts. The Minister tells us that there is hope, but the only hope I can see is calling a general election. His Budget Statement is sparse in detail on the cuts but we can see in the documentation provided what these cuts will mean and how they will affect people in the years ahead. There is an â¬8 reduction for dole recipients, a â¬10 reduction in child benefit and â¬180 less in tax credits, excise on petrol and diesel is up, rental relief to be phased out, maternity benefit and adoptive benefit cut and there is to be a 5% reduction in capitation fees for student services and a reduction in student support grants. Some â¬746 million is to be taken out of the health budget. A total of one third of all of the cuts across departmental spending is coming from health. This is at a time when the health service is completely buckled under the strain of the cuts that the Government has introduced in previous years.
Why are we doing all of this? Why is the Government introducing the budget that it has announced today? It is doing it to prop-up a failed banking policy. The policy behind this budget is not only morally wrong, but economic sabotage. Some â¬6 billion is being taken out of the economy in the most destructive and damaging way. The Government has decided today that somebody who earns over â¬1 million contributes enough but a person on the minimum wage, a person on social welfare or a person who has lost his or her job must pay more. The Government has lowered the disposable income of every spender in the real economy. What that means is that there will be less money to spend in the local economies, which will turn the screw tighter on local businesses and will mean more job losses in small and medium enterprises. What the Government has done is prolong the cycle of recession.
I do not know how the Minister had even the neck to come in here and present such a budget. The Government has failed the people of Ireland. It has given away our sovereignty in the same way that its partners gave away our natural resources back in the 1980s.
The Government has brought the IMF and the EU to our shores, and they are here to help the Government to protect foreign bankers and to bail out the bondholders. They are not here to bail out the Irish people. They are here for our tax euros. They are not here to protect us.
What is disgusting about all of this is that when the country is demanding political reform, when people are shouting out for serious politically reform, the Government is relying on the votes of two gombeen politicians who want their own wee pet projects in their own constituencies.
I understand that I did not name the gombeen Deputies and there may be questions over who they are but the point stands. The fact is we can no longer afford this type of politics. We simply cannot afford it. We need a new type of politics.
During the course of writing the budget speech, did the Minister for Finance ever consider what it would mean to ordinary people on the street who are suffering because of what he and his Government have done? When was the last time he took a trip to a social welfare office and spoke to those dependent on the dole? When was the last time he visited a school completely made up of prefabs with more than 30 children in a classroom with only one teacher? These are the questions I would like to ask him. It is easy to talk about statistics and about people as groups but the Minister for Finance and many others in the Government are members of the political class and the elite. It does not matter to them what effects the cuts will have on the ground because they will never have to experience them. The same goes for the right-wing economists who will be cheering on these measures of austerity. The reality is that the Government and these Ministers will never see a dole queue. They will never have to choose between paying their bills or putting food on the table. They will never have to send their children to school hungry. They will never have to emigrate. What we will see is the Minister for Finance, his colleagues and the backbenches trotting down to the DÃ¡il bar and celebrating another budget after which they will be driven home in their ministerial cars. They will take home their wages every week and when they retire or are kicked out of office, they will have a great pension to live on for the rest of their days.
That is why they are absolutely out of touch and why they will be booted out of office.
Last year, we heard the Minister for Finance tell the House that the budget for 2010 was the harshest budget that would be needed. What has happened is that the Minister and the Government have repeatedly misled the Irish people. If spending cuts were the solution then we would not have a deficit now and we would not have to be back here. We would not have a problem with our public finances. The clear message I want to give today is that there is an alternative and a better way and Sinn FÃ©in has put forward that better way. It is clear, deliverable and costed alternative based on fair taxation, eliminating waste, growing the economy and creating jobs. Our alternative protects the most vulnerable-----
-----but asks those who have a bit more to pay a bit more. Our alternative would see the cuts announced today reversed. I am calling on everybody going into the next general election and who wants to go into government to commit themselves to reversing the budgetary cuts announced today. No party can go into the next election campaigning against these cuts while unwilling to reverse them. Sinn FÃ©in's alternative says "No" to IMF and EU interference and tough luck to the bondholders.
The principle of this is that the Irish taxpayer should not and will not be the insurance policy for the bondholders who took a gamble and lost. If we proceed with this banking plan, then the budget and the four year plan are already redundant. The plan aims to adjust â¬15 billion from the State's finances over a period of four years. It is a figure that sits in splendid isolation from the â¬85 billion bailout negotiated for the banks.
We cannot afford this banking policy or the loan from the IMF and the EU. Most importantly, we cannot afford the Government. We need real negotiators to deal with the banks and not a red cent should go into the banks until their debts are restructured either through burning the bondholders or having a debt for equity swap.
The addition of â¬67.5 billion towards sovereign debt will incur debt servicing of huge proportions over the coming years, and we simply cannot afford it. It is important to emphasise that â¬17.5 billion of the â¬67.5 billion will come from the pockets of the Irish people. Who decided this figure could be lumped into the bailout from the IMF and EU? It is being presented to the Irish people as them coming in to rescue us. Again, we see a Fianna FÃ¡il spin in action, trying to tell us that they are coming in with a package but in reality much of this is our own money that is bailing out-----
The Deputy's policy would mean we would have to cut social welfare by two thirds in July because we would not have the money to pay for it. It is very unfair to the people to think that.
The crisis we are in is the result of the Government's deeply flawed banking policy. What the Government is trying to do is turn a banking crisis into a sovereign debt crisis and it has been aided by its partners in the EU. All of this is about political choices. It is about having the political will to stand up and put ordinary people first. That is what the Government should be doing today and it is what Sinn FÃ©in would do. Those on the Government benches know the budget will cause untold hardship for hundreds of thousands of people. It will mean little hope of economic recovery in the years ahead. It is a disaster for society and a disaster for the economy.
It is a disaster for the young people who wanted to build a future here and it is a disaster for the families they will leave behind. The ESRI estimated that by the end of next year 120,000 people will have emigrated. It is 90 years since the foundation of the State and Fianna FÃ¡il has once again used emigration as a safety valve at a time of rising unemployment.
These young people leaving our shores should be the next generation of Irish entrepreneurs, scientists, doctors, teachers and engineers. These are the people who can rebuild our economy and deliver the public service which the public demands. In this State, we train nurses at a cost of â¬90,000 per nurse and next year 90% of them will leave our shores while at the same time our hospitals will remain understaffed. I would say to any young person who is planning to leave to stay and change Ireland. We can get rid of the Government and it does not have to be replaced with parties with similar policies-----
Nobody should think that we in Sinn FÃ©in underestimate the magnitude of the problems in our public finances. We have a structural deficit apart from the banking crisis that must and can be addressed. It has been caused by the Government's steadily eroding the tax base, allowing unemployment to rise and allowing a culture of waste and excess to develop in sections of the public sector. Latterly, it has been added to by the Government obsession of the banks and the debt servicing interest that will be incurred by this.
We can reduce the structural deficit but it must be done hand in hand with growing the economy in a sustainable way. Sinn FÃ©in has put forward a six year plan to reduce the deficit to within the Stability and Growth Pact, beginning with an immediate â¬4.671 billion reduction of the deficit in 2011. This can be made if public spending is eliminated and the taxation system is overhauled. We have identified more than â¬1 billion in wasteful spending and more than â¬4 billion through making the taxation system fairer. When we put forward our six year plan, the Taoiseach excluded us from the talks in Government Buildings.
Fine Gael and Labour leapt on the four year bandwagon and were invited to join the consensus on cuts, which they did all too willingly. We said it could not be done in four years and that the cuts would make everything worse. What have we seen since? The European Union has already extended the adjustment period by a year to 2015 and it is widely accepted that even that is too optimistic. Again, we have been proven correct.
If the Government laid out a credible strategy to restore the economy to a growth trajectory, the bond markets would have more confidence that Ireland would be able to pay its debts and, therefore, yields would lower accordingly. The Government strategy to date has simply focused on the deficit, without enough attention to the wider economy which is the engine that provides both tax revenue and contributes to overall GDP. The deficit is a result of our economic woes, not the cause. If we treat the causes - unemployment and the tax collapse - the deficit will be treated. The four year plan is a joke. It is an accountancy exercise with no economic impact assessment. If taking â¬4 billion out of the economy in 2009 reduced the tax take by â¬7 billion, what will a â¬6 billion adjustment do? Also, it is based on the most ludicrous assumption of growth ever imagined by a Government about to slash the State's finances. The Minister announced average projected growth rates of 2.75% today. He should get real. The international community is laughing at him.
I now want to deal with some of the specifics of this budget. Bad economics, tax cuts, deregulation and tax subsidies for speculators during the boom got us into this mess and the bad economics of this budget, with its spending cuts, slashing of incomes and stealth taxes will dig the hole deeper. The four year plan indicated that â¬3 billion would be taken out of the social welfare budget by 2014. Details on what this means have been revealed by the Minister today. People have lost their jobs and these unemployed people are sitting at home tonight in cold houses. However, the additional â¬40 fuel allowance announced today will only go to households in receipt of the fuel allowance. The Minister pointed to low inflation as a justification for cutting social welfare rates by 4%, but prices for many essential goods and services have actually increased. All one need do is look for example at health, education, transport and energy costs, which have all increased.
A survey conducted by Sinn FÃ©in of 278 social welfare recipients last week clearly demonstrated that families on social welfare simply cannot afford to take the hit. Almost 90% of those surveyed will go without bare essentials, whether food, heating or Christmas presents. How are people supposed to live on the welfare allowances announced by the Government? Cutting social welfare should be the last thing the Government does in a time of economic difficulty. Cutting social welfare will have a detrimental effect on the economy and society. Welfare payments are always returned to the economy. They are not saved or invested abroad but spent in the real economy. They are spent on rent, mortgages, food, utilities and other essentials. Cutting welfare is a false economy and will only cause misery and hardship for those on the receiving end of the policy. If less money is spent, the economy will contract, businesses will struggle and more jobs will be lost. More people will be reliant on social welfare.
Do these cuts make any sense? Of course they do not. However, cutting benefits is the policy the Government is pursuing. Sinn FÃ©in is absolutely opposed to any cuts in social welfare and to the cuts announced today. We have shown where the revenue could be raised to ensure that welfare rates are protected. It is a matter of political choice whether to start cutting at the top where the highest paid and the wealthy can afford to take cuts or at the bottom as the Government has done, targeting those struggling to get by and barely able to survive from day to day. Any Deputy who votes for these cuts deserves to be kicked out at the next general election.
The Minister has told us that it is too complicated a task to make the tax system fairer. Why is it too complicated a task to reform the taxation system so that those on huge salaries contribute more, but not too complicated to consign the poorest to a life of scrimping, saving and poverty? If one looks at the public finances, it is apparent that we have less of a spending problem and more of a tax raising and retention problem. There is ample room for overhauling the taxation system, without turning Ireland into a high tax economy. Sinn FÃ©in has shown how this can be done and how â¬4 billion could be immediately raised, with the least negative impact and effect on the economy. Instead, the tax changes in this budget once again target the least well off, those on the minimum wage and the low paid.
One of the biggest spins pedalled by the Government is that we must extend the tax system to those who do not pay any tax. This compounds the ignorance of the Irish tax structure. Let us set the record straight. Ireland relies disproportionately on indirect taxation and always has done. For every â¬100 received by the State in direct taxes, some â¬146 is paid in indirect taxes by every man, woman and child. These taxes disproportionately hit lower income earners. Yesterday, I was asked in an interview whether I thought such a large group should not pay any taxes. I replied that it was easy to talk about groups, but that we should break it down and look closer at the issue. We believe that a person earning â¬300 a week already pays enough tax. Today, the Government has told us how much it thinks they should pay. This extra tax must now be absorbed into all their other bills, their rent, food, child care and electricity. Which service does the Government think they will think drop first? They cannot afford to drop any of them. The tax increases announced today are spread across the board and fail to target those who have the ability to pay. This is a big mistake, one that will damage the economy and consumer spending.
The changes in taxes and bands will be as follows, based on a 10% reduction. The cut off point for the standard rate tax band will be reduced from â¬36,400 for a single person to â¬32,760, putting more people in the higher tax rate bracket. The cut off point for the standard rate tax band will be reduced from â¬45,400 for a one income married couple to â¬40,860. The cut off point for the standard rate tax band will be reduced from â¬72,800 for a two-income married couple to â¬65,520 and the cut off point for the standard rate tax band will be reduced from â¬40,400 for a single parent family to â¬36,360. It is clear the screw is being tightened once again on the lowest paid, punishing them for the Government's incompetence and the recklessness of the banks, but there are no increases in tax for top earners. No 48% tax band has been introduced nor has a wealth tax been introduced.
The decision to abolish the income levy and health levy and to create a universal charge is a step backwards. This is a flat tax and this change will benefit the better off. The cost will be the same for everybody, regardless of their ability to pay. We did not support the income levy when it was first introduced, but at least it was somewhat measured, so that those on lower incomes would pay less and those on higher incomes more. However, the universal levy will in effect represent a cut for top earners, while lower earners will be brought deeper into the tax net.
The Minister did not mention any increases in VAT today, but we know they are coming. These increases will push up the cost of living, disproportionately hit low earners and will cause chaos for businesses, particularly those trying to survive in Border communities. We need to start from the top down and make those who have most pay most. That seems totally alien to the Government. A wealth tax could and should have been introduced as part of this budget. Wealth taxes have been successfully implemented in other European countries and form an essential part of those governments' revenue streams. However, rather than introduce a wealth tax, our Government prefers to cut social welfare benefits and to drag the low paid deeper into the tax net. Despite the economic collapse, there is still considerable wealth in this State.
The top 1% of the population in this State owns 20% of all the wealth. Our proposed wealth tax would raise â¬1 billion at a conservative estimate in the form of a 1% income linked tax on all assets including property worth in excess of â¬1 million but excluding working farm land.
The Government could have introduced a range of other measures to raise revenue while making the tax system fairer. It could have immediately standardised all discretionary tax reliefs to raise â¬1.1 billion, introduced a third tax rate of 48% on incomes in excess of â¬100,000 to raise â¬410 million or increased capital gains tax to 40% to raise â¬240 million. None of these measures has been introduced.
The cuts to public spending bear no logic. The amount being cut will be detrimental to services that are already struggling. Health and education will suffer most of the brunt.
Salaries of public servants should have been capped at â¬100,000. This would have saved â¬350 million for the State per year. The Government instead chose to make aesthetic cuts to the highest paid civil servants. The head of the HSE earns in excess of â¬300,000 per year. The heads of our semi-State companies earn more again. Padraig McManus of the ESB was reported as earning over â¬750,000 per year, at a time when this Government introduced three budgets that took the legs from those on low incomes or social welfare.
The Taoiseach and the rest of the Ministers earn more than most of their European counterparts even though they bankrupted the State. The Minister for Finance claims that very few people in the public sector earn over â¬250,000 but a report published in the summer found that 66 public servants in Ireland, including 37 judges, the head of NAMA and the head of the NTMA, receive more than â¬500,000 each. Even with the so-called pay cuts taken by the Taoiseach and Ministers, the Taoiseach still earns â¬36,000 more than David Cameron.
The Secretary General of the Department of Finance still earns more than the permanent secretary to the treasury and the CEO of An Post earns more than the managing director of Royal Mail. We still earn far more than our neighbours in these areas but the Government made empty gestures to address this issue.
Through the successful efforts of the Minister for Health and Children, Deputy Harney, our public health budget subsidises the private health care sector to the tune of billions of euro although not everyone can afford private health care. This is where savings could have been made instead of sacking nurses, cutting front-line services and closing wards and beds. That is what Ministers would have done if they had any moral fibre.
Once again the Government has opted for flat rate reductions in child benefit, which is paid to every child in recognition of the fact that this State does not provide free health care, free education or free anything for children. In this State, a parent has to pay a doctor an average of â¬60 to have a six week old baby treated. If the TÃ¡naiste believes that some parents can afford to get by without this benefit, she should have gone after their incomes through the tax system. She cannot justify going after the payment in a way that hits poor and rich alike.
Health spending is to be cut by â¬1.4 billion over the term of the four year plan. The Government wants to take out â¬746 million next year. The health system is already in crisis, with services being cut across the State. I have seen first-hand in Sligo and Letterkenny hospitals the destruction that successive budgets have done to our health service. One has only to consider the distance that many patients are forced to travel to access health services, the length of the waiting lists or the numbers who are waiting on trolleys.
If these cuts are implemented there is no doubt that waiting lists will lengthen. Understaffing will result in further misdiagnoses and more people will be left on trolleys for days. These health cuts will cost lives. Even while waiting lists grow and patients suffer as they wait for operations, over 1,500 beds lie closed in our public hospitals due to cuts. The cuts in this budget will close hundreds, if not thousands, more public hospital beds. Prescription charges have already been imposed on medical card holders while drug companies continue to make vast profits. In the past week an average of 300 patients were on trolleys in accident and emergency units in our public hospitals.
The recruitment ban in the health services means that fully trained nurses and doctors are being educated to the highest standard but forced to emigrate with their degrees. This budget will accelerate the brain drain from our health services. Supporting and funding preventative health makes sense and saves money. Cutting funds for these services makes no sense. Has nothing been learnt from the disastrous health cuts of the 1980s? The cruel reality in the years ahead will be that if one has money one will live but if one cannot pay, one may die.
Overall, this is a terrible budget for education. In times of recession we need to make education the gateway to recovery. Year after year, this Government did the opposite by imposing cuts on the disadvantaged, school buildings, special needs and capitation grants, as well as charging fees to students. This Government is intent on making education the preserve of the rich. Gone are the days of free education and back are the days of underfunded schools and exorbitant fees.
The Government is introducing an overall reduction of 21% in capital expenditure for education, including 9% for primary schools and a whopping 20% for secondary schools. This is a scandalous situation. Children will continue to be educated in prefabs. Money will continue to be wasted by being paid in rent to private prefab suppliers. Classes will be unable to cope with more children and less room. We could have invested in school buildings. We could have created much-needed employment in the construction sector by taking off the dole those who have skills to build schools and classrooms.
The capitation funding for primary schools is being reduced by 5%. Schools are already struggling with large class sizes and limited resources. The Government is now limiting these resources even further. The capitation grant pays for the day-to-day running of schools. The reduction will force schools to rely on families to fund raise in order to keep their doors open. Special needs education is being cut by 2%. We have already seen special education classes close down and special needs assistants sacked. What happened to protecting the vulnerable?
Grants to secondary schools will be cut by 9%, VECs will suffer a 3% cut and the registration fee is being increased to â¬2,000. This is tantamount to introducing tuition fees through the back door. The Government purports to want to build a knowledge economy. The reality is this fee will lead to thousands of young people being unable to attend college or get a third level education.
Once again the Government has brought forward a budget that contains no real funding for a stimulus plan. It has rolled out Minister after Minister to speak about stimuli. The IDA and Enterprise Ireland have announced job creation numbers to beat the band but nobody has spelt out how this will work or how it will be paid for. The Government estimated in the four year-plan that there would be a 0.25% net employment loss in 2011. There are almost 450,000 people unemployed now, yet the Government is planning for even higher unemployment levels. Fianna FÃ¡il and the other parties talk about stimulus, but none of them has real plans or costings to back this up. Sinn FÃ©in has a plan. We propose a once-off transfer of â¬7 billion from the National Pensions Reserve Fund for a jobs stimulus. This amount is the equivalent of what was pumped into our banks at the start of this year. Instead, the Government is agreeing with the IMF and the EU in proposing to take billions from the same pensions reserve fund and put it into a black hole, which is the banking system. With the right policies and supports, jobs can be created in sectors such as agrifood, tourism, IT and green technologies. We can have a new generation of entrepreneurs and revitalise the co-operative sector.
The Government can always find additional billions to invest in banks but it cannot find a single cent to invest in economic recovery. We have shown where money can be found. It is the domestic economy, in which people live, that is flatlining and that needs attention.
The public will not take this budget on the chin. They have forced the Government to call an early election and they gave their assessment of the Government's budget and economic plans in the Donegal South West by-election. They have given their assessment and they will give it again in the new year, when the people have their opportunity to do so.
No one believes Deputy Michael Noonan will be a better or fairer Minister for Finance than the Minister, Deputy Brian Lenihan. His actions as Minister for Health give the answer to that question. Fine Gael subscribes to the same economic policies as the Government. It is farcical for that party to make a judgment on the budget. No one can understand why Fianna FÃ¡il and Fine Gael are still two separate parties. They are joined at the hip, as is seen in their policies.
It is clear that the Labour Party will accept and implement Fine Gael policies, because it has no alternative to offer. Deputy Eamon Gilmore's personal ratings may still be high in the polls, but more and more people are beginning to see that the emperor has no clothes.
The Government needs to go and the budget needs to be scrapped. All parties need to give a commitment to introduce a budget after the general election to reverse these cuts.