Wednesday, 10 October 2012
Fiscal Responsibility Bill 2012: Second Stage (Resumed)
As a country we need to realise we are spending far more than we can afford and there is a need for us to bring about fiscal rectitude as quickly as possible. It can be achieved by either cutting spending or increasing taxes. I believe we still have significant scope for spending cuts and tax increases. These would be cuts that would not hurt the sick, the elderly and the disadvantaged and tax increases that would not have a deflationary effect on the economy and cost jobs. It has been said all the low-lying fruit has been picked. I believe much of it has not been picked and much more could be picked.
It is incredible that next year we plan to pay millions of euro in pay increases to higher earning public servants, particularly when some terrible cuts in services are being considered. It is wrong and needs to be re-examined.
This hopefully will be third time lucky for me and I will get to the end without suspensions.
I also find it incredible we will continue to pay €1.5 billion per annum in allowances to certain public servants. This is uncalled for and needs our immediate attention.
Some imaginative and innovative measures could be implemented in the forthcoming budget that would raise considerable revenue for the State without having a deflationary effect or causing anyone to go hungry or cold. For example, a one cent levy on short message services, SMS texts, would generate €120 million for the Exchequer per annum. If it were increased to two cent, it would raise €240 million. Recently, the Spanish Government imposed a tax on lottery winnings. Last year, I suggested lottery and gambling winnings of over €500,000 should be taxed which, in turn, could generate considerable revenue for the State. No one winning such an amount would be worried about such a tax. However, the revenue could alleviate the concerns of the person losing a home help or personal assistant.
These are the simple measures we need to examine and which could have a real impact on people’s lives. There are many other ideas on revenue generation which is why I am looking forward to next week’s debate on the budget which will take ideas from across the House. There is much low-hanging fruit to be picked. I hope the Government and the Minister for Finance will take such measures on board. We need to get our priorities right. It is time to do that quickly which is what the people are asking of us. I hope it will be achieved in the forthcoming budget.
This Bill gives legislative effect to Articles 3 and 4 of the stability treaty adopted by referendum on 31 May 2012. It merits affirming and congratulating the people for the leadership role they played within Europe and for their foresight in adopting the treaty comprehensively. That was a great day for the country and for Europe. The Bill also establishes the Irish Fiscal Advisory Council on a statutory basis. Article 3 requires that budgets be balanced or in surplus and it proposes a correction device if this is not so. Article 4 proposes that the debt-to-GDP ratio cannot exceed 60% and, if it does so, the difference must be reduced by an average of one twentieth per year. The debt rule is already required under the Stability and Growth Pact, which was adopted in late 2011. The Minister for Finance, Deputy Noonan, said the rules were sensible and prudent and represented a responsible approach to budgetary policy. My colleague, Deputy Griffin, ventured to suggest certain budgetary exercises that could achieve the objectives. That was a helpful exercise and, like him, I look forward to next week's debate on the issue.
I am pleased the Minister of State at the Department of Finance, Deputy Hayes, is present and I am keen for him to take the points on board. The official statistics suggest that fraud, misuse or misappropriation of various welfare payments in the country is exaggerated in the popular mind and that the percentage is low in relative terms. However, anecdotal evidence suggests this area needs more examination. This week we read of the exercise of social welfare officers who visited homes to establish whether children were present. The checks were reported on the front page of yesterday's Irish Independent. Such hands-on field visits are worthwhile because in no sense do they threaten the vulnerable and needy. It is our priority to deploy resources towards the vulnerable and the needy. Such exercises, which catch misappropriation, fraud and so on, can yield more low-hanging fruit, to paraphrase Deputy Griffin. I realise this is a popular concept as well and it can be exaggerated but I believe there is something in it worth considering.
I subscribe to the premise that we must be seen to achieve fairness and that the upper echelons and more highly paid people must be seen to pay their way in any budgetary strategy. I am confident this will be the case in the upcoming budget. However, that is more a matter for next week's debate. I believe in the payment of supports to people. It should be axiomatic and accepted beyond doubt by any Member that the vulnerable and the needy who need our help should get it. There should be direct social payments to those who need it and support for home care services, home help services and so on. It should not be a matter for debate and it goes without saying that these services are required. However, we should consider targeting in all areas. There is a need to target services at the needy in a specific way and to look to where people may be fit to make a contribution through family or whatever. Targeting will be important.
The objective of the fiscal compact treaty and of our prudential financial management of the country is to achieve the stability of the euro. This is to be achieved through the six-pack, made up of five regulations and one directive, and the ESM treaty, which will create a permanent rescue fund, firewall or support system. That entered into force on 20 September.
It is heartening for all of us to have in place the combined measures of the fiscal compact treaty, the stability mechanism, the six-pack and the communiqué following the recent leaders' meeting, which refers to a separation of sovereign and banking debt. All of these strategies are combining to stabilise the euro and the markets and there is evidence to this effect. The Minister of State, Deputy Hayes, will be better placed in his reply at the end of the debate to go into detail on it. My knowledge of the markets and a cursory glance at the media every day suggest that the markets have stabilised considerably and the euro is doing well relative to how it was doing. It appears there is not the same level of fluctuation. Ultimately, this is good for everyone and good for Europe. We are going in the right direction and we are getting there gradually; this is a considerable achievement. Confidence is returning in the euro and in euro countries, and this is palpable. It is a critical milestone and a good news story. Bloomberg TV and the other business television channels indicate the euro is performing well. It has not suffered the same number of dips and troughs as previously.
It is vital that we match all of the required fiscal prudence with other measures. People have no wish to go back to the dreadful place we were in previously. We owe it to our children. If Members have any moral responsibility, it is to ensure that the errors of the past are not revisited on our children. Those of us who have lived through them have a collective responsibility in this matter.
We have been working to ensure fiscal prudence is in place and we must continue in this vein and work with the budgetary objective of arriving at a deficit level of 3% of GDP. The budget deficit must keep coming down and we must take €3.5 billion out of the economy this year. There is no avoiding these hard realities and we have a moral responsibility not to shirk them and not to seek short-term political gain by shirking them. We would be doing an injustice to the people who elected us were we to do so.
Prudent financial management should be matched with a jobs stimulus at European level. The IMF, the ESM and all the mechanisms in place must be brought together to create the necessary support in credit terms for an initiative for jobs. We need more days such as yesterday, when we heard the announcement from the Kerry Group of the creation of 900 jobs, which was so heartening. This must be replicated throughout the eurozone area. There is a potential lost generation of young people who will never work if we do not change things, and that is a dreadful prospect. Some 30% of people between 17 and 25 years of age in the country are not working or do not have a job opportunity, and that is not a sustainable position. We need to ensure the availability of jobs and the establishment of a jobs stimulus. This should be a headline position during our Presidency of the Council of the European Union. Another headline position during our Presidency should be to say there is no going back. There can be no going back. The people are going through considerable pain and hardship at the moment. It affects every sector and there is no denying it. It is a source of stress and distress to everyone. The least we owe the people is to say there can be no going back to a situation of vast budget deficits. Effectively, there was no correlation between what was coming in by way of income tax and what was going out in current expenditure. The deficit was in the region of €19 billion per year. That is not sustainable and cannot be repeated. It is important that a legislative position is established. It is also important to set up the fiscal council to ensure independent monitoring of the Government such that we reach the objectives of bringing down public expenditure.
The greatest moral imperative on every Member of this House is not to do onto our children what was done onto us. That means getting the finances correct, following that exercise with the jobs initiative and putting legislation, devices and authorities in place so there can never be a return by any Administration to what was the case in the past.
I welcome the chance to speak on this important Bill. As previous speakers stated, it is the homework from the referendum campaign in June last in terms of putting into legislation our various commitments under the treaty. It also gives us a chance to stand back, perhaps for the first time, identify some of the issues of the past number of years that are responsible for having us where we are today and maybe, as Deputy O'Reilly stated, ensure through this and hopefully other legislation that a Dáil in 20 years' time will not introduce emergency budgets or cut and slash budgets to respond to a crisis.
I hope the notion of fiscal responsibility is something that will sell easily with the public in the current context but the danger is it is merely the name on a Bill with very little underneath but window dressing. That is one of the potential difficulties with this Bill. There is significant promise and potential in it, but when one looks at issues like the fiscal council, we are missing a significant opportunity to have a body with teeth that must be listened to, that is resourced and that can be independent and challenging of authority on how the system generally spends its money.
There are examples in a number of countries, such as Sweden and the Netherlands, of how that can happen. The fiscal council in Sweden has a mandate to take a position on various aspects of fiscal policy. In the Netherlands, the fiscal council provides independent budget and macroeconomic forecasts. There is an independent analysis of fiscal issues provided by the United States Congressional Budget Office, which has the resources to get research compiled and which must be listened to.
There is no sense in us assembling, as the Government has done, a fine bunch of people but putting them up there as Christmas decorations. As soon as advice they come out with that may not be politically popular is submitted for debate, the Taoiseach tells us straightaway it is not binding on the Government but he will reflect on it. The Government is treating the fiscal council similar to other budgetary lobby groups that are queuing up at the door with all of their ideas. If we are to be serious about having a fiscal council as an independent brake on the political system, then we need to treat it a little more seriously than that. We need to budget properly for it. I note in the legislation - perhaps this can be amended - that there is something about an €800,000 limit on its budget. If we trust it to do its job properly, then limiting its research capacity is not a good way to start. On its ability to communicate with people, it must be able to communicate concisely and speak in plain English. Fiscal issues are, by their nature, complex and a fiscal council needs the resources to be able to address that matter.
It will be potentially one of the great legacies of the Government if it is resourced properly, given proper powers and has the capacity to challenge the system in a way where the system must respond rather than the way in which the fiscal council is treated. The notion of fiscal responsibility, and what we are formally signing up to in this legislation in terms of budget deficits and balanced budgets, is incredibly important and long overdue, but must have lines of communication and responsibility.
I think the Minister of State, Deputy Brian Hayes, has done his time on the Committee of Public Accounts and I am not sure whether Deputy Olivia Mitchell has. What one sees at that committee every week, not only last night, are examples of fiscal irresponsibility. One will see it tomorrow, tomorrow week and tomorrow month. There seems to be never any sense of somebody paying a price for being fiscally irresponsible and I apply that to the political class as well as to the full-time accounting officers. If we are serious about fiscal responsibility and about these targets, then the Bill requires us to look at the Ministers and Secretaries Acts so that accounting officers become accountable. It should not be that they merely arrive into the Committee of Public Accounts, spin a line, get their heads kicked in at the committee and in the newspapers the next day, and then we move on to the next story, which is, effectively, what happens at present. If we are to be serious about it or if we are not to come back here in five or ten years' time sending the Taoiseach of the day off to Brussels to get a derogation for us from the 3% deficit limit, this Bill will challenge the entire political and service culture of the State. Unless accounting officers are accountable by their jobs, they will not be accountable. I include Ministers as well. If a Minister cannot ensure that his or her Department is delivering on the budget agreed by this House, then that Minister should go. The same should apply to any accounting officer, be he or she a Secretary General, an assistant secretary or the chief executive of a semi-State organisation. If we have learned anything in the past number of years, it is that lack of accountability drives further failure.
The Committee of Public Accounts does a fantastic job. It is a well-resourced committee. It shows that the committee structure in this House can really work. However, it is too small to cope with the amount of information coming to it.
On accounting officers who overspend consistently in budget, I have a certain sympathy for those in the demand-led schemes. It is difficult at the beginning of the year to anticipate how many will get sick or how many will need various social welfare allowances. If one is responsible for delivering on a capital project in a capital-spending Department or if one is responsible for delivering a programme that is supposed to be budgeted, then one's neck should be on the line if it does not happen, particularly because of maladministration. At present, such a culture does not exist. If we are to be truly correct about a fiscal responsibility Bill and about signing up to all the targets contained in it, then that is the least that we can do. What is required from the Bill is a complete re-examination of the Ministers and Secretaries Acts and various other Acts that look at the role of accounting officers in State and semi-State organisations.
On the notion of fiscal responsibility, one of the ideas of the Government was that it would review and freshen up the budgetary process. Next week we are having a debate, which I am sure will be lovely. We all will come in and impart our ideas and they will be ignored. This is the way, not only of this Government but of previous Governments. I would nearly take a bet that many of next week's ideas will not surface, but at least we are having the debate. The notion addressed by the Taoiseach this morning, of challenging each committee to look at it, is the way to go. It is too late to do it in October; it should have been done in June last so that it could have been done by the committees over the summer.
As has occurred for the past number of years, and in the time of the previous Government as well, there have been leaks thus far about older people, free travel, disability allowances for those under 18, employers' PRSI, the children's allowance and, the latest in the list, private schools. No doubt somewhere in this complex there are ministerial spin doctors plotting to see what will be next weekend's menu of leaks as to what may or may not be in the budget. That is all very fine when one is above in the west wing plotting how to get one's Minister either on or, in some cases, off the front of the newspaper this weekend, but such speculation influences people's behaviour in the domestic economy. People are not spending money because they are afraid that their children's allowance might be cut, their pensions might be cut or they might have to start paying fees in private schools. Every leak that comes out for whatever reason - it was a disgrace the way it was managed last year - will impact on our ability to deliver on the State's fiscal targets. Our domestic economy is already fragile enough without what we must put up with for the next two months before budget day in the way of leaks, counter-leaks, denials and non-denials. Meanwhile people will not spend for fear that they need to put money aside to cover whatever will come. It struck me that the Spanish budget was delivered three weeks ago, presumably for next year.
People in Spain are now in a position to make their decisions on next year's expenditure because they know what taxes and charges they will have to pay. Here, we will not make that call until 5 December although there was a time, believe it or not, when the budget was at the end of January. People will have to make expenditure and budgetary planning decisions over the course of the busiest three weeks in the year for our service economy. Indeed, for retailers, sales in those three weeks can determine whether they open or close their doors in January and we will have the budgetary process right in the middle of that.
At some stage, over the course of this Government's time in office or the next, we must move the budget forward. That will require us to change the October deadline for self-assessed tax returns, which will be a major challenge to the system. However, we must change because the manner in which we introduce budgets at the moment is impacting negatively on our domestic economy and is affecting the ability of the budget to deliver on its own targets. There is no sense in the Minister for Finance coming in here with domestic growth targets that are actually being affected by the manner in which the budgetary process is carried out. That is clearly what is happening at the moment. Those involved in retail say the sector is tanking and that people are just standing back and not making any major expenditure decisions as they await the budget. People are doing that this year and they have done so for the last ten years or more, ever since the December budget process was introduced. It has become a lot tougher in recent years because people know their income is going to be cut, as opposed to increased through tax reductions and so forth.
In fairness to the Government, it was never said officially that if we vote Yes to the fiscal compact treaty, it would be good for us in Europe and would help our influence there. We voted Yes and then on 29 June we had the communique concerning our bank debt. The indication now is that it will be resolved in March 2013 and everybody wishes the Government well in that. Everybody wants to see that happen. However, there is a danger that as we move into our EU Presidency term, the focus will go off that deal and our ministerial resources and time will be set to the Presidency agenda. I know the Government will say this will not happen but there is a certain inevitability about the burden of the Presidency.
The stepping back from the commitment of 29 June by some is significant and needs to be addressed. The letter from the three finance ministers is probably not as significant as some make it out to be because the three individuals involved have never been major fans of Ireland Inc. However, the fact that three ministers of finance, per se, would suggest that the deal is open to interpretation is significant. Prime Ministers drive the car at the European Council but finance ministers are the engine. If the finance ministries in these countries are feeding that view to their ministers, then one has to ask what the officials around the table are doing. What are the finance ministries in these countries feeding to their central bank governors who sit on the board of the ECB? It is the underlying basis of the letter that concerns me.
The Taoiseach is right when he says he has a deal but at the moment there is a question mark over what exactly that deal will be. I heard the Minister for Finance, Deputy Noonan, saying that he hopes for a signal from the ECB before the budget to allow him to plan ahead. We have delivered as a country and have implemented harsh budgets for four years in a row in the interests of the euro and it is time for the ECB to stand with us instead of forever putting blockages in our way. We must be allowed to move on from this because if we move on, the euro will move on. It is as simple as that. If we can get the core programme countries moved on, the euro will move on.
In the last number of weeks we have seen a greater confidence in the euro as a currency. However, we must not delude ourselves because this country is still in a fragile position, no matter what Timemagazine says. The question also remains as to whether Spain will enter a bailout programme but it looks likely. Deputies will have seen the difficulties in Greece on Monday night. There are also difficulties in Cyprus and a number of other countries. The ECB should realise that it is in the interests of the euro to sort out our debt issue and act accordingly. It is time for action because we have done all the talking. The case has been produced and we have shown our ability and willingness to deal with the issues. I cannot see why the procrastination is continuing.
This Bill and its consequences challenge us, as politicians, to change the way we behave in terms of our interaction with the public. We have a habit of putting sugar on everything. Now that we have these targets in place, it is time for us to look at the way we do things, in all parties and none. The days of telling people what they want to hear, with the passing of this Bill, are now over. We cannot blame Europe either and we should not do so. This Bill marks our responsibility as an Oireachtas to ensure that the country is not in the same position again in 20 years time. We must decide that we will not leave a legacy to a future Oireachtas whereby it is forced to implement the kind of budgets that this and the previous Administration had to. This Bill is the start of that process. We must also change our language in dealing with groups and organisations and our way of doing things. It will be hard and will challenge the system but it must be done. We need a complete set of political reforms.
The Fiscal Responsibility Bill is the creation of the Department of Finance but it affects the entire political and Civil Service process. Not only does it require reform of our fiscal systems, it also requires reform of the Ministers and Secretaries Act and of the entire political system and the way in which we, as politicians, do our business. It requires reform of the way we think and that applies not just to politicians but also to accounting officers and senior public servants. We must realise that we will be held responsible for breaches of this Act when it is passed. That will not just mean getting a kicking for two days in the newspapers until they move on to the next story. It will mean losing one's job or at least one's position, that is, being demoted, regardless of where one is in the elected or non-elected system. When people realise this, then they will change their behaviour and attitude. The notion that one can get away with it or bluff one's way out of it goes with the signing into law of this legislation. However, unless the Government introduces other accompanying legislation and brings changes to the areas to which I referred, then I will bet the lotto jackpot, with tax, that there will be a government in 15 or 20 years time going to Brussels looking for a derogation to the Act. That will happen if we put the legislation in place but do nothing to change our behaviour.
I am grateful for the opportunity to speak on this Bill, which was in draft form at the time of the referendum on the stability treaty. We had an opportunity during that referendum campaign to debate exactly what was going to happen and the electorate went into vote knowing what the impact of the treaty would be. What we are now putting into law received a resounding mandate from the people.
The Bill details the commitments required of each member state to underpin the main provisions of the stability treaty, namely the setting up of the ESM, the mutualisation of debt and the supervisory mechanisms that are considered necessary. There is no doubt that a new supervisory system is absolutely essential to control and monitor spending in countries and to ensure that debt accumulation is kept under control. This is required of all countries, as a quid pro quo for the establishment of the ESM and is perfectly understandable. It is also clear that new rules and measures are needed to ensure that alarm bells will ring very early on when countries are at risk, even in a small way, of veering off a fiscally sustainable path. Of course, we had rules in place for years, including the 3% of GDP rule, which was observed by some countries and ignored by others.
It is ironic that it was observed by Ireland almost until the collapse of the economy. That rule did not prevent or even signal the economic crisis that befell us because the low deficit-to-GDP ratio did not reflect the nature of our GDP growth rate. It masked the unsustainable structural debt created by phenomenal increases in expenditure based on the property bubble and the taxes that flowed from it. Ireland is a classic example of a country with a structural deficit. More than any other country in the eurozone, we should enthusiastically embrace the discipline of the new budgetary measures. They will not directly help us now, but they should prevent similar problems arising in the future and, just as important, allow other eurozone countries to avoid them. Ireland may be an island, but if we have learned anything from this crisis it is that no country is an economic island.
Our debt-to-GDP ratio did not receive as much attention as other issues during the course of the referendum, but it graphically demonstrates the precariousness of our financial position. The new requirement, with which we do not have to begin to comply until we have reduced our deficit, is to have a 60% debt-to-GDP ratio. This is probably a conservative level, given that many economists think the level of debt can safely increase to 80% of GDP, but the more cautious figure is understandable. Our problem is that our debt-to-GDP ratio is already far in excess of what anybody would consider sustainable and despite all the sacrifices people have made, it continues to grow.
The level of debt was projected to grow until the end of next year, when it would peak at a massive 120% of GDP before the budgetary measures introduced in the past few years, combined with economic growth, would start to reduce it. That would be a reasonable assumption if we had growth and it might still happen, but there is little sign of the growth required to lift us out of the hole. It would be folly not to worry at this stage. As an exporting country, our recovery depends on growth in our markets, but that is not happening. Ironically, our rate is forecast to grow at a faster rate than that of our customer countries. If our debt is to become sustainable, we need our exports to grow. That is why it is important that the promise made at the June summit is kept.
The decision to separate bank debt from sovereign debt was made in recognition of the potential for unmanageable levels of debt to sweep away the best efforts of any country. Nobody wanted that to happen to Spain, Italy, Cyprus or any other country. Once the agreement was announced, it became self-evident that Ireland should not be expected to carry a similar burden. The Government was to the fore in making the argument that the Spanish sovereign and taxpayer should not be expected to carry all of that country’s bank debts. The Government should be commended for its persistence in making this argument and being in a position to push home the point in the context of the Spanish crisis. Spain is playing a smart game. It is using its leverage to best effect because it saw how Ireland’s leverage disappeared immediately once we had accepted a bailout. It may ultimately have to accept a bailout and all the conditions accompanying it, but in the meantime it is using the threat its collapse poses to the euro to get the best possible deal. I do not blame Spanish negotiators for this strategy because we got a shocking deal when we accepted the bailout. I do not blame anyone for this because it is easy in hindsight. We were not in command of all the information and, whether because of ignorance or desperation, accepted a bailout without examining in detail whether the conditions were too onerous.
We knew at the time that we were accepting the bailout to save the euro. Germany, Finland and the Netherlands should realise that the euro and their own economies will be at risk if the bailout fails. If our bailout programme does not work and we are unable to return to the market, we will know the price of co-operation next time around. I do not say this as a threat but because solidarity is a two way street. The Taoiseach was correct to state any reneging on the commitment given in June to use the ESM to buy into our viable banks would be a monumental breach of trust. I believe the Government will deliver on that deal because the European Union will realise it makes no sense from its perspective to allow our debts to become unmanageable. While I understand Deputy Dara Calleary’s position, I do not agree that the Irish Presidency will be a barrier to getting a deal. I do not think we will enjoy any favouritism, but we will certainly be a key driver in the decision-making process. If anything, that will help rather than hinder.
Nobody expects the ESM to compensate us for all of our bank debt. We will have to carry some of it ourselves and the banks are only worth a fraction of the price we paid for them. However, it could help us to reduce our burden by making our debt more manageable. This year the Government will spend in the order of €60 billion in running the country, of which €8 billion will be used to service our debts. This is dead money. We will add approximately €15 billion to this burden next year. This runs the risk of reducing the overall amount of money available to the State by contracting domestic spending and, consequently, tax revenues.
These challenges put this morning’s call by the leader of Sinn Féin for a supplementary budget into perspective. It defies belief that people fail to see the reality of our current situation to the extent that they can call for a supplementary budget at this point in the year. I would love to be able to call for a supplementary budget, but it will be a long time before we are in that space.
I welcome the Fiscal Responsibility Bill, the introduction of fiscal rules and the establishment of the fiscal council on a statutory basis in order to underpin the stability treaty and the commitment to the ESM. However, unless the baby of the stability treaty, the ESM, is used to ensure stability by means of what was promised in June, the other measures are meaningless to Ireland, the eurozone and the entire European project.
I welcome the opportunity to speak on the Fiscal Responsibility Bill 2012. I will briefly address the fiscal rules which the Bill introduces, bearing in mind the extent to which these matters have already been debated in the Dáil, on television programmes and, most importantly, the doorsteps. Ireland's debt-to-GDP ratio was 108.5% in our first quarter and continues to rise.
Legislating for fiscal responsibility and debt management will be key to a successful return to the financial markets and thus regaining our economic sovereignty next year. While our international financial reputation is on the mend, we still have one of the highest debt ratios in the EU. It is imperative that we regain our financial footing if we are to survive as a self-sufficient state, and one that is so inextricably linked with our EU partners and the world market, in order to ensure job creation and economic growth in the future.
Part of this Bill will establish on a statutory footing the independent Irish Fiscal Advisory Council, which has been working over the past year and which will reform our fiscal and budgetary process. This is a measure that has been adopted by governments worldwide following the financial crash in 2007. A vital role of the independent fiscal advisory council is to improve and reform the transparency of the budgetary process. Any reports or recommendations will be issued to the Minister ten days prior to their release into the public domain for dissection by external financial experts and economists. This is a welcome step in the context of allowing the general public assess and assimilate information.
In 2011, an independent report stated that warnings on the outcome of Government economic policy were provided to Cabinet from internal sources. Therefore, it appears that someone did shout "Stop", but nobody was listening. Would things have been different if it was known that the contents would be released to the national media? They probably would. Governments make decisions based on the best information that is available to them. The reports of the fiscal advisory council will form part of the jigsaw when it comes to fiscal policy making at Government level that will affect the future of all of us.
It should be noted that the fiscal advisory council will be independent of Government and therefore the opinions it will put forward will not always be in line with Government policy. This is a good thing as it is always good to have more than one opinion on issues. Finally, I am encouraged by the fact that the fiscal advisory council will make itself available to Oireachtas committees and will, therefore, be answerable to us, the public representatives elected to preside over such matters. This offers a particular opportunity to the finance and other committees to go through the suggestions and reports line by line, which would be a positive move.
The current approach to righting our economic woes is not working. The policies of unregulated neoliberal economics have brought us into the deepest recession this State has ever witnessed. The previous Fianna Fáil Government oversaw the biggest boom to bust in the history of the State and the current Government is pursuing many of its predecessor's polices.
To put the debate on fiscal responsibility into context, the public breathed a sigh of relief when a change of Government came about following almost 14 unbroken years of Fianna Fáil rule. Fine Gael and Labour swept into power promising a new approach and a new way of doing business. Unfortunately for many of us, we have now reached a point where the situation is in fact worse. Public debt has risen under the watch of the Minister for Finance, Deputy Noonan, and unemployment has risen under the watch of the Minister for Jobs, Enterprise and Innovation, Deputy Bruton. Child poverty is now at a shocking 19.5%, which means more than 200,000 children now live in poverty. The total number of people in poverty is now over 700,000, all under the watch of the Minister for Social Protection, Deputy Burton, and some 100,000 households are languishing on local authority housing lists under the watch of the Minister for the Environment, Community and Local Government, Deputy Hogan. These shocking facts prove that austerity and the policies of this shambolic coalition has failed. The facts also dispel the myth that the Labour Party in power provides protection for ordinary people. It does not. The Labour Party is colluding with every cut, closure and job loss. In recent days, the IMF, which is not exactly a radical organisation, has concurred that we cannot continue to cut and squeeze and push austerity down people's throats.
I see this only too clearly in my constituency. Unemployment in County Laois has now reached 8,798. It is worse in Offaly, where there are 9,275 people on the live register. Respite services in Abbeyleix and Mountrath, County Laois, for young people with intellectual disabilities are being cut by 50%. Threatened closures of nursing homes in Abbeyleix and Shaen are being overseen by the Minister for Health, Deputy Reilly, and by two Labour Party Ministers of State, Deputies Kathleen Lynch and Alex White. The budget for Portlaoise hospital is €8 million less than it was just a few years ago. The situation there is dire. The budget is on a knife edge and staff are under serious pressure. One member of staff told me that one person is now doing the work of three people.
This is all made worse by the fact that the Government appears to be inflexible in its approach to austerity. Its mantra seems to be: "Share the blame, with more cuts and more pain." Of course, this is unless one is a higher earner. Let me give an example from one arm of government. Some 235 local authority staff are earning over €100,000. Indeed, in the Department of the Environment, Community and Local Government, 21 staff earn over €100,000. There are no cuts or pain there. Where is fiscal responsibility in that case?
The Bill before us will inflict even more cuts and more pain on the general public. It is a result of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, otherwise known as the austerity treaty. Ireland will have to comply with the medium-term budgetary obligation as outlined in the Bill.
For the record, Sinn Féin supports fiscal responsibility. In fact, we were calling for greater regulation of the markets long before the Bill saw the light of day. We were the only party that consistently called for regulation of the banks during the noughties. We were the only party that called for an end to property-related tax reliefs, rafts of which were introduced by Champagne Charlie and others. We pointed out consistently that transaction taxes were not the best way to fund the economy or Government expenditure and that we needed more sustainable taxes. We did this continuously.
Such as a 48% tax on those earning over €100,000. What we have been calling for is greater regulation, long before we got to this point. In the recent past those of us who challenged the status quo were branded economic illiterates. However, where we differ with the contents of the Bill is in how we measure responsibility and how we achieve an agreed definition of responsibility.
If passed, the Bill will not allow general Government debt to exceed 60% of GDP. If this happens, the Government must reduce that debt by 5% per annum. However, the stark reality is that Ireland's ratio was 108.5% at the end of the first quarter in 2012, one of the highest in Europe, with the average in the eurozone being 88.2%. The medium-term budgetary objective is a key element of the Stability and Growth Pact. It is a target for structural balance which takes into account existing debt levels as well as likely future liabilities arising from the ageing of the population. Each member state has a medium-term deficit objective for its budgetary position, defined in structural terms. The medium-term objectives are more stringent where the level of debt and estimated costs of an ageing population are higher. In other words, the Bill will punish states such as ours with an ageing population.
Section 6 of the Bill provides for the correction mechanism. This will be triggered if there is a significant deviation of the Government's budgetary position from the medium-term budgetary objective or, if relevant, from the adjustment path towards that objective. This is wholly unacceptable as it interferes with and undermines the sovereign position of the State in its own budgetary process. This mechanism forces the Government to take corrective action by submitting a plan outlining what is required to secure compliance with the budgetary rule.
Section 6(2) details the elements that should be included in this plan, including necessary revenue and expenditure measures, and the time over which compliance must be achieved.
If it takes longer than one year, the plan must include annual targets for achieving compliance. This will force further cuts and austerity measures on people who are unable to bear them. I refer to ordinary working people, many of whom are in negative equity or unemployed, who are innocent of being irresponsible. As outlined in section 6(3) of the Bill, the plan must comply with the Stability and Growth Pact, any recommendation made under it and the current stability programme. Section 6(4) allows for consideration of "exceptional circumstances" in the execution of the plan. The Government must submit a new plan if such exceptional circumstances cease to apply. Section 6(5) allows the Government to submit a statement outlining the steps it intends to take to avoid "a failure to comply with the budgetary rule" in cases where it considers that such a failure is likely to occur.
The process I have outlined, which is driven by Brussels bureaucrats, is undemocratic and unaccountable. Sadly, the Taoiseach and the Tánaiste have failed miserably to stand up to this or change it. The Bill will make it virtually impossible for the public or ordinary Members of the Dáil to have an impact on the budgetary decisions of a democratically elected Government. Ministers will be able to blame the European Union for unpopular budgetary decisions. It does not have to be like this, however. The Government, like its counterparts in Europe, has choices. It can achieve fiscal responsibility. As long as it continues to pursue its current polices, we will continue to witness increasing unemployment and an ever-contracting economy. It must pursue different policies - for example, by investing in job creation and reforming the tax system. It has failed to pursue these two core policies. Sinn Féin will launch its job creation document tomorrow, to be followed next month by the launch of our alternative budget. Both documents will clearly show the public that there is an alternative to the Government's failed polices. Sinn Féin's solutions are based on job creation, economic growth, inclusion and social justice.
I will give a solid example of how the Government could serve the people. It should exploit our offshore oil and gas reserves for the benefit of the country and its people. A new report by the Shell to Sea campaign group has revealed that oil and gas reserves in Ireland's seabed worth millions of euro have been licensed to private companies, with the State gaining just a tiny fraction of the profits. The report suggests Ireland's system of managing its oil and gas resources is "dysfunctional, out of step with the rest of the world, and heavily skewed in favour of [large] private companies". I appreciate that this system developed in the last decade and a half or two decades, before the Government came to power. Corrupt and poor governance has allowed our natural resources to be handed over to and exploited by others. At a time of economic hardship, it is a scandal that Ireland is not benefitting from its natural resources. I call on the Minister, Deputy Pat Rabbitte, to reform the licensing and taxation regime. Existing oil and gas contracts should be renegotiated. Sinn Féin proposes that the State take a 50% shareholding in these resources and that an immediate levy of 48% and a royalty payment of 7.5% be introduced. These rates are quite low compared to those in other countries where this approach is normal. In addition, a State oil, gas and mineral exploration company which would actively participate and invest in exploration should be established.
Measures such as these would greatly benefit our ailing economy and transform the lives of hundreds of thousands of citizens. We should be debating how best to exploit our natural resources in a sustainable manner that benefits the people. Instead, we are discussing a bad Bill which provides in legislation for polices that have failed miserably. Even the IMF is starting to see this.
I listened intently to Deputy Brian Stanley's round-the-house ramblings. He ended by setting out a rather nonsensical approach to the issue of our natural resources. He did not have any regard to the fact that certain rights were attached to the contracts and legal provisions are in place. I accept it is possible that there could be some reform in the future, but the Deputy should at least acknowledge that much of the damage done over a long period of time cannot be reversed.
The Deputy said he would speak about the policies needed to solve the country's jobs crisis. The policy on natural resources was the only one I heard him mention. I did not hear anything about job creation or the economy.
I heard the Deputy berating the Government by saying we needed to start focusing on job creation and investment. The Government announced the first part of a €2.25 billion stimulus package a few months ago. That fund will be spent in the next few years to build hospitals and schools, put money into the economy and create jobs. This practical plan will have tangible benefits.
The Deputy said the Bill was undemocratic because it gave powers to the European Union. I remind him that the rules set out in the Bill were agreed to by the public in the referendum last May. If he is annoyed that they were approved by the people, that is his right. However, it is nonsense to say it is undemocratic for us to implement legislation that was sanctioned by 60% of those who voted in a referendum. Such nonsense has been coming from representatives of Sinn Féin for a very long time. They argued during last year's general election campaign that the country did not need the IMF, the European Union or the ECB. They said we would be fine because we were perfectly capable of supporting the economy on our own. They were very quick to change that message after the election when it was no longer politically or economically tenable. Frankly, they could not stand over that position. Before the last budget, they waved their alternative budget around in this Chamber and said there was another way. Recent close analysis of Sinn Féin's wealth tax proposal showed that it was based on reports that were out of date, including an inaccurate Merrill Lynch report. It is an absolute fantasy.
The final figure would be nowhere near the €800 million suggested by members of Sinn Féin. Frankly, they have been putting out this proposal because they are unwilling to take tough decisions. If it supported the proposed property tax, the need for which is accepted by every left-wing social democratic party in Europe, at least it would have one unpopular decision on its record. A property tax is a necessary part of funding the coffers of any state because it is reliable, even and can be predicted in advance.
The treaty is extremely important for the country because it provides that a country which is spending too much money that it does not have must reduce its expenditure over time and that a country that has borrowed too much has to reduce its borrowings over time. That is the basis for it. There might be more to it.
I did not interrupt the Deputy once during his nonsense.
The treaty also provides that countries which get in trouble in the future will be able to borrow money. If they run out of money, a fund will be available for them. Sinn Féin wanted the people to veto that fund at a time when the State coffers were in severe crisis. As the date of the referendum approached and those in Sinn Féin started to realise people did not believe them, they said, "Hold on - we will be able to borrow from it. Sure they will have to lend to us." It must be the most economically reckless stance of any democratic party which has had Deputies elected to this House. They were telling people fibs. They asked them to chance it. They said, "Give it a go - you never know."
The Deputy has said the Government has not changed any of the policies it inherited. I remind him that we have a different policy on the banks and a different policy on job creation. We are adjusting the taxation system to make it fairer. The Government has to acknowledge that there is an economy and that the domestic economy, the public sector and other stakeholders need to be looked after. Believe it or not, it has to realise that electoral gain and populism cannot be its driving force. It cannot operate like Sinn Féin, which is exploiting people's fears and using the terrible circumstances families are in as a basis for electoral growth. I have said it before and will say it again - historians will not look back favourably on Sinn Féin when they write about this terrible time in Irish economic history.
I want to address a particular aspect of the Bill. I refer to the part that puts the Irish Fiscal Advisory Council on a statutory footing. I am speaking in the context of the discussion on the budget in the lead-in to its announcement in December.
Putting the fiscal council on a statutory footing is very welcome. We made a commitment to the people during the election that we would put transparent and responsible budgeting and financial management at the core of Government business. Almost the moment after we were elected into government with our coalition partners in the Labour Party, we went about setting up the fiscal council. It is an innovative idea which began in the UK before being brought here. It is important that, with this Bill, we bring it into the framework of the upcoming discussions.
The Bill further strengthens the council and the footing it has in terms of the debate in which we are engaged, which is welcome. I congratulate the Government for its foresight and for moving so quickly to do that. It is an independent body established to guide Government thinking on preparing the budget. We are not bound by its reports or recommendations, but they should guide us, because otherwise it serves only as window dressing. It will be an image of reform, rather than true reform, if we do not take on board its recommendations to some extent, even if it is just to debate them, to dismiss them, to take parts of them or to consider them further. However, it must be part of the discussion we are all having in the Chamber about the coming budget, because that is why we set up the body. If we do not listen to it, we risk it becoming irrelevant.
Last year the fiscal council called for a greater budgetary correction than was being anticipated, and advised us to cut more and to be careful of our assumptions for growth for 2012. I agreed with its prognosis at that time. We did not go with the recommendations of the council but we still did okay and there was still growth in the economy in 2012, although it was not as high as we thought it would be. The economy grew this year, it is growing and we came out of recession technically at the beginning of the year. This is positive and welcome, and it is part of the confidence aspect we need to get back into the economy. We want to try to release the €100 billion of private Irish household wealth that is currently losing money on deposit with banks and get it back into the domestic economy. Knowing the domestic economy is growing, even if it is bouncing along the bottom, as the ESRI has said, is positive. We should repeat that as often as we can because it is of benefit to the domestic economy, to businesses and, hopefully, to the creation of employment down the line.
The latest report from the fiscal council in September 2012 is essential reading for every Deputy in the process that is now under way. I would like to draw on three elements of the report. The first element is the opinion of the fiscal council that the correction for the budget we are about to agree for 2013 should be greater than €3.5 billion. I support that. The council is telling us to cut bigger and cut faster. Deputy Donohoe said previously that the national deficit is a national security issue and I absolutely agree with him on that point. The longer we have in place a deficit of this size, the longer we remain too exposed to external events. We are not in control of our own decisions in this country and we do not control our economic destiny. We need to get back that control and cutting the deficit is key to that. This is why I support the fiscal council when it advises us to cut more and cut quicker.
We cannot rest upon the assumptions of growth for next year. Yes, I believe the economy will grow, but we have to be careful about the extent to which we think it will grow. We cannot continue with a prolonged adjustment because, ultimately, we risk undermining the great strides that have been already made by this Government in correcting our financial position. I agree that we should cut more and cut quicker.
The second point from the fiscal council report I want to draw on is the idea that in responsible budgeting one must keep all options on the table, whether in regard to tax increases, social protection, pensions or pay in the public sector. We should at least put them on the table and include them in the conversation so we can see what are the options facing all of us and the opportunity costs of having a policy in place. That does not mean we would do anything about it but, at the least, let us have that discussion so we can see the figures and see what is facing us. Nothing should be off the table. I do not consider it a dangerous idea to have all options open and to discuss them in full, and then dismiss them if we want. We should at least have the debate.
I know the programme for Government commits us to a certain fundamental agreement but that document must be fluid and we must be able to challenge it from time to time - as events change, the document must be allowed to change with them. We must challenge the assumptions in it all of the time, and this is our responsibility here. We cannot simply rest on an agreement made at one point in time. We must continually go back, revise it and see whether it still holds true, given what has transpired since then, whether it be in Europe or in the domestic economy.
The third element I want to draw on from the fiscal council report is in regard to a warning it issued, which was to be careful of groupthink in our assumptions about the economy and the levers we are using to try to correct the fiscal position as we look to 2013. The use of that word should set off alarm bells in the corridors of power because whenever we talk about what happened in the boom and bust, the most common excuse often given for why we could not see what was happening was that groupthink was in place and nobody saw it coming. Some people did see it coming but, unfortunately, they were not listened to. When the fiscal council tells us to cut quicker, and when the Central Bank tells us to be careful about our assumptions for growth for next year, we must listen.
My next point concerns the new transparent and open budgetary process to which the programme for Government commits us and to which we agreed as a Government when we came into office. We have made great strides in that area. We have a more transparent Government than we have ever seen before, which is welcome. I believe we can go further and do better. As a new TD, I will always stand up and say that in the hope that we can do better and improve the Dáil for everybody. I am an elected Deputy and have a responsibility for the budget, as do all of us in this Chamber. We have a responsibility to make sure we agree with what we are doing, we can support it and we can stand over it. If questions are to be asked, we must ask those questions and debate the answers. That is the important role of the Dáil. I understand we are to have a full debate on the budget, if not next week then the week after, and that we are to address some of the headline assumptions and issues. I look forward to that and hope everyone will contribute. I do not have the answers but we should raise the questions.
As a final point, I urge the Government to establish a budgetary committee, one that is cross-party and that will look at all issues of the budgets in every Department, meet with the fiscal council and the Secretaries General of the Departments, challenge the assumptions and go through the detail in the course of the year. There is still an opportunity to start something for this year and we should do it every year.
I want to return to some of the points touched on by Deputy Derek Nolan, particularly the concept being put forward by Sinn Féin of a wealth tax being the panacea and the only solution that is needed to the terrible difficulty the country is facing. If Deputy Stanley or any other representative from Sinn Féin was still in the Chamber, the only question I would ask of him is exactly what wealth he is talking about taxing. As the year goes on, the Sinn Féin Deputies appear to be excluding more and more forms of wealth from their definition. What they are already saying is that they want to tax wealth but that wealth will not include farm income, the value of some private residences and some of the money within our banking system. In addition, all of the assumptions they used for calculating their figures were based on a level of wealth that existed before our economy collapsed.
The real name for the so-called wealth tax Sinn Féin is putting forward is actually other people's wealth. What those in Sinn Féin are trying to do is to create this political idea, this narrative, so they can look in the eye those who are already struggling and going through difficulty and tell them that somebody else can pay - somebody else can always pay and the money is available because somebody else will take the hit, take the sacrifice, and those people do not have to do it.
The question members of Sinn Féin have to answer as they approach the budgetary process is what exactly are the forms of wealth they propose to tax to fill the gap between public spending and taxation that this Government has to narrow. Are they saying it will be the money on deposit in our banking system, which is an issue I have not heard them clarify yet? If they are going to tax people's savings, and people then make the decision to take savings out of Irish banks and put them into banks across Europe, where will Sinn Féin find the money to fill the gap in the capital ratios of our banks? If there is one thing that felled our banking system in the run-up to 2008 and afterwards, it was that a deposit flight from our country took place. Irish people and investors did not have confidence that if they left their money in Irish banks, they would be able to get it back a month or a year later.
If Sinn Féin proposes to tax people's savings and if those savings are going to leave our banking system, who will fill the gap and put the money back into our banking system to keep it stable? The answer to that question, as we have learned to our terrible cost, is the Irish taxpayer. In a situation where huge amounts of money leave our banking system, the Government, supported now by new European mechanisms, has to stand in to provide a backstop to the banking system. If Sinn Féin is proposing a wealth tax on people's savings in banks, it should come clean on that and on two related issues in the run-up to the budget. How much will the average Irish depositor have to pay as a result of the introduction of a wealth tax and, if the same Irish depositor decides to take money out of Irish banks such as Allied Irish Banks and Bank of Ireland, where will Sinn Féin find the money to fill the gap?
If the party is looking for credibility and to build its credentials in dealing with the tough decisions it must make, at a bare minimum it must answer two questions concerning its response to a wealth tax as the solution day after day. It does not matter what the question to Sinn Féin is; the answer is always the same, a wealth tax. One could say “Good morning” to a Sinn Féin Deputy and he would respond with “Wealth tax”. I can imagine them passing each other in the corridor and instead of saying “Hello” they say “Wealth tax” to each other. That is Sinn Féin’s answer to every question posed to it. As the party puts the answer forward, it must clarify how much the average Irish person would pay as a result. If the average Irish person decides to take his or her money out of the bank then where would Sinn Féin find the money to fill the gap?
I wish to make three broad points on the Bill in response to some of the points that have been put forward by speakers, including Sinn Féin and others, in the debate. The first point is where we are trying to get to at the end of this terrible journey, following all of the changes and sacrifices people are making. The answer to the question is simple. We must get to a point where Irish schools, hospitals and pensions are all paid for by Irish taxes. We must reach a point where the amount of money we raise in the country every year is sufficient to pay for the level of public services people want in the same year. Any money we borrow must be reinvested in the country. What we want is a situation in which Irish taxes, on the one hand, equal Irish public services on the other. All of the changes we seek to make to the tax system, the social welfare system and how we spend money on schools and hospitals are getting to that point.
One could ask why that matters and why it is a goal worth attaining. There are two reasons, and that is why the Fiscal Responsibility Bill is so important. The first reason it is so important to deliver is that if we do not get ourselves to that point then other countries might well decide they do not wish to lend to us to pay for the level of public services we want. Other countries might say that if we want to have a certain level of wages, social welfare and taxes, that it is not sustainable and they will not lend to us on that basis. The second and more pressing reason the goal is so vital is that if we do not do this, as each year goes by we will be putting more money into servicing our national debt and the cost of interest on the amount of borrowing we require. Deputy Olivia Mitchell referred to this in her contribution. The challenge in that regard has nothing to do with bondholders, banks or the rights and wrongs of the bank guarantee. It has to do with the terrible challenge we face: that if the taxes we raise each year do not equal what we want to spend on hospitals and schools, all we are doing is storing up the cost for the future. This is not the cost our children will pay, which is far greater than that. It is a cost all of us will pay in our lifetime as taxpayers and probably, after that, as pensioners. I hope Members who retire will, please God, lead lives beyond this House. If we do not get the equation right it will mean there will be less tax available to spend on the public services we want.
I hear again and again from Sinn Féin about our loss of sovereignty, which is so important. I dispute the notion that our sovereignty was clobbered and ripped from our hands when the troika arrived into town on a bleak October morning. The moment we lost our economic sovereignty happened on two different levels. The first was when this country could not borrow for itself. We lost our sovereignty when nobody would lend money to us. The arrival of the troika was not the cause of our loss of sovereignty; it was just a symptom of it. The second point at which we lost our sovereignty was when the value of our banking system was a multiple of everything we made within the country. When one gets to those two points, that is when one loses one’s sovereignty. The arrival of the troika - and its departure next year - did not signal the point at which we lost our sovereignty. It signalled the point at which we realised that decisions we had made had created an environment in which our destiny could be taken out of our hands. We left ourselves vulnerable to decisions that were made by institutions such as the European Central Bank that have not been in our favour at times. The cause of our vulnerability was allowing ourselves to get to a point at which we could not pay for the public services we wanted.
I welcome the opportunity to speak on the Fiscal Responsibility Bill 2012. The background and context to the discussion is that the Irish people recently voted in a referendum, by a majority of 60% to 40%, to pass what was generally described at the time as the fiscal compact agreement. Essentially, this legislation is to give effect to the budget and debt rules which are part of the agreement. The legislation also gives the Irish Fiscal Advisory Council legal status. It is currently operating on an administrative basis and it does not have legal status. I look forward to its being granted legal status, at which time I hope it will be taken more seriously. Up to now its comments have been generally ignored if the Government of the day does not like what it says. I hope that situation does not continue. However, I remind the members of the fiscal council, after a hiccup or two in the original figures when it issued its first report, that the nation is composed of people and not just figures.
I understand some members of Fine Gael said we should close the deficit more quickly. We would all love that, but to do it would have consequences. Recently, the IMF has begun to recognise that one can over-cut and over-tax, which can be counterproductive. One must strike a balance. It is a reasonable timescale, whether we do it over a four-year or a five-year period. The speed and success of the process will depend on growth levels. We all wish the country success in getting back to a higher level of employment and less emigration of young people than in previous years. What we are doing is to ensure the country has a strong, viable future for the next generation. The current generation is paying dearly for the difficulties following the property boom which led to the banking crisis and ultimately caused major problems in terms of adding to our sovereign debt, resulting in the need for the arrival of the IMF to lend us money in the short term until we are in a position to borrow again on the international financial markets.
Sometimes economists take a simple view, such as that cutting expenditure by X billion and increasing taxes by X billion will close the deficit. They fail to factor in what happens as a result of such an approach. I learnt about the multiplier effect when I studied economics in college. If one gives a person €100 and he or she spends it in the local shop, the shop then has €100 and it allows the owner to pay the wholesaler who supplied it, who then has €100 to pay the person who made the product. When that individual gets his €100 he can buy raw materials and, in turn, the person who provided the raw materials can purchase something from a supplier. A small amount of money has a big ripple effect on the economy. In its projections the IMF did not fully appreciate that. It just assumed that if €100 million, for example, were taken out of the economy, that would be the end of it, but one could be making double or treble the cut in terms of knock-on effects. There is a story, which I will recount in its polite form, in which a person came into a hotel in a town in a particular country. He said he wanted to book a room and put a deposit on it. He said he wanted to look at the room but that he would come back in half an hour to confirm the booking.
He handed over €100. The proprietor of the hotel used the €100 to go to the local butcher's shop to pay the bill for the meat he had bought the previous week for the hotel, whereupon the butcher immediately took the note to the farmer from whom he had bought cattle the week prior to that, and paid him. The cattle owner eventually came back and paid the €100 to the shop in the town where he had bought groceries. The man in the grocery shop came to the hotel and paid for a function room he had hired the previous week. Five minutes later the original man returned and said he would not be taking the room after all. The hotelier handed back the deposit of €100 he had held for half an hour, which had done five or six rounds of the town. The €100 was gone but all the debts were paid. My point is that money goes around. If a cut is made the circle is stopped. That is one of the issues we must take into account and I do not believe the Irish Fiscal Advisory Council fully understands that, although one would have expected it to be expert in the matter. In an IMF publication recently uncovered by a journalist, that organisation acknowledged it had understated the effect of a cut. Money gets spent over and again so it is important to keep it in circulation.
All these new agreements are wonderful and great and we all support them in theory but they all depend on effective political leadership at EU level to ensure they are actually enforced. One of the reasons there was a "No" vote of 40% in the recent referendum is that people saw Germany, France and other big countries dictating to the rest of us how they saw their vision of Europe. We must ensure there is no dominance on the part of some of the major economic powerhouses in Europe and that we are a European Union of equals. That is the most important goal to achieve in years to come, to ensure our citizens buy into these processes.
Originally there was the Stability and Growth Pact, which makes my point. It was a collection of rules in place many years ago. I remember a referendum, although I am not sure which, in which we voted for measures such as keeping public deficits under 3% and reducing the debt-to-GDP ratio to 60%. We achieved that during the good times but the Council of Ministers failed to apply sanctions to France and Germany when those countries breached the rules years ago. Ireland got a ticking off when something went wrong here but the big countries did not get a similar ticking off and people saw an unfairness in that situation. The targets were correct but there was no enforcement or power behind the rules. That was missing during this period.
The fiscal compact will give some enhancement in this area, although it is not perfect. It will not solve our problems but is one part of the process through which we must go to help to solve our economic problems, both at Irish and EU levels. Nobody suggests for one minute this is the panacea for all our ills but it is part of the step we have to take. I have no doubt that in some years' time we will be back for another European referendum, to tighten up banking or currency rules or some such thing. That will be a fact of life in Ireland as long as we have a written Constitution, which we certainly wish to keep. Every few years we will have a referendum and it is good to have that actual engagement with our citizens. Sadly, this is not the case in every other country.
I refer to some issues in the legislation. There is an automatic corrective mechanism if countries do not achieve the specified targets. We signed up to that years ago but this measure is about enforcing targets already in place from a previous regime. The incomplete currency union remains a problem. There are 27 countries in the EU but only 17 are in the euro area, which in itself is odd. I see no immediate change coming in that regard. The euro is not strong enough to include some of the new countries but it must be a long-term aim that if a country is in the EU it must sign up to the currency. That might be a problem for our nearest neighbour but somewhere along the line this must be dealt with.
The currency was poorly designed in the first place, in that proper banking supervision and rules were not in place across the EU. It is also important to acknowledge that neither this legislation nor the referendum will solve that problem. Had this treaty been passed five years ago and been in place it would not have prevented AIB, Anglo Irish Bank and Irish Nationwide from getting into trouble. I reiterate that this legislation is only part of the process. In its own right it will not solve issues such as banking debt. During the referendum debates some people asked what was the point of the referendum if some of what was going wrong would not have been prevented had the legislation been in place. That is a valid point and one that I, too, make. This legislation and this referendum are only part of what was needed; they do not make up the full picture. Time and again we will have to revisit those areas.
The legislation is intended to make provision for the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union to take effect in the law of the State in accordance with paragraph (2) of the Article in question. It goes on to deal with some specifics. I do not wish to deal overmuch with the fiscal council because I have covered that issue at length, as have other Members. During Committee Stage and other Stages there will be detailed amendments on some of these issues. The legislation is intended to ensure that Ireland endeavours to comply with fiscal rules and this is happening in all the associated countries. It is not that Europe is telling us to pass the legislation; we are telling every other country to pass similar legislation. I am sure this measure has been passed by the Greek, Spanish, Italian, French, Belgian and Dutch Parliaments and every Parliament throughout Europe, although I do not know the timescale for its completion by all EU countries. Some have already signed up, more are in the process of doing so. This will apply to other countries just as it does to Ireland.
I refer to the budgetary rule on structural deficit, which is complicated. I still do not know what it means although I have some concept of it. Most people in the House have such an idea. There might be ten economists speaking on a programme on RTE tonight who would have ten different definitions of the structural deficit and there would be a slightly different definition if one went to the European Commission. I worry about the wiggle room involved. Perhaps that is a good thing and will allow for local circumstances but it would be good to have a clearer picture. During the referendum campaign there was a lack of ability to define what some of the terms in the legislation meant, which became an issue. Nevertheless, the people accepted in good faith that we needed to enact it because we were part of the eurozone. There is no other game in town as far as Ireland is concerned. We are part of Europe and that is the beginning and end of it. People know that and even if there are odd bits around the edge that cannot be precisely defined it is better to be part of the euro than the reverse. It is important that we enact this treaty. It deals with structural balances in a way we look forward to being defined as time goes on.
The debt rule is where I have my biggest reservation. It provides that the ratio of general Government debt to GDP should be above 60%. The ratio will be reduced in accordance with the relevant EU regulation under the Stability and Growth Pact. In general that is not a problem for countries that have a national debt in the order of 70% or 80%; for them, bringing the debt down to 60% is not too big a task. However, for a country such as Ireland that has a debt-to-GDP ratio in the order of 120%, bringing it down is not so easy. We are being asked to do more in the reduction of our debt than any other country in the world. The only country in the world to have achieved a similar reduction in its national debt was Ireland - on paper - during the Celtic tiger era. We now know some of those figures were a mirage. We cleared the debt by borrowing on a credit card and we are now beginning to pay again for that. That will remain a major difficulty for Ireland for years to come.
There are special arrangements in place for programme countries - those in EU-IMF-ECB, or troika, programmes. This measure does not apply to countries in the programmes but when they emerge and return to borrowing in the international market there will be a transitional period. Again, there is no exact definition of how long the transition period will be. As for a country that goes into a second programme, my understanding is that the rules would not apply for some time after the transition period. I do not say we will go into a second programme but if we were to the rules would not apply to Ireland for some time. This means the cost of the national debt will always be a particular difficulty. These are the issues that emerged. Reducing our debt will place a bigger burden on Ireland in comparison to other EU countries.
The legislation also contains a corrective mechanism. It is probably right that this is being included, but there are those who may say that what is being done is somewhat harsh in Ireland's case. If, however, the corresponding legislation that is going through the Italian, Spanish and Greek parliaments contains similar mechanisms, I will be satisfied. As a member of the eurozone, Ireland is obliged to make a small contribution when other countries are given bailouts. In such circumstances, we want to know that rules will be put in place in the countries to which I refer in order to ensure that they will deal with matters in a proper fashion. I hope that the corrective mechanism to which I refer will never have to be used in Ireland's case. However, the European Commission is entitled to address warnings to particular countries under certain EU regulations if it considers that there has been a failure to comply with the budgetary rules. That is very important. The legislation requires that the Government shall - the words "may", "might" or "if" are not used - within two months "prepare and lay before Dáil Éireann a plan specifying what is required to be done for securing compliance with the budgetary rule". This is a strong correction mechanism and, essentially, it is what was missing from the original Stability and Growth Pact. If the Government is informed by the European Commission that Ireland is not meeting its targets, it will be obliged to specify, within two months, how much time - for example, a period of two years - it is going to take for it to set matters right. The Government will also be required to specify the nature of the revenue and expenditure mechanisms that will be used in order to bring the budget back into line. Furthermore, it will be obliged to outline the differences in the various sub-sectors within general Government expenditure. This mechanism may seem harsh but if we are in compliance and if the country is enjoying economic growth, there will not be a problem. We all hope that the latter will be the case.
I referred earlier to the banking crisis and highlighted the fact that there is nothing in the Bill which would have assisted in averting that crisis. Ireland was one of the first countries that was obliged to deal with the banking crisis. I am concerned that there is a question at European level - this has not yet been clarified - in the context of legacy issues relating to financial institutions that have gone bankrupt. There must be a proper mechanism in respect of bank supervision across the EU. It is no good just to deal with the top 100 banks in this regard because the banks in this country which caused us the most problems might not - depending on their scale of operations, branch networks, impact on local economies, etc. - be among the ranks of the former. I am of the view that there should be one strong European Central Bank and a correspondingly strong banking regulation system across the entire EU. The Central Bank of Ireland, which incorporates the Financial Regulator, has two main banks and many other issues with which to deal. I intend no disrespect but the staff at the Central Bank of Ireland are not competent to deal with the complexities of what is happening with the banks. I am of the view, therefore, that it would be far better if a European model of supervision obtained. I would have no difficulty with the staff of the Central Bank of Ireland working under the watchful eye of a supervisory body appointed by the European Central Bank. People would be happier if there were European supervision of the Irish banking system. It has been stated that what occurred here in recent years could never happen again. However, one can never say never. We did not have proper supervision in Ireland in the past and who is to say that in ten or 20 years there might not be a recurrence of our recent problems? Neither I nor anyone else is in a position to say that those problems will not arise again. In my opinion, the people of Ireland and their counterparts throughout the EU would rest far easier if the matters to which I refer were regulated at European level.
If a bank operates in a fraudulent manner and goes bankrupt, or if it engages in bad business practices, then it must be allowed, as is the case for any other business interest, to go bust. If banks here were allowed to go bust, investors, creditors and others would get 20 cent in the euro in respect of their investments, moneys they were owed, etc. There is a need to revisit the European concept of socialising the debts of banks or, as is being done now, putting in place a fund through the ESM. If a bank, a local business, a church, a city or a state in the US goes bust, then it goes bust and those who are owed money are not repaid. The position is the same in every business sector in Ireland with the exception of the banking sector. As a result, the banks are being provided with an artificial security blanket and this may give them the excuse to return to their lazy ways in the future. Making an exception in respect of this one sector is a particularly European approach. There are companies in other sectors which employ large numbers of people and which would like to be bailed out if their enterprises went bust. However, that avenue is not open to them.
Governments have the opportunity to do a great deal within the scope of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. In July, the Irish Government announced a stimulus package. I discussed this matter with the Minister for Public Expenditure and Reform, Deputy Howlin, on Question Time earlier today. It is my view that the stimulus package has to date been somewhat vague in nature. I accept that €2.5 billion will be invested in it during the next seven years but none of that money will be forthcoming this year or probably next year. It is at the PPP design and tendering stage and perhaps in 2014 the package to which I refer might result in real action. I welcome the package but no stone should be left unturned in ensuring that what is envisaged in respect of it is translated into actual jobs in 2013. I became concerned earlier when the Minister, Deputy Howlin, revealed how long the process in this regard is taking. The stimulus package to which I refer does not go even halfway towards meeting the cut in the capital expenditure programme. I am of the view that this matter must be revisited and that there is a need to ramp up our actions in respect of the package.
The people of Ireland voted in favour of the treaty and the Oireachtas has no moral choice but to accept their democratic wishes. Those who opposed the treaty during the referendum campaign were entitled to do so. However, the matter has been decided by the people and it would ill behove anyone in this House to oppose the Bill at this point. The people have spoken and no party or individual in the Dáil should try to go against the will of the people.
I am delighted to be in a position to contribute to the debate on this relatively short Bill. I will comment on the Bill itself and I will then provide an overview in respect of where our economy, the banking system and Europe currently stand. Rather than looking back, I want to look forward.
The need for Bill obviously arose as a result of the referendum. As well as making provision in law in respect of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, the Bill will facilitate the placing of the fiscal council on a statutory footing. That council has been up and running for a period and, as originally envisaged, it is independent in its outlook. Those on the council are people of good calibre; they have come before the Joint Committee on Finance, Public Expenditure and Reform - of which Deputy Boyd Barrett and I are members - and their contribution to date has been extremely worthwhile. I welcome the fact that the council is to be placed on a statutory footing.
The other measures contained in the Bill relate to what one might term good housekeeping. If they had been put in place ten years ago, they could well have been of assistance in preventing the creation of the situation in which we currently find ourselves. Good housekeeping is always worthwhile but it must obviously go hand in hand with fostering economic growth in order that we might meet the targets required of us.
In the context of providing an overview of where we currently stand, it must be stated that the Government has stabilised the economy and the public finances. Action in this regard was urgently required and has now been taken. We have reached the stage at which we want the economy to grow. One of the Government's main priorities is the creation of jobs. We can discuss other factors but if we can get people back to work, it will reduce the level of social welfare payments and bring about an increase in taxes. The average annual cost to the State in respect of one unemployed person is €20,000. We must also be cognisant of the social and economic costs being unemployed may have on that individual. If a person is made redundant, this has major financial and personal consequences for him or her. The Government has taken major strides in this regard. In Limerick city, for example, Northern Trust, which currently employs 300 people, recently announced its intention to create an additional 400 jobs. That is a welcome development.
Kerry Group is an indigenous company which announced 900 jobs, with 800 in place by 2015, 100 jobs the following year and 400 construction jobs. The Kerry Group began in a prefab in a field in Listowel. It was developed initially by Denis Brosnan, whose work ethic and innovation has led to the company becoming a manufacturer of added-value ingredients.
I refer to yesterday's Irish Examiner, in which it seems a general observation in a report was applied to Ireland. I maintain that Ireland is different for a number of reasons. First, we have experienced growth. Second, one issue has contributed to our difficulties and that is the lack of credit. The banks are not lending. I refer to the report by John Trethowan of the Credit Review Office, which stated that the office overturned the bank's decision in 60% of cases referred to it. I know that many people will not even submit an application for credit to the banks because they are given the message that it is not worth applying. The banks have become very risk-averse.
The establishment of a strategic investment bank is part of the programme for Government and it needs to be fast-tracked. This would be a bank providing working capital for businesses in order to supply plant and equipment, buy stock and provide for daily functioning. Businesses do not have sufficient capital to expand. The indigenous sector employs over 700,000 people. The multinational sector is doing exceptionally well, with an increase in exports, but the difficulties arise in the domestic sector. Credit needs to be made to flow to indigenous businesses in towns and villages across the country. I think this was not given due emphasis in the overview undertaken by the IMF.
I refer to the reorganisation of our debt to make it more sustainable. The accord signed by the EU Heads of State and Government on 29 June 2012 is the definitive document. In my view, the three finance Ministers were stating an opening position which is part of a normal negotiating process. The 29 June agreement comprised four key components. It embedded the principle of separation of sovereign and banking debts; it dealt with the reorganisation of Spain's debt; and it mentioned Ireland in the context of making our debt more sustainable. This is the key feature. Mr. Draghi, the President of the European Central Bank, said nothing new yesterday.
The commitment on the banking debt is in the 29 June accord, and it looked at all banking debt. I want to break it down into two components. First, I refer to the issue of the promissory note. I note that no members of Fianna Fáil, the party that was in the former Government, are present. When the promissory note for Anglo Irish Bank was issued, it was argued that the bank would make a return to the State for the promissory note at the end of its existence. The promissory note was designed to put money into the bank over a long period of time and it was to be at a current value in its balance sheet. The promissory note was an artificial creation, a form of financial engineering that can always be restructured to produce the economic value of the return to the State that Anglo Irish Bank will make at the end of its existence and apply a current market value to that. That should be reflected in the promissory note in order to reduce the current value of the promissory note. This would allow a restructuring at a lower cost to the State and ultimately to the Irish taxpayer.
This country has played its role in the protection of the European banking system and this has been at a significant cost to Ireland Inc. We have stabilised our public finances. We are reliant on funding from the EU-IMF programme, but the cost of our borrowings has lowered significantly and it is now below 5%. We have made great strides because the international markets have confidence in the Irish economy and its basic financial structure.
The taxpayer is carrying the burden of the €64 billion of banking debt which is now sovereign debt. One of the key elements of this debt is the Anglo Irish Bank promissory note of €30 billion. We need to impose a current market value on the return to the Irish taxpayer at the end of the bank's life cycle in order to reduce the burden on the Irish taxpayer and spread that burden over a longer time period. The previous Government expected a return from Anglo Irish Bank. The European authorities need to take this into account and to ensure fair play for Ireland.
I refer to the Government's initiatives to promote employment. The multinational sector is very successful and it is creating jobs in Ireland. Many of the large indigenous companies, such as Kerry Group, are doing well. The domestic small and medium enterprise sector is where issues arise. The key problem in this sector is credit. The banks must play their part in this regard.
The problem, however, whether because of a lack of skills in appraising SME finance applications or some other factor, is that the banks are risk-averse. In fact, they seem more interested in repairing their balance sheets than in playing their role in restoring the economy.
The Government is doing its bit to assist small businesses. The establishment of a strategic investment bank, whose emphasis should be on providing working capital to businesses, must be fast-tracked. The microfinance scheme is already in place, providing loans of up to €25,000 to businesses employing ten staff or fewer. In addition, the partial loan guarantee scheme which will come into effect shortly should ensure the banks are less risk-averse in terms of providing much needed credit to the small and medium-sized enterprise sector. I urge small businesses to apply to the banks for funding and, where their application is rejected, to submit it to the Credit Review Office. Huge sums of taxpayers' money have gone into maintaining the banking system and small business owners should not be afraid to approach them for finance. The Credit Review Office, under Mr. John Trethowan, provides a means by which businesses can put their cases where they feel they have not been treated fairly by the banks. This week we learned that the office has overturned 60% of banking decisions in this area.
In regard to a deal on banking debt, the accord of 29 June stands. The onus now is on our European colleagues to work with us in a spirit of partnership, recognising that what is good for Ireland is good for Europe. I urge the Minister for Finance to seek to have the imputed end-of-life value of Anglo Irish Bank reflected in the current value of the promissory note, thus reducing the debt burden on taxpayers and the level of repayments. I hope a deal will be done in advance of the budget. The Government is obliged to deliver another difficult budget, something which no Government likes to do. It is about getting the country back to a position of strong growth which will lead, in turn, to increased employment levels. Nobody likes to be dependent on social welfare. Everybody wants to work and to pay their way. We do not talk enough in this House about the social context of high unemployment. Every Member of the House has seen people in their constituency offices who were once proud and are now broken. The only way to improve their situations is by way of job creation.
This Government has taken the necessary action to achieve that end, but Europe also has a part to play. We have done what was asked of us in terms of stabilising the public finances, meeting our targets under the agreement with the troika and protecting the banking system in Europe. The Fiscal Advisory Council is working well and is very much independent in its deliberations. There now must be some reciprocation in the form of a restructuring of our promissory note and, as I have proposed, a revaluation of Anglo Irish Bank in line with its projected end-of-life value. The implementation of the June accord is vital if our overall debt burden is to be made more sustainable. As it stands, our debt levels are simply too high to enable us to recover in a strong, structured way into the future. It is about working in partnership with Europe, with our colleagues playing their part in terms of restructuring our bank debt and separating out the sovereign debt component.
There has been a great deal of kite-flying in advance of the forthcoming budget. This is an unhelpful development which has caused anxiety in many sectors of the population. The overarching objective of this Government is to achieve fairness in very difficult times. Europe has a part to play in providing us with the structure and environment within which we can put forward what we regard as the fairest budget in extremely difficult times. We are already creating jobs, but we must achieve far more in terms of bringing down the jobless numbers. For that to happen, our debt burden must be reduced. In tandem with that, I call on the banks, if they do not have the in-house expertise to assess loans properly, to ensure that appropriately qualified staff are hired. Small business owners should not be afraid to approach the banks for finance. If their application is rejected, they should not hesitate to submit an appeal to the Credit Review Office. Recovery will happen only if the SME sector is facilitated to create jobs for people in every village, town and city in the country. As a person who worked as a self-employed chartered accountant for 12 years, I know that small businesses are the lifeblood of our economy. The Government is doing its bit, but the banks must also fulfil their role.
I very much welcome this Bill, which offers a practical implementation of what was ratified by the electorate in the referendum. I agree with Deputy Sean Fleming in this regard, which is not always the case. It was good to see him in the Chamber this evening. The people have voted and their verdict should be reflected in this Chamber when the vote is called on the Bill.
While I do not propose to support this legislation, it is not because I do not respect the decision of the electorate in the referendum on the fiscal treaty. I accept that decision. Nevertheless, a substantial proportion of voters opposed the proposal and it is right and proper that I and others who took the same position should represent that view when it comes to the vote on this Bill. The Government is committed to the proposal and its majority in the Chamber means it will be passed. However, this debate affords an important opportunity to take stock, as Deputy Kieran O'Donnell and others have done, of where we are at. The strategy that has been pursued in recent years is now effectively enshrined and institutionalised in the fiscal treaty, which means we are locked into a particular strategy for dealing with the financial and economic crisis for up to a decade, irrespective of whether that strategy is working or not. Nevertheless, it is important to reassess its effectiveness thus far. Any fair and objective analysis of the current situation would have to conclude that the chickens are coming home to roost in regard to the austerity agenda generally and the specific model that is locked into the fiscal treaty.
All of the claims made in the referendum campaign by the "Yes" side were found by the electorate to be plausible and people voted in favour of the treaty. They now lie in tatters. The Taoiseach sold the treaty on the basis that it would "create stability in the euro zone that is essential for growth and job creation." He added that a strong "Yes" vote would create the certainty and stability "our country needs to continue on the road to economic recovery." The International Monetary Fund has finally cottoned on that this is nonsense. Despite pushing the treaty and being the architect of austerity, the IMF has admitted it was wrong and austerity is not working. The fiscal council, in its latest quarterly report, has admitted it was wrong and that the effects of austerity and trying to cut our way out of a recession have been much more damaging, devastating and destructive of the prospects for economic growth than it suspected. Consequently, all its growth forecasts are being downgraded as they are no longer reliable.
The IMF went further by stating that austerity has been more damaging, euro for euro, than the money that was taken from the economy in the austerity measures - in other words, there has been a negative multiplier in terms of the economic damage that has been done by trying to cut our way out of a recession. Under the fiscal treaty we are required to take such an approach for years in an effort to deal with the economic crisis. This policy is not working. On every indicator, the position is as bad or worse than it was when austerity commenced. At a human level, unemployment is as bad as ever and shows no signs of reducing. There are 35,000 fewer jobs in the economy this year than there were last year. In addition, the unemployment rate would be even more disastrous were it not for the emigration of 40,000 people each year.
The position is serious and deteriorating. There is no sign of light on the horizon. Small firms continue to go out of business and all the talk of small and medium enterprise being the engine of the economy is not being translated into concrete measures to relieve the pressure on this sector. As a result, companies are going out of business daily. Nothing is happening because the economic demand small and medium sized businesses require to thrive is absent. Every time we cut the incomes of ordinary people, demand collapses further and more small and medium firms go out of business. The sector is also being crushed by high rates and parking charges as well as-----
Yes; credit is an issue I will discuss in a moment.
None of these areas is improving. Moreover, the incidence of suicide is increasing, as is homelessness, housing lists are lengthening and people must look forward to paying hundreds of euro more in property and water charges and a further €700 million in cuts to the health service, which the Government promised the troika it would deliver in the budget. In recent weeks, a major crisis arose as a result of additional cuts of €130 million in the health service. What will €700 million of cuts in the budget look like? There will be no health service left. Who will the Government attack and what will it cut next, having gone after the disabled, respite services, care allowances and care packages? Its position is immoral, socially and economically unsustainable and a recipe for destruction.
Deputies on this side have been arguing for the past two years that imposing crushing austerity on countries on the periphery such as Greece, Italy, Ireland, Spain and Portugal will have a contagion effect as the recession spreads to the core of Europe. Finally the IMF has admitted that this is precisely what is taking place. We were ridiculed when we made this argument two years ago. The Government told us the books would be balanced, market confidence would be restored and investment would start to flow. The exact opposite has occurred, with economic contraction spreading into the core of Europe and choking off the only hope for economic recovery. We all know that austerity has crushed the domestic economy. The Government was riding on the hope that we would get out of the economic difficulties by increasing competitiveness and exporting our way out of the crisis. We now find that our biggest trading partner, the European Union, is in recession and may be heading towards a depression. This has choked off the only prospect the Government held out for the country to emerge from its current problems. This approach is not working. At some point one must stop digging if one is in a hole as otherwise one ends up digging one's grave. The Government is digging the grave of our economy and society.
Every time Deputies make this argument the Government argues that we are good at levelling criticism but unable to produce alternative policies. I will set the record straight on this false claim, which the Government also used during the referendum campaign, by setting out our alternative in broad terms. We will do so again in the economic debates that will take place in the weeks ahead. Our alternative is to cancel all of the debt that was not our debt. Irish debt in 2007 amounted to €27 billion and debt servicing cost 3% of Government revenues before the crash. Since then, debt has increased to €170 billion and debt interest will account for 15% of Government revenues next year. This increase is not the fault of ordinary citizens but that of bankers, speculators and the political elite in Europe and Ireland. It is critically important that we repudiate this debt because it is not ours.
The Government's argument that we are spending well beyond our means and that repudiating our debt would leave us with a huge deficit of €15 billion we could not possibly repay is not true. According to the fiscal council, which produces useful information, we will have a primary budget surplus next year. Even now, the primary deficit is only €3.1 billion. That is the gap we must make up to match revenue with expenditure. The rest of the €15 billion is accounted for by interest on a debt that is not ours. If we repudiate this debt, we will not have to repay it or the interest on it and will be required to cover a deficit of only €3.1 billion. The fiscal council has provided these figures. Would this be the morally correct position to take? Yes. Would it also be an economically sustainable position? Yes, because otherwise our debt will reach €200 billion at the end of next year and we will be required to make €9 billion in interest repayments. That is an unsustainable position. As the markets and society know, recovery is not possible with such a high level of debt and forcing us to pay it down at interest rates of 5% per annum will require crippling austerity for many years. If, on the other hand, we were to pursue the policy of debt repudiation, we would have to find €3.1 billion. This would be achieved by taxing the wealthy. Every time we make this argument the Government tells us not to be ridiculous as there is no pot of gold.
Last week, again, I tabled parliamentary questions on the tax yield to the Minister for Finance. I will be screaming about the facts that I gleaned from them coming up to the budget. The top 5% of earners, 108,000 people, have a gross income of €20 billion. Their average earnings are €185,000 a year. To get a yield of €3.5 billion, one would have to take €32,000 extra in tax off that group. Could they afford it? I think they could. They could certainly afford it a hell of a lot more than our health service, our disabled citizens, people on social welfare, low and middle income workers and all the other vulnerable sectors of our society such as those in mortgage distress who are being crucified. Would it be such an imposition for those with average earnings of €180,000 a year to lose €30,000 of that to save the rest of our society? One could graduate that tax take so that those at the top end paid more.
When one sees the figures broken down, decile by decile, of who is earning what in society, it is shocking. The 120 richest people have average earnings of €8 million a year. Could they afford to take a hit of a few hundred thousand quid? Up to 2,000 people are on earnings between €500,000 and €750,000. Could they not afford to take a bit of a hit instead of hitting people on social welfare, the disabled and the poor?
It is the poor who are leaving the country - 40,000 of them a year. Is it okay for them to leave the country because there are no jobs and they are crippled by limited services, austerity and poverty?
In addition to dealing with the €3.5 billion deficit by taking €35,000 in taxes from the richest 5% in our society, which would still leave them very rich, we need money for a stimulus investment programme. One cannot have jobs or recovery without such a programme. Where would one raise the funding for it? From the corporate sector, which is creaming it in profits and pays an effective tax rate of 10%. Last week when I asked the Minister for Finance for the latest figures on the yield from this sector, he said they were not available yet. However, in 2008, after the collapse, total corporate profits in this State came to €51 billion, on which tax paid came to €5 billion. That is an effective rate not of 12.5% but of 10%. By bringing up the effective corporate tax rate to the nominal rate of 12.5%, we would raise €1.25 billion. I am sure the multinationals will not go running out of the country because they have to pay a nominal corporate tax rate of 12.5%.
We could also raise €750 million by housing the 100,000 people on the housing list. We now spend €500 million in rent allowance to private landlords to house these people. If the State housed them, we would save that €500 million and get €250 million in revenue back in the form of rent. Why can we not do this?
Deputy O’Donnell said we needed to deal with the unemployment crisis because it is costing us €20,000 per person to keep these people unemployed when they would prefer to have jobs. With 340,000 people, that cost comes to €6.4 billion a year. Alternatively, if we employed those people in public works and infrastructure programmes, strategic industries and so forth on an average wage of €30,000 a year, it would cost us only another €3.2 billion. These people would be put back to work developing the infrastructure, strategic industry and enterprise we need to get the economy moving. This money could be raised through wealth taxes, a small increase in corporate tax and resolving the housing list issue.
While Deputy O’Donnell rightly bemoans the fact the banks are not investing - they are risk-averse, as he called it – I ask why we cannot do something about it. We bailed out the banks, making us their majority shareholders. They are now the most highly capitalised in Europe but they still will not lend or invest in the economy. Why do we not simply assert control over the banks directly and force them to invest as a strategic investment bank, just as Deputy O’Donnell said? The Government is committed to the idea as it is in its programme for Government. However, it has not materialised, as there is no strategic investment. We do not even need to set up a new bank as we own the banks already. Why can we not take direct control of the banks that we own and force them to invest in the economy and extend lines of credit to small and medium-sized enterprises? I do not understand why we are not willing to do this, although it is possibly an ideological commitment of Fine Gael not to interfere with the private ownership of banks. That strategy is failing, however.
I welcome the opportunity to speak on the Fiscal Responsibility Bill 2012, which gives effect to the fiscal compact treaty referendum from several months ago, which a significant majority supported. In a way, it is almost counterintuitive that we would have a vote in the House on it, given that the people have made their choice. It is still the House’s responsibility to put into legislation the effects of the decisions made by the people, however. I note Members opposite are choosing to ignore the strong democratic decision the people made in claiming they will vote against the Bill. That is disappointing, as the people have made their decision - one that all of us, no matter which way we campaigned during the referendum, have an obligation to support.
I am always amused when I speak after Deputy Boyd Barrett. Seeing as he delivers more or less the same speech on every occasion, I am never surprised by the content of his contribution. Today, however, even by his own standards, his misuse of statistics was quite baffling. In particular, I was baffled that he, as a member of the finance committee of which I am also a member, could liberally quote the Irish Fiscal Advisory Council as if it were supporting his position.
He should know better because he was there, as I was, when its representatives suggested that the deficit process which the Government is moving through successfully was not moving swiftly enough.
It is ludicrous to use them as an example of why we should renege on our national debt. Deputy Boyd Barrett may have been abroad or on the moon yesterday but we continue to have successful job announcements. Some 900 jobs were announced in Naas yesterday. That is testament to international confidence and, most important, to our arriving at a point where the nation is achieving competitiveness.
However, I agree with Deputy Boyd Barrett in one regard. We are all agreed that the ongoing burden of the cost of the debt to the people is unsustainable. The Minister for Finance and the Taoiseach know this more than anyone else. This is why we should not only welcome the announcement of 29 June by the Heads of Government but pour some scorn on the independent move made by three of the 27 finance Ministers, who took it upon themselves to engage in a discussion or dialogue. I am reasonably confident that this was part of a negotiating process. I have no doubt this was because other countries have not kept within their terms as strictly as we have, although some of them have been reasonably successful, namely, the Greeks, the Portuguese and the Spanish. Throughout this dialogue we may be victims in some ways. If governance within Europe is to achieve anything and if confidence within politics in Europe is to be achieved, then when Heads of Government and Prime Ministers make a decision it is not acceptable or reasonable for three Ministers of the same governments - we are not referring to people from opposition parties within those countries - to deviate within a period of months from the position of their governments. That is the sort of political infighting which allows critics of the European model to say validly that Europe cannot stick by a decision.
In any event, the 29 June decision will serve the people well. The country continues to make good progress. We are in a position whereby we continue to borrow billions of euro but the amounts we are borrowing are shrinking year after year. We continue to increase the number of people at work. The Government is altogether aware that our unemployment levels are far too high and that our banking system remains broken. Some of the suggestions that have come from those opposite would only serve to make things worse. The Government has been responsible for sticking to a plan along the lines of fiscal responsibility. The people were responsible for voting "Yes". We can be confident that the responsibility shown by the Government will continue. We will repay the people for the faith they have shown and we will get the country out of the difficulty it has been put in by former governments. Deputy Boyd Barrett noted that people sometimes refer to the light at the end of the tunnel. If Deputy Boyd Barrett found the light at the end of the tunnel he would blow it out and that is no good to the people.
I am fascinated by some of the comments made by some of the Opposition with regard to this Bill. Last May, the people voted overwhelmingly in favour of this legislation. It was incumbent on us to develop a set of rules the people asked us to put in place in order that the calamity that occurred in recent years will not happen in future. It is strange that Deputy Boyd Barrett has left. He used selective figures. He forgets that there was a total collapse in the income of the Government during 2007 and 2008. There was a serious budget deficit of more than €20 billion. The bulk of that sum had nothing to do with debt repayment or interest payments on the loans outstanding. When one picks selective figures, one can always sing a tune to those figures but the problem is that we must tell the people the truth rather than pick up on what we believe would be to our benefit.
I welcome this legislation. I come from a small business background; I am a small farmer. The measures being put forward correspond to what small businesses and small enterprises are doing. This is what households are doing as well. They look at the budget they have and what they take in and what they can spend. We are applying exactly the same rules to the macroeconomic situation.
The fact that we are establishing the Irish Fiscal Advisory Council under legislation is important. The council has a role in scrutinising our budget and in scrutinising forecasts put out. One need only consider the disparaging differences between the forecasts put out recently. There is a wide range of figures for the projected rate of growth of the economy for the year ahead. The IMF came in with a figure of 0.5% while the council produced a figure of 1.8%. We are introducing this legislation to ensure our books and our budget are open and transparent such that the public can hold a viewpoint in some way and they can see exactly where the money is being spent.
Why must we introduce this legislation? Edmund Burke said that those who do not know history are destined to repeat it. The reason we are introducing this legislation is to ensure that our history between 2003 and 2007 is not repeated. It is vital that we learn from history and this is the reason we are introducing the legislation. I wish to quote another Kildare man responsible for the economic policy which led us to introduce this legislation. He said that when he had it, he would spend it. That is a famous quote from a former Minister for Finance. As a result of the economic policy he put in place, we are here with this legislation. I compliment that former Minister on setting up the Irish Financial Services Regulatory Authority in 2003. The sad thing is that when he set up the authority he did so with such light touch regulation that it was unable to effect its role. I welcome the Bill. We must learn from and not forget history. There will be people like me standing in this Chamber in future referring to history but we must keep reminding people where we came from. This Bill will help us to go to a better place in future.
I thank the Leas-Cheann Comhairle for the opportunity to speak in this debate. The Bill represents a fundamental shift in the Irish political system. What is fiscal responsibility? By definition, "fiscal" means financial or pertaining to the treasury or revenue parts of a government. "Responsibility" refers to having a legal or moral obligation to or being accountable for something or someone. The words "fiscal responsibility" evoke ideas of penny-pinching and debt but their real meaning is more complex.
The intention of the Bill is to tighten public finance management. It encapsulates what the Government is all about: fiscal responsibility and delivering better services and the State infrastructure that the electorate deserves. When enacted, this legislation will implement the key provisions of the fiscal treaty, which Ireland accepted in a referendum at the end of May. The Bill also provides for the establishment of the Irish Fiscal Advisory Council on a statutory basis.
The Bill, when law, will provide for the implementation of Articles 3 and 4 of the fiscal treaty.
We all must be in favour of legislation that will strengthen rules on the management of the public finances and put the Irish Fiscal Advisory Council, IFAC, on a statutory basis.
The first rule to be enshrined in national legislation relates to revenues and spending. In future, the deficit between revenue and spending cannot exceed 1% of gross domestic product once one-off and business-cycle factors are accounted for. This is designed to ensure that governments do not lock-in spending commitments based on unsustainable revenues, such as those generated in the past by property bubbles.
The second rule obliges governments to reduce their total indebtedness by a minimum amount each year if it is above 60% of GDP. The Minister for Finance, Deputy Noonan, recently stated that these rules are sensible and prudent and represent a responsible approach to Government budgeting.
This Bill does not change the structure of the IFAC, but enlarges its role in deciding whether a significant deviation has occurred and if a correction is proceeding in accordance with the correction plan. These powers will be granted to all the IFAC's European counterpart agencies.
The Bill strengthens the independence of the agency by limiting the Minister for Finance's power to fire its members, and any dismissal will need a Dáil resolution.
The IFAC was established last year to provide an independent assessment of the soundness of fiscal policy. lnternationally, such independent entities have been found to lessen the chance and scale of budgetary crises. As lessons of the recent past have shown us, we need those safeguards.
The general scheme of the Fiscal Responsibility Bill underpins the fiscal rules in the stability treaty. The Bill also reflects commitments in the Fine Gael manifesto and programme for Government, and was part of undertakings of the Government in the EU-IMF troika agreement. These rules are sensible and prudent and represent a responsible approach to budgeting.
The Bill provides for the implementation in national law of Articles 3 and 4 of the treaty. The other articles of the treaty are binding obligations under international law that do not require to be reflected in national law. Article 3 of the treaty requires provision in national law for the fiscal rules set out in that article. These include a commitment by governments that the budgetary position of the general government shall be balanced or in surplus; and provision for an automatic correction mechanism that will be triggered if there are significant deviations from the budgetary target or the adjustment path towards it. The treaty also requires that there is an independent institution at national level responsible for monitoring compliance with the rules in Article 3, and we have invoked that.
Fiscal policy involves the level of Government expenditure, transfers or taxes in an economy. Fiscal rules are constraints on fiscal policy, often expressed as numerical limits. Rules to be set out in the Fiscal Responsibility Bill set fiscal rules in domestic legislation.
As a complement to introducing more flexibility into the proposed fiscal rules, the Irish fiscal council has also recommended strengthening the measures that would be taken when policy fails to comply with the rules. It said the principles of sound public finances should be set out in law and that each new Government should set out explicit five-year targets for debt to GDP ratios that would include planned consolidation measures.
This Bill, together with the fiscal council, can provide a mechanism for raising the political costs of pursuing inappropriate policies, while continuing to allow a role for necessary judgment. This will strengthen the balance sheet over time and build a buffer against cyclical shocks and longer-term structural changes. This Bill is about financial sustainability and operating our business in such a way that it can always prosper. This calls for financial stewardship in making a future, not just a living.
One of the main objectives of the Government since taking office has been to get a substantial deal on our banking debt. The enormous efforts made by the Taoiseach and the Minister for Finance to do this have been discussed several times in this House. Their efforts are often condemned by the Opposition, and yet the Taoiseach and the Minister continue to make progress.
As soon as the Government came into office, it at once began to restore the reputation of this country, both in Europe and globally. Few now choose to remember the crisis we then faced - a huge banking crisis and an even bigger problem with our national debt and deficit. As a result of this, our European partners had lost confidence in us as a nation that was capable of running its own economic affairs. We were bankrupt in every sense, financially and morally.
Since then the Government has worked tirelessly to re-build our reputation. Slowly and steadily we have made such progress that we are looked at now as an example of how to implement tough decisions to deal with the financial difficulties we inherited. On a recent trip to Australia, this became apparent. It is striking how we are seen as a shining example globally. Time magazine also paid a huge tribute to the Taoiseach in its most recent publication, however at home the reception to the article was somewhat cooler. Sometimes one wonders about how we view ourselves with such negativity and criticism.
This reputation building and re-building bridges with all the European Heads of State led to a unique achievement in June at the European Council meeting by the Taoiseach. Ireland got a special mention in the official communiqué released at the end of the meeting of European Heads of State.
The Commission insists that the decision of the European Council stands. Indeed, again in the past week many EU leaders, including the President of the European Parliament, Mr. Schulz, who addressed this House last week, are insistent that the decision made by the Council must be implemented.
I was disappointed and shocked that Mr. Schulz's visit got so little media attention. His speech in this House was so clearly in support of what we are doing in Ireland and he stressed that the Council of Europe decision in June must be delivered on. He was clear that if the highest decision making body in the EU does not implement its decision, then it undermines the trust of EU citizens in European institutions. The Council agrees that trust is as important as fiscal issues. Without trust, international respect will be lost and the European Union as a whole will suffer. Trust is essential to gain European solidarity. That is why I believe the inclusion of the section on Ireland in the Council's communiqué is so important and the Taoiseach's work in the early hours of that morning will yet prove to be beneficial and historic for this country. Before the deal for Ireland and the breaking of the link between national debt and banking debt is achieved, we in this House must put in place the necessary legislation to implement the provisions of the stability treaty.
The Bill deals with two issues: first, the duty of the Government to endeavour to comply with the fiscal rules of the treaty; and second, to lay out two conditions of the budgetary rule that must be satisfied. These two conditions are detailed in the Bill. Section 6 provides for a correction mechanism that will be triggered if there is a significant deviation of the general government budgetary condition.
The second part of the Bill deals with setting up the fiscal council. This is real reform. We are not merely talking about it; we are implementing it. It also provides complete transparency as section 8 provides for the independence of the fiscal council. Section 9 gives the Minister the power to make some regulations, but these must be approved by the Dáil. Section 4 limits the Minister's powers to terminate the appointment of a member of the fiscal council. It only allows the removal of a member if a resolution has been passed by Dáil Éireann. This guarantees the independence of the members of the council. Section 11 makes the chairperson of the fiscal council accountable to Dáil committees. Section 12 makes the council subject to the Freedom of Information Acts.
I thank the Irish people for coming out and voting for the stability treaty earlier in the summer, allowing this fiscal policy Bill to be brought to the House today. Without the passing of that referendum, I really do not know where we would be.
I acknowledge the business sector that came out so strongly in favour of the treaty. Organisations, such as Business for Ireland, IBEC and Chambers Ireland, all gave of their time freely and were highly supportive of the treaty. They recognised the importance of it for Irish businesses.
On a personal note, I thank the people of Cork North-West for having the highest turnout on the day. I compliment the Minister for the ongoing negotiations that he is undertaken, and wish him luck. It is now all about negotiations and timing.
The Irish people recognised how important is putting in place some cheques and balances. The independence and transparency that will underline the fiscal council is essential and under these circumstances, I am delighted to commend this important Bill to the House.
I looked at the name of this Bill and the first thing that jumped out at me was its title, the Fiscal Responsibility Bill. The proper name for it should be the fiscal irresponsibility Bill because we cannot live up to it. We cannot meet the standards. It is unsustainable for Ireland to meet what the Government seeks this House to pass. We must bring the debt to a point not above 60% of GDP and the deficit below the 3% of GDP rule, which are pretty much the criteria set under Maastricht. I opposed the Maastricht treaty because I felt we were being locked in to a mechanism that did not give us any flexibility should the system not work.
Clearly, it has not worked, particularly for Ireland. When it does not work, one must ask for whom it does not work. The heaviest losers will always be those who are most dependent and most vulnerable, which is exactly what is happening. If one examines the agenda in the European Union, it is obvious that it is the countries in which there are problems are the ones that are on it. The European Union has been rewarding the bad behaviour of problematic countries. In being compliant we are taking ourselves off the agenda. There was no quid pro quofor Ireland in passing the referendum. This begs the question as to what is the Government's negotiating strategy. We had three finance Ministers from triple-A rated countries arguing that legacy debt was not going to be part of the overall solution, but our legacy debt is our main problem. The country took on the responsibility for the debts of private institutions, using taxpayer's money, but we should never have had an obligation to pay that debt. That obligation was more or less dictated to us by Mr. Trichet in a telephone call to the former Minister for Finance, the late Brian Lenihan. I do not see anything prudent or responsible in the passing of this Bill, particularly as we do not know what the outcome will be in terms of a debt write-down. At the very least, the Government should have viewed the passing of the legislation as premature until the negotiations on the matter were concluded.
In recent days the IMF has stated, "Whoops, we got it wrong." It has admitted that the adjustment programme is going to be far more costly in terms of jobs than it had anticipated. This is not an academic exercise, however; it is real. It is affecting people's lives. It is rare for the IMF to enter into a programme with a country without some debt write-down, but we did not have that provision. I have listened to Deputies on the Government side criticising the arguments made by Members on this side of the House, but they have short memories. I went through some newspaper archives from the period just before the last general election. At the time Deputy Eamon Gilmore, now Tánaiste, said the then Government's plan was too tight and austere and would halt growth. That is exactly what the IMF is now stating. Deputy Richard Boyd Barrett has been heavily criticised for saying what Government Deputies were saying less than 18 months ago when in opposition. Deputy Eamon Gilmore went on to say his party had proposed reductions in public expenditure which were sensible and which he described as "surgery" rather than "butchery", which is what he accused the Fianna Fáil-Green Party Government of engaging in. It is not that long since that Government was put out of office, but the Government is continuing what its predecessor did. I accept that there are legacy issues for it which must be acknowledged, but it is continuing the policy of the previous Administration, which is butchery. This is a one-way street, whereby we must comply with the rules or incur financial penalties and we are not receiving anything by way a debt write-off. We must have a debt write-off because what we are signed up to is completely unsustainable. It is not a question of we will not pay, but of we cannot pay and should not pay because it is private debt. We must continue to make this point.
According to the CSO, Ireland's general government debt at the end of the second quarter of 2012 was €114.3 billion. The debt-to-GDP ratio at the end of the first quarter of 2012 was 108.5%. Therefore, the amount above the 60% rule contained in the Bill is €51.1 billion. If it is prudent to write into legislation that we will pay off this sum, the word "prudent" needs to be redefined. It is not prudent to do this; it is downright irresponsible. There is no question of seeing light at the end of the tunnel. This debt is not just going to be a feature of this decade but of the next two, unless there is some certainty. The promissory note repayment schedule commits us to a figure of €3.1 billion annually until around 2030. This will run concurrently with servicing the debt, which will cost us somewhere between €3 billion and €4.5 billion per annum, which is patently unsustainable. The Government is asking us to trust it in negotiating a reduction or write-off of the debt. We appeared to receive a letter of comfort in June with the EU summit statement which referred to debt and Ireland specifically. However, the closer one reads the document, the more it becomes clear that there is a doubt about how our legacy debt will be dealt with. Furthermore, there has been a reluctance to publish the letter from Mr. Trichet to the late Brian Lenihan which demonstrates that the country was bullied.
The Bill is irresponsible because low to middle income groups will pay the heaviest price for its implementation. It imposes a set of rules and financial penalties for not adhering to the formula to be applied. Germany wanted this to be set at constitutional level to absolutely guarantee that the money borrowed by Ireland would be repaid. That money was borrowed to bail out bondholders, make sure a bank would not crash and prevent contagion in the banking system. We will be locked into a fiscal adjustment that will strip the Government of any ability to stimulate the domestic economy by investing in areas crying out for investment. The current adjustment programme is resulting in horrendous problems. I was contacted today by a disabled person who had complained about the quality of his incontinence sheets only to be told that they would be replaced when they started to tear his skin. That is what I am hearing, as a public representative. That is the level of depravity to which we have sunk and the punishment being meted out to some of the most vulnerable in our society. The Bill does not hold out any prospect of stimulating the domestic economy. While foreign direct investment and the involvement of multinationals in the economy is welcome, without a sustainable domestic economy, we will not recover.
I wish to refer briefly to a number of issues raised by the TASC recently. It argues that if the IMF's analysis of the data is correct, GDP will be significantly lower after we balance the budget than originally thought.
Therefore, we will have less money to run services and sustain interest payments on the debt.