Wednesday, 24 October 2012
Prospects for Irish Economy: Statements
I welcome the opportunity to discuss the prospects for the Irish economy. In my remarks today, I will outline how the policies adopted by the Government are beginning to bear fruit. However, while the Irish economy is showing signs of growth, we must not be complacent. This is only the first step on the road to recovery.
Economic growth and a recovery in the jobs market are the crucial preconditions for an improvement in the living standards across society that continue to be the ultimate aim of Government policy. The Government is continuing to tackle the economic and fiscal challenges we face in the coming years to ensure that recovery takes firm root and is sustained. As such, putting in place the conditions for supporting economic growth has been a focus of my work as Minister for Finance.
I will give an overview of the economic situation before discussing the Government's policy responses to the opportunities and challenges facing us. Last year saw an expansion in gross domestic product of some 1.4%. This followed three years of successive decline in GDP and marked a positive first step on the road to recovery. Growth has continued into this year, rising at the modest rate of 0.5% in the first half of this year, compared with the same period in 2011.
The recovery is being led by the external sector, with exports of goods and services now well in excess of pre-crisis levels. This shows that the improvement in competitiveness which has been evident in recent years is yielding benefits. It also highlights the inherent flexibility of the Irish economy, which has seen significant improvements in relative prices and costs. The strong export performance also means that our balance of payments with the rest of the world moved into surplus in 2010 for the first time in over a decade. More recently, a surplus of €3.2 billion was recorded on the current account of the balance of payments in the second quarter of this year. This is the largest nominal surplus recorded since records began in 1981. While the figures can be quite volatile, it is worth pointing out that over the past four quarters, the current account balance has averaged 3.3% of GDP.
In the second quarter of the year, services exports recorded an 8% annual increase. This is reflective of the competitiveness improvements achieved in recent years, but also the continuing willingness of both international and domestic multinational firms to locate new business in Ireland. The pipeline to win more foreign direct investment is strong and the IDA has secured 73 foreign direct investments to date this year. Notwithstanding these positive developments, the Government is acutely aware that the greatest fall-out from our economic difficulties is in the labour market. Unemployment is estimated at 14.8% in September, which is far too high. The only reliable way to bring down unemployment is to secure economic growth, and that is the main focus of the Government's economic policies.
On the budgetary front, the gap between revenue and expenditure remains large, despite the reduction in the underlying deficit to an estimated 9.1% of GDP last year - a level well within the limit set under the terms of the EU-IMF financial assistance programme. The Government is committed to reducing the deficit further. The deficit limit set for this year is 8.6%of GDP and the latest data are consistent with the achievement of this target.
Aggregate tax receipts for the year to end-September are 1.5% ahead of target, with three of the four main sources of revenue performing better than expected. Although the majority of Departments continue to manage within their agreed limits, spending is somewhat higher than planned in the social protection and health areas. This is a cause for concern in the context of achieving budgetary targets and restoring confidence in the sound management of the public finances. My colleague, the Minister for Public Expenditure and Reform, is working with our ministerial colleagues in these areas to ensure our expenditure targets for this year are achieved, as they were in 2011. However, we must be cautious not to overstate the risks posed by these overspends within the overall voted public expenditure of €55.9 billion. Any overruns are very small in comparison with the total budget.
The Government has been working hard to reposition Ireland to return to the financial markets in advance of the completion of the EU-IMF programme and we are continuing to meet the targets set out within it. The State's consistent delivery on commitments that we have made has enhanced market sentiment towards Ireland. This is evidenced by how our bond yields, at all maturities, have come down considerably since the early summer. The return to the bond market over the summer by the NTMA is welcome and last week's successful t-bill auction is evidence of continued market access.
As a small and open economy, Ireland's prospects are inextricably linked to wider global developments. In terms of our main trading partners, GDP in the euro area contracted by 0.2% in the second quarter of this year following a flat first quarter. In the UK, GDP contracted by 0.5% in the second quarter, the third successive quarter of negative growth. In the United States, the figures were a little more encouraging, with GDP increasing by 0.4% in the second quarter.
The IMF recently revised downwards its global growth projections for 2013, including the projections for Ireland's main trading partners, particularly the United Kingdom and the euro area. This means that demand for our exports in 2013 will not be as high as was anticipated when my Department published its growth forecasts in April this year. This reflects global forecasts.
The Government fully recognises the pain and suffering of many in our society who have been negatively affected by the economic difficulties of the last four years. I reiterate that job creation is our key objective. Putting the right policies in place to encourage employment growth is at the centre of the policy actions being taken by the Government. I will go into some detail on this. The Action Plan for Jobs which was launched earlier this year by my colleague, the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, builds on work across government to deliver reform and create economic growth. It builds on the progress made on economic reforms to accelerate jobs growth and get the country working again. The 2012 Action Plan for Jobs is the first instalment in an ambitious multi-year process. The overall success of the plan will depend on whether it fosters greater job retention and creation. The latest progress report on the plan shows that in the third quarter of 2012 Departments and agencies delivered on schedule 58 of the 67 measures due, giving a completion rate of 87%. Having said that, structural unemployment is a key concern, as can be seen in the regrettably high share of long-term unemployed. This is, in part, a legacy issue in the aftermath of the construction boom and the decline of associated sectors. To combat this, the Government has prioritised job creation and retention through the Action Plan for Jobs and the Government's jobs activation programme, Pathways to Work. We have successfully negotiated with the troika that some of the receipts from the sale of State assets will be directed towards job creation.
Ireland must maintain its position as an attractive destination for inward investment and position the economy to take advantage of the global recovery when it emerges. Notwithstanding the need to underpin the sustainability of the public finances, the Government has taken and will continue to take steps to support competitiveness. These include the Government's commitment to retaining the 12.5% rate of corporation tax and maintaining and enhancing its pro-business tax policies. As a result, Ireland continues to attract inward foreign direct investment. Almost 1,000 companies, including Google, eBay and Facebook, have chosen Ireland as the hub for their European networks. Irish companies are happy to locate new businesses at home, as seen by recent investment announcements by companies such as Paddy Power and the Kerry Group. Since 2011 the Government has introduced and enhanced a number of pro-business tax measures. In the Finance Act 2012 we introduced the special assignee relief programme to attract key talent and innovators to Ireland and the foreign earnings deduction to aid companies seeking to expand into the emerging markets in Brazil, Russia, India, China and South Africa. We introduced significant enhancements to the research and development tax credit scheme to the extent that we have an international reputation as one of the leading countries in this respect. We improved the three year tax exemption for startup companies by linking the value of the relief with employment creation. The jobs initiative introduced a reduction in the VAT rate on certain employment sensitive industries, particularly the tourism sector, and reduced the rate of PRSI payable by employers to help wage competitiveness.
As a consequence of their contribution to total costs, Ireland's labour costs have a significant impact on overall cost competitiveness. Ireland's labour costs have improved substantially in recent years, relative to the euro area, and are forecast to continue to converge in the coming years. Recent exchange rate movements are beneficial from a competitiveness perspective. The euro has depreciated against the dollar and sterling over the course of the last year. This benefits Ireland because of our greater exposure to trade outside the euro area. Recent inward investment announcements provide further grounds for optimism, clearly demonstrating that Ireland remains an attractive location for the production and export of high technology goods and services. I see this as a clear demonstration that the Government's strategy in relation to the 12.5% rate of corporation tax is an appropriate one.
Despite the challenges we are facing as a country, the Government will spend €17 billion on the capital programme for the period of 2012 to 2016. This level of expenditure is based primarily on what we can afford and has been focused on the investments most needed. The capital investment plan has been designed to facilitate economic growth and build our social infrastructure. Capital spending will see an increasing share of our scarce resources allocated to schools, health care facilities and areas where the construction industry can expect to benefit from the increased demand stimulated and the consequent jobs this will provide. We will spend €2.2 billion on 40 new schools and 180 other major school projects. We will spend €2.9 billion on the national and regional roads programme, including a new public private partnership road - the Ballaghaderreen bypass - as well as provision for motorway maintenance and local and regional roads. We will provide €1.4 billion for Luas interconnection, rail safety measures, regional cities traffic management and the removal of bottlenecks. We will spend €1.5 billion on water services. Some €1.4 billion is being provided for social housing provision and some regeneration schemes.
In July my colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, announced the Government's plans for an additional investment of €2.25 billion in job-rich public infrastructural projects. The bulk of the funding will come from a combination of the National Pension Reserve Fund, the European Investment Bank and the Council of Europe Bank, domestic banks and other potential private investment sources. This package is the culmination of intensive efforts to identify projects that are realistic, credible and deliverable. It is estimated that the first phase of the public private partnership programme will generate up to 13,000 jobs. The focus for this phase is on projects valued at up to €1.4 billion in the education, health, transport and justice sectors.
In May NAMA set out proposals to invest €2 billion in Ireland in the next five years. This investment by NAMA will be an important contribution to the Government's plans for getting people back to work. It has been estimated that a €2 billion investment could generate up to 25,000 direct and indirect construction jobs and up to 10,000 additional jobs in the wider economy. This investment will facilitate the completion of properties and, importantly, allow land to be developed in anticipation of future supply shortages.
The importance of ensuring a sustainable public finance position is clear to everyone. The Government is conscious of the need to demonstrate nationally and internationally that the public finances are being managed in a stable and sustainable way. We must put our debt-to-GDP ratio on a downward path. The ratio is expected to peak next year and fall thereafter. In the medium term the external environment is expected to strengthen from 2014 onwards, as is our export growth. As this strong export performance starts to feed through to investment and employment, consumer confidence is expected to improve and the savings rate should start to fall somewhat. I expect to see economic activity beginning to gradually firm and broaden from being externally driven, with domestic demand also making a modest contribution. The strong performance of foreign direct investment points to the fact that many of the underlying strengths of the economy remain in place, including a well educated workforce, favourable demographics and an open, flexible and pro-enterprise economy. Internationally, it is widely recognised by those who objectively assess our performance that the Government is reacting in a decisive and timely manner to address the country's economic challenges. The difficult decisions that have been taken have helped to reposition the economy on a more sustainable export-led path. The Government believes Ireland's future is intrinsically linked with continued membership of a strong and vibrant European Union and the euro area. It intends to continue to engage proactively with senior officials in the EU institutions and our EU partners on the implementation of policies aimed at strengthening growth and stabilising turbulent financial markets. I look forward to hearing the views of Deputies.
I thank the Minister for his opening statement. I am glad to have the opportunity to make a contribution to this debate on the state of the Irish economy. At present, as we can all agree, we are certainly continuing to live in turbulent economic times and it is opportune for us, as the national Parliament, to fully debate the issues that currently face us.
What people at home really want to know is when all of this is going to end. It was back in July 2008 that the first phase of the budget cuts was announced by the late Brian Lenihan, a package of €1 billion. That is more than four years ago and, according to the plans that have been set out, there will be at least another €8.6 billion over the next three budgets. We need to give people a realistic assessment of where the economy is at and to be honest with them about the challenges that remain. People are very anxious to know when the period of tax increases and budget cuts will come to an end, when they will see the economy growing again and when their standard of living will begin to improve.
While there are many economic matters of concern at present, I would like to touch on a number of items today and I will return to other issues in the next few weeks. Fianna Fáil is in the process of preparing its budget submission and we hope to have it completed in a few weeks, well in advance of the budget in the first week of December. In the course of our work, we are receiving the assistance of the Department of Finance in costing various proposals, which I acknowledge. I will return to the budget later in my contribution.
There is little doubt the issue gathering most attention at present is the question of a deal on bank debt, and I sat through some of the debate earlier on the outcome of the European Council summit. Achieving a deal on the bank debt is important, not just for the public finances or in regard to the issue of debt sustainability, but in regard to generating confidence in the economy and among Irish people that we may have turned a corner. They will not believe that until they see the evidence in their daily lives.
The 29 June summit of EU leaders agreed a statement which had potentially huge implications for the efforts by the Government to reduce the borrowings created by fixing the banks. The Eurogroup statement was quite stark when it stated, "It is imperative to break the vicious circle between banks and sovereigns." The inclusion of the additional sentence relating to Ireland, that the "Eurogroup will examine the situation of the Irish financial sector with the view to further improving the sustainability of the well-performing adjustment programme" was, in itself, undoubtedly good news as it meant a deal on the cost of fixing the banks would cut Ireland's national debt.
Fianna Fáil wants Ireland to get a deal that reduces the borrowings associated with the recapitalisation of the banks. Contrary to suggestions coming from some Government sources, we are not hoping the talks fail or that the Government gets only very minor concessions. We want the talks to succeed and we believe this can make a significant contribution to underpinning Ireland's economic recovery.
We are fully aware of the precarious state of the public finances and the fragility of the Government debt to GDP ratio. In the past week, two Ministers, including the Minister of State, Deputy Brian Hayes, have said that Ireland's debt is "unsustainable". I am unsure if this is the official Government position because the Department of Finance seems to have a different view. In May 2012 the Department produced a document entitled "The Irish Economy in Perspective", which gave the official view that Ireland's debt was "sustainable". It might be more helpful for the Government to express a consistent view on the subject rather than attacking the Opposition for fulfilling its constitutional duty to hold the Government to account.
Last week's summit was vague in the extreme in terms of concrete follow-up from the June statement. While Ireland was mentioned explicitly in June, this vanished from the latest statement, although I accept the negotiations on the bank debt are continuing. The summit left many questions unanswered. The details of bank supervision were left for Finance Ministers to work out, which gave rise to justifiable concerns that arguments would arise with non-euro members of the EU concerned about the terms of the ECB's supervisory powers. The practicality of how banks could be recapitalised directly and how to deal with legacy assets was not agreed. Worse still, the EU leaders' statement was quickly overtaken by comments from Angela Merkel ruling out back-dated recapitalisation of banks by the ESM in regard to Spain. Given past commitments to treat similar cases equally, the Chancellor's comments were widely interpreted as ruling out the possibility of the ESM taking equity stakes in Irish banks.
What has happened since Friday has been insightful. The communique from the Taoiseach and Chancellor Merkel on Sunday recognised the unique circumstances behind Ireland's banking and sovereign debt crisis and reaffirmed the commitment from the 29 June statement to examine the sustainability of the Irish programme. The communique also referred to Ireland as a special case and, while in many respects that was a statement of the obvious, it is good that the Chancellor put her name to that statement recognising that Ireland's circumstances are unique. It is an altogether different question as to whether being a special case means we will get special treatment because the June summit makes it clear that similar cases will all have to be treated equally.
According to the Taoiseach, Ireland is "unique" because it had "the European position imposed on it", which resulted in the sovereign having to take on the debts of all the banks. He seems to be accepting that Ireland had, as a result of the policies of the ECB, no choice but to recapitalise the banks and not impose losses on senior bondholders, and that remains the position of the ECB to this day. This is a significant admission by the Taoiseach and is an acceptance that we have both a moral as well as a practical argument for a reduction in the bank debt.
It is easy to lose sight of the facts in the debate about the bank debt. We have to remember that the Irish banks are already recapitalised. They do not need new capital from the ESM; it is the Irish State that needs the money. In simple terms, the Government should clarify if the State is looking to sell its stake in the banks to the ESM. Will the Government insist that this be done at the price at which they were taken onto the books of the Irish State and not at their current market value? As we know, the National Pensions Reserve Fund currently puts a value of €9 billion on the living banks. The Government must also examine the wider implications of what it would mean for the Irish economy to have the banks in the hands of the ESM, particularly in terms of loss of strategic control. Of course, as of now, we are free to put the banks on the market and to sell our stakes in the banks. The question is, if the ESM is to buy out our stakes in the Irish banks, what the price will be. It would need to be very significantly in excess of the market value for it to be the right course of action.
This begs the question as to whether the ESM wants to be in the business of owning and running banks, which is the not the primary purpose the ESM was established to fulfil. It is a question we need to have answered. Is it the intention of the European authorities that the ESM would, for example, own a stake in banks or be involved in the operational control of banks, and is that in the interests of the Irish State? It all comes down to the price which would be paid for those equity stakes.
To turn to the issue of the promissory note, one interpretation of Sunday night's communique would be that it will be in regard to the promissory note that we will see movement in the first instance, and there is an immediate deadline coming up in March on that question. It is often misunderstood that the funding cost of the promissory note is actually quite low as the Irish Central Bank effectively borrows the money it lends to IBRC from the European Central Bank at a very low interest rate. Of course, the cost potentially rises each year as we make the capital payment because we have to borrow that money in the open market at the prevailing rate. We should demand, in the absence of a specific write-down, which is the ideal outcome and one that should be sought, an extended period of time to pay the debt at a low interest rate. This could be in the form of what is known as a zero coupon bullet bond over a 40 year period.
If the German Chancellor and French President are true to their word, they would facilitate such an arrangement for Ireland. It would be an acknowledgement that Ireland has not just a practical case for relief on the bank debt but also a moral case, as the Taoiseach has acknowledged that "the European position was imposed on us" as a country. As I said earlier, Fianna Fáil wants to see Ireland succeed in its debt negotiations but we will not be passive bystanders and it is our intention to actively hold the Government to account in the Oireachtas for both its strategy and tactics in this regard.
I would like to turn to the general state of the economy. A number of key reports and economic statistics have been delivered in the past few weeks which give us a good insight into the reality of economic life in Ireland, not the sanitised version we get from Government press releases.
Taken together, they indicate that the economy can be described, as the ESRI described it some weeks ago, as "bouncing along the bottom". The Government is in denial about the true state of the economy and the underlying position of the public finances. The mantra is repeated that we are meeting all our targets under the programme when, in fact, we are continuing to miss a number of important targets, in particular concerning the Personal Insolvency Bill and tackling sheltered sectors such as the legal and medical professions. A confused message is being delivered to our EU partners who are understandably questioning why we need a reduction in our bank debt if the economy is performing as well as we claim it is.
For some time there has been clear evidence of a two-speed economy. In fact, there is evidence that the economy is moving in opposite directions. The domestic economy continues to shrink, while foreign direct investment driven exports have performed well, although they are now also showing some signs of slowing. Since entering office the Government has undertaken the jobs initiative and introduced a "jobs-friendly" budget and the Action Plan for Jobs. However, in the last 12 months the number at work has fallen by 1.8%, or 33,400 people, to stand at 1,787,900. A total of 1,200 jobs are being lost each week in 2012.
The stability programme update, SPU, in April indicated that compared to 2011 the Government was projecting lower growth rates, lower GDP, lower job creation levels, higher unemployment, lower real wage growth and higher public debt. We should be grateful for the sober assessments of the IMF, the ESRI and others which are not swayed by the Government PR machine. The IMF report tells us there are still significant risks to Ireland's economic outlook. GDP will grow by just 1.4% in 2013, down from 1.9%. It goes on to state, "Banks are still not supplying the needs of households and SMEs". The ESRI report is stark in its assessment. It states there is still "little appreciation" of just how bad the country's finances are and that further cuts in the health, education and welfare sectors are "inevitable". I also refer to the report of the Irish Fiscal Advisory Council. The council made a number of salient points in its report, including that there was a 40% chance that the debt-to-GDP ratio would fail to stabilise by 2015. It refers to the need for all adjustment margins to be kept under close review, including tax rates, public sector pay rates and pensions, and welfare rates. It also recommended an additional adjustment in budget 2014 and budget 2015. There has been a general downward trend in growth forecasts in recent times. The stockbroking firm, Goodbody, recently downgraded its growth forecast for 2012 to 0.3% and 1.3% in 2013. In September the IMF forecast that GDP would expand by 0.4% this year and 1.4% in 2013.
I wish to briefly refer to mortgage arrears. I welcome the statement made last week by Ms Fiona Muldoon at the Irish Banking Federation conference. It was great to hear a public servant speak so openly, frankly and honestly about the approach taken by the banks on mortgage arrears. I will not read what I intended to say because I wish to cover other points.
In the lead-up to December's budget, there are important questions that must be answered by the Government, the Opposition and wider society. For example, can we afford to continue to pay increments to well paid public servants, while vulnerable elderly people have their home help hours cut? Even if we can afford it, can we justify it? Is it fair that new entrants to the public service will be paid so much less than their colleagues who joined before them? Have we got the balance right between tax increases and spending reductions in the proposed adjustment of €3.5 billion? What will the budget choices we make say about our values as a country? Is the burden being fairly shared among those who have the ability to pay? Have we really made work attractive and tackled the undoubted welfare traps in the system? Should we protect the capital budget to a greater extent and not impose a further cut of €500 million?
Above all else, the people want to see a fair budget. I accept that one will never achieve consensus on what is fair. According to the ESRI, last year's budget was the first that was not progressive since the round of cutbacks commenced in 2008. Ireland's domestic economy is a story of many sectors; agriculture, the food sector, multinationals and indigenous firms involved in exports are doing well, but the sectors that rely on consumer spend - the retail sector, pubs, restaurants and hotels - are struggling. As an economy, our cost base has come down considerably, but it must reduce further. For individuals, this means the cost of medicines, the cost of visiting a GP, the cost of insurance and utility bills must be reduced. We must deal with the sheltered sectors that are protected. For businesses, it means tackling the cost base in the semi-State sector, rates, rents and trying to assist foreign-owned retail chains. Many such companies located in this country are reviewing operations.
Last night I contributed to the Private Members' debate on the proposed introduction of a statutory sick pay scheme. In respect of the budget, I urge the Minister to try not to do harm to those who are willing to take a risk and invest in job creation. The recovery will be led by the private sector. The public sector will shed at least another 10,000 jobs in the coming years, while the private sector will create jobs. The Minister must not do any harm in the budget to what the private sector is seeking to achieve.
Cuirim fáilte roimh an deis na ráitis seo a phlé, agus muid ag tabhairt aghaidh ar an gcáinfhaisnéis i Mí na Nollag. I would like to be in a position to congratulate the Government on its stewardship of the economy in the past 20 months.
I would, because it is in all our interests. While I did not vote for the Government, people across the country have wanted the Minister and his colleagues to succeed in their endeavours since taking office. That is the position, regardless of whether one voted for the Government. It is true that it inherited a social and economic mess of unprecedented proportions. It has been well thrashed out that Fianna Fáil drove the economy over a cliff. Throughout its 14 years in office it fed a speculative banking and property boom which led to the biggest economic crisis in the history of the State. When it left office the incoming Government inherited unemployment and emigration levels which were returning to historical highs. The banking system was in tatters. Health and education services were in crisis and the economic sovereignty of the State was in the process of being handed over to the troika.
I do not underestimate the difficult job the Minister has had in the past two years, nor do I believe there were easy choices or quick solutions to the problems created by Deputy Micheál Martin and other Fianna Fáil leaders up to 2011. However, as the Fine Gael and Labour Party Government approaches its second anniversary, it is clear that its management of the economy is as much a failure as that of its predecessors. One has to examine the stark reality: there are 435,000 people on the live register; unemployment stands at 14.8%; long-term unemployment stands at a shocking 60% of the overall amount; emigration is back with a vengeance; and a total of 1,600 people leave the country every single week - that amounts to nine people giving up on the State every single hour, the vast majority of whom are young people who are leaving not because of their desire to see the rest of the world but in search of work and a better future. There will be no Celtic comeback for them and the majority, as the economy is not recovering. Almost every single social and economic indicator tells us that what the Government has done since taking office has made things worse, not better.
One cannot build the economy on the basis of Time magazine covers. This is not a Hollywood blockbuster. The Minister is not in Kansas. He cannot just click his heels and think everything will be okay. If he wants to rebuild the economy, he must make the right choices. He must decide whether he wants to repay all of the private banking debt or say clearly that the debt is unsustainable and cannot be repaid. He must also decide whether to blindly cut the domestic economy into oblivion or to invest in job creation and growth. He must further decide whether to continue to heap the burden of the cuts on low and middle income families or to make those with most ability to pay stump up their fair share. These are the choices the Government faces in the weeks and months ahead. Unfortunately, the Minister is making all the wrong choices. He is slavishly following the same failed economic policies as his predecessors. On taking office he bought lock, stock and barrel into Fianna Fáil’s programme for national recovery and the crippling austerity of the troika memorandum of understanding. He has faithfully implemented Fianna Fáil's cuts agenda. He has also faithfully implemented Fianna Fáil’s bank bailout agenda and, just like Fianna Fáil, the Government is running the economy into the ground.
Increasingly, people across the State are waking up to the fact that on 25 February 2011 nothing changed. All the promises made during the election campaign have come to nothing. Instead, just like Fianna Fáil, the Government is heaping the burden of the economic crisis on low and middle-income families and allowing those who created the crisis to get off scot free.
I am sure the Minister is well aware that on Monday the Irish League of Credit Unions published the latest instalment of its "What's Left" tracker. This is an invaluable piece of research which highlights the human impact of the Government's failed management of the economy. It tells us that half of adults are now struggling to pay their bills and that 42% of people had to borrow money to pay their bills during the last 12 months. Eight in 10 people are worried that they will not be able to cope with rising energy costs this winter. Almost 100% of people are worried that budget 2013 will make life harder for them and 52% are concerned about the impact of the property tax next year. Behind these statistics are real people who are struggling to get by every day.
Last week in Donegal I was approached by a woman who told me she did not support Sinn Féin but supported another political party. She told me about a mother of six children who every day has to dilute the milk with water to make it last the week. This is the only way she can get by. The woman who spoke to me asked me to raise this matter in the Dáil so that the Minister and his colleagues around the Cabinet table would realise the human impact of the policies they are pursuing. We all know that the woman from Letterkenny is not alone; there are many like her throughout the State. For this woman and the hundreds of thousands like her, things are getting worse. The cost of their gas and electricity bills is rising. The cost of their health insurance, if they have it, is rising, and so are their mortgages. Yet thanks to the changes in the last budget, these people have less and less money in their pockets each week. What happens when these people have less money? They spend less, local businesses suffer and jobs are lost. This is why the domestic economy remains in recession. The Government's policies and those of the troika are choking domestic demand and blocking a return to economic growth. It seems the Minister has learned nothing from the crisis.
When Klaus Regling produced his report into the collapse of our banking system he spoke of a "herd mentality". The term was used for about a week and was discussed at length in this House, as was the inability of key decision makers to listen to critical or alternative advice. It seems we have replaced the herd mentality of the boom years with the herd mentality of austerity. Deficit reduction is the new mantra. Meeting the troika's deficit targets seems to be the only concern of the Government. No consideration is given to the social and economic cost of reaching these targets. We are being governed by a herd of deficit hawks, slavishly pursuing a course that is destroying the domestic economy, our public services and the fabric of family and community life for many.
Just as there were alternatives to the herd mentality during the boom, so there are alternatives to the herd mentality of austerity. Since the start of this crisis, my party, Sinn Féin, along with others, has been arguing for another way. In place of unlimited bank bailouts we have argued for debt reduction. In place of crippling austerity we have argued for progressive tax and public spending reform. In place of rising unemployment and emigration we have argued for investment in job creation. There are alternatives; the Minister has only to listen. Only a week ago Sinn Féin launched a comprehensive 60-page set of proposals to get the country back to work. At the core of our proposals, which were sent to the Minister, was a €13 billion investment programme over four years that would create an estimated 156,000 jobs and save 15,000 more. We argued that moneys from the National Pension Reserve Fund, the European Investment Bank and the private pensions industry be mobilised to get people back to work. In our proposals, the key drivers for job growth were investment in essential infrastructure, help for small and medium-sized enterprises, the need to exploit the potential of existing and new State enterprises, and investment in the agrifood industry and rural communities.
In the coming weeks we will launch our alternative budget. As in previous years, we will show how the Minister's adjustment targets can be met in a fairer and more growth-friendly way. We will outline the tax and spending measures that would allow the Minister to meet his troika deficit target for 2013 without heaping more pain on low and middle-income families or doing more damage to the domestic economy. Of course hard choices must be made in order to reduce the deficit, but it is possible to meet the deficit reduction targets in a jobs-friendly and growth-friendly way. Unfortunately, when persons in the Opposition have made constructive proposals the Minister has not proved willing to listen. I offer one example. Sinn Féin has proposed that the Minister increase the capacity of the Revenue Commissioners to bring in much-needed tax revenue. We propose an extra €6 million of spending by the Minister to employ 160 extra staff at the Revenue Commissioners, which could increase the tax take by €100 million. This proposal is supported by the Revenue Commissioners, as the Minister is aware. Sinn Féin has made the proposal but the Minister seems unwilling to consider it.
I say again what we have stated many times: we cannot tax our way out of a recession. We must invest in jobs and growth. Talking about jobs does not stimulate growth; only investment will lead to growth. No real economic recovery can take place unless we resolve the ongoing issue of the massive private banking debt Fianna Fáil imposed on this State and its people. Exiting the troika programme at the end of 2013 and returning to the sovereign bond markets requires a deal on both the promissory note and the legacy debt in the pillar banks. Since the Minister took office he has stated that these debts are sustainable and will be paid. He has consistently refused to listen to alternative proposals from the Opposition benches. Yet here, too, his strategy - if he has one - is in tatters. Last September the Minister told us the Department of Finance was engaging with the troika and expected to have an agreed common position on the promissory note by February of this year. More than a year later, no agreed position exists and no common paper has been produced. When Sinn Féin met the troika last week, its representatives were not even sure if a deal on this issue could be reached. They spoke of numerous papers, of which the Government's is only one. The position on the legacy debt is just as bleak. In June the Minister for Finance, the Taoiseach and the Tánaiste all claimed to have secured a deal on legacy debt. They even went as far as to say the details of the deal would be concluded by October of this year. We now know this is not true. The Government failed to tie down any real commitments last June. It failed to get the matter on the agenda of last weekend's summit. In addition, it faces stiff opposition from three of the most important players in the Eurogroup in terms of accessing ESM funds to retrospectively recapitalise the pillar banks.
Just as we need an alternative strategy on jobs, we urgently need a new approach on the debt. The Minister could start by agreeing with his Minister of State, Deputy Brian Hayes, and state publicly that the debt is unsustainable. Then he could do what other European Governments, such as the Spanish Government, have done: start to play hardball, stand up for Irish interests and secure a meaningful deal that lifts the burden of the private banking debt off the shoulders of the State and the people. Unfortunately for the Irish people, this is not the course of action the Government is pursuing. Sinn Féin wants the Government to succeed in resolving this issue but we genuinely believe it is selling the people short.
At some level, the Minister and I share the same objectives. However, we fundamentally differ about the roadmap that will lead us to them. We both want to return to growth, we want people back in work, we want both debt and deficit to fall and we want to undo the damage caused by Deputy Micheál Martin and his colleagues in the last Fianna Fáil Administration. Unfortunately, the Minister appears to be trapped in the same herd mentality that led his predecessors to make so many bad decisions. Like Fianna Fáil before him, the Minister appears unwilling to listen to the alternative proposals put in front of him. As long as he and his Fine Gael and Labour Party colleagues in government remain wedded to the policies of crippling austerity and unlimited bank bailouts, things will get worse. If they want to undo the damage left by the last Fianna Fáil Government they should stop behaving like that Government.
It is time to break free from the herd and start listening to alternatives. It is time to invest in jobs, stimulate growth, reform the tax system and write down the private banking debt.
I take this opportunity to speak for the hundreds of thousands of people who have been permanently damaged by the current economic crisis and who see no way forward for the next five to ten years. Those to whom I refer are all Irish men, women and children. It is not my intention to castigate the Minister. Since I was elected to the Dáil, I have made a point of trying to be progressive and pragmatic in my approach to dealing with various matters. I recognise the Government was left a desperately bad hand by the Administration which proceeded it.
I am a down-to-earth politician. I am not an economist but I have a reasonable grasp of economic affairs. Since I was first elected as a councillor - I also served as Mayor of Waterford - I have dealt with people on a daily basis. More than 4,700 people have come through my advice centres in Waterford county and city since I was elected to this House last year. I refer here to individuals who visited me at the centres to which I refer rather than contacting me by telephone or e-mail. The majority of these people are desperate. They are unemployed or on low or middle incomes. Among their number are teachers, gardaí, etc., and they all want to know when - or whether - the current crisis will end. The Minister can visit my Facebook page to see the messages they are sending to me.
As the Minister is aware, a huge proportion of households throughout the country are vulnerable. Hundreds of thousands of people face a daily challenge to simply survive. Many of these individuals are only beginning to cope with the ill-thought-out changes introduced in last year's budget. I know the Minister is familiar with the most recent statistics which show that 20% of all adults have no money left once they have paid their essential bills. More than 50% have less than €100 left. People's disposable incomes continue to decrease and the majority of households with which I am in contact are living from week to week. The media uses the expression "the coping class" and defines its members as low and middle income earners. These people are sinking fast. Another recent statistic shows that 29% of all households at risk of poverty are headed by a person who has a job. The statistics to which I refer were furnished by Social Justice Ireland and they are all accurate.
Those to whom I refer are ordinary, hard-working people on whom we were all relying to lead the fight against the recession. They have been consigned to paying off what is termed "negative equity" until they die. I recognise there is not a huge group of individuals who are under-taxed and from whom the Minister might extract an additional €10 billion per annum to save the economy. However, I am of the view - many of us will highlight this fact in the coming weeks - that there are alternatives to targeting lower and middle income earners. We must avoid damaging the economy by - as has been the case up to now - introducing pointless cuts. I call on the Minister to be more ambitious when it comes to making decisions in respect of tackling the budget deficit. He should minimise the extent of any cuts until such time as a decision is made on our bank debt. This is a very reasonable request to make. Ordinary people do not understand the banking system but they are beginning to obtain a grasp on its workings. I suppose we have made the observation so often that it does not have the same impact but these individuals are beginning to realise that they are being obliged to pay for a problem they did not create and that those who did create it and others are not being made to pay. There is a deficiency in the political system at present whereby many of us do not seem to understand that which I have outlined. If we do understand it, we neither want to think nor talk about it.
As already stated, most households have cut out any discretionary expenditure. Many people can no longer afford the luxury of buying a cup of coffee or some lunch. There is little more which can be removed from the economy. People are not spending and those who have any money are intent on saving it. Those who can do so are saving more than their counterparts in other European member states and this is leading to the economy being damaged further. The economy will not grow because if we continue to cut, we will not be able to induce internal spending. There is a question I continually ask. Will the Minister, in the context of the various recessions since the 1930s, identify a country in which austerity has worked and led to economic growth? In America, President Obama has stated that austerity does not work. That is simple economic good sense.
There are hundreds of thousands of people in Ireland who cannot spend because they either do not have the money to do so or they are saving whatever money they possess. How can we encourage economic growth? I will abandon my script at this point. I have been informed by those who own small businesses in Waterford city that people are just not spending. As a result, businesses are being forced to close and the numbers of people on jobseeker's benefit are increasing. I accept that we must reduce our costs and spending. However, it is a fallacy to suggest that we can drive down spending and pay and that the economy will still grow. Such an approach cannot and will not work. What should we do in these circumstances? Should we continue to rely on external investment to rebuild the economy? Such a policy will fail. If I were living outside Ireland at present, I would not invest my money in a public house or restaurant or buy a plot of land. People from abroad are bypassing Ireland and investing their money in Venezuela and other South American countries in which they never previously considered investing. The alternative with which we are left is to assist our local economy by investing in it and by abandoning austerity. The longer we continue to accept austerity as a de facto reality and to be of the view that there is no alternative, the more we will continue to pick away haphazardly at various public services and tax the private sector out of existence.
I will have an opportunity to speak on this matter again and at that stage I will put forward the alternatives I really wish to offer. We sometimes are accused of not offering alternatives. However, I am of the view that such alternatives exist. The Minister could do far worse than to meet the representatives of Social Justice Ireland. I have listened to what these people have to say and am of the view that some of the alternatives they suggest are viable and might just work.
On the day on which this Dáil was convened, it was repeatedly stated that the Government - which has a large majority - does not have a monopoly on wisdom. I took this as quite a hopeful sign. Unfortunately, however, the Government has been engaging in a retrenchment exercise. I find myself continually trying to decipher the language used by those in government. The words used have one meaning in these Houses and quite another in the outside world. I have identified seven or eight words or terms which underpin what I am trying to say. The language to which I refer is that of political survival. It is not the language that is used by those who wish to provide people with the type of honest leadership they need. It will be a major failing on the part of the Government if it cannot convince the people to trust it. One cannot lead people if they do not trust one.
It has been stated on many occasions that the Government will protect "vulnerable people". How does the Minister define the word "vulnerable"? This word does not signify the reality we witness on a daily basis. I refer here to people who are having their home help services, their domiciliary care payments and their access to the services of special needs assistants cut. It is in this context that one begins to see the effects of what is being done.
Last year the Minister for Social Protection stated that headline rates of social welfare payments would be "protected". When she convened a particular group this year, it was evident that the Minister had lost people's trust.
They asked what she meant by "core rates". They knew that "headline rates" did not mean what they thought it meant last year. People who do not engage with the social protection system do not realise that, for instance, a person denied a domiciliary care allowance is suffering a cut of 100% in their income; the reduction in child benefit payment for the third child is a cut in income; and a disregard for lone parent benefit is a cut. The rent supplement payment reduction will not save money but it will have a very real impact in places where the market rates are significantly higher than the level of rent supplement and this means that people will be displaced.
People are beginning to question and to disbelieve. They ask what the word "special" means. They are starting to disbelieve the language of this Dáil and of the Government. Does front-line staff mean occupational speech therapists or special needs assistants? Does it mean there is a doctor available but no ambulance to take a patient to the doctor?
Reform only means reductionism and a box-ticking exercise. People want to see things done in a smart way rather than cost savings being the ultimate choice. Why can the Minister not say that something is unsustainable? We know the numbers and neither we nor the people are fools. The Government would gain more credibility by talking the language people understand. For instance, we are told we are all making sacrifices. A sacrifice is a voluntary choice, not something imposed on an individual. In my view, we need to make sacrifices in the political sphere. I refer to the money allocated to the political system and we need change to happen in a timely manner. Unvouched expenses are no longer acceptable and I have said this on numerous occasions.
We met the troika last week. When we challenged the head of mission about his views expressed at a conference, he replied that he had made a point of saying that the most vulnerable had to be protected and he took issue with the manner in which his views were reported in a newspaper. When the troika was challenged on the fact that one in ten people is subject to food poverty, he said there was sufficient money in this country and this poverty should not be occurring. He referred to Fiona Muldoon and her engagement with the banks. We all want to see more done in that regard. Fair play to a person who says it like it is because this is always welcome.
The Government does not have a monopoly on wisdom. I refer to Social Justice Ireland's well thought-out policy document. I do not agree with all the arguments in that document but I agree with some of the points. For instance, I agree with short-term measures being bad in the longer term. We must remember that society as well as the economy needs to be protected and preserved. TASC is a think-tank on action for social change. I asked it to prepare a document on initiatives for job-rich growth and how funding might be sourced for those initiatives. I refer to the National Pensions Reserve Fund, NPRF. I am not talking about throwing money at issues as a form of stimulus. I acknowledge we have to see a return for our money. The NPRF has to be repaid in order to protect future pensions. Actions can be taken which will generate a great deal of hope. I refer, for instance, to a recent document from the Irish Congress of Trade Unions which contains some excellent ideas. Organisations are making the effort to find solutions. For instance, there is a suggestion that the two thirds, one third breakdown is fundamentally damaging to our society because of the impact on the most vulnerable. I favour a progressive wealth tax and a higher level of taxation for those earning over €100,000. Like many others, I believe this could garner in the region of €50 million. Services such as home help, SNAs, occupational or speech therapy have a longer-term consequence in people's lives. Every avenue should be explored for bringing in additional funds.
Confidence is the language of the market but in my view, people crave the language of society which is the language of hope. Unless we see an end to the paralysis and give some hope, I do not think confidence will return. It is a question of this Government seeing beyond itself and returning to what it said on its first day in office, that it does not have a monopoly on wisdom. There are plenty of people who would appreciate and understand that the Government is in a very difficult position but it will not be solved without us all being in it together. There needs to be some fairness and equality.