Feargal Quinn (Independent)

I welcome the Minister and his contribution, which gives us confidence for the future and a great deal of pride in the success of the past ten to 15 years. I am fearful of being regarded as a Jonah if I express any criticism or concerns about the future. I am not. I travelled throughout the world this year and found myself being highly regarded as a citizen of a country that has set standards the rest of the world is admiring.

Rather than get immersed in the details of individual spending in the Estimates I want to use this opportunity to address some general issues I believe are of importance. My first point is that in the run-up to a general election, all Government pronouncements on the economy should be accompanied by what I call a health warning, similar to that on cigarette packets. Since the Government is unlikely to provide that warning, all its pre-election pronouncements must be taken with a pinch of salt.

I remember clearly what happened in the run-up to the last general election in 2002. For almost two years beforehand, it was clear to all disinterested observers that our economy had encountered severe problems. A decade of world prosperity had come to a sharp end. This was signalled most dramatically by the bursting of the dotcom bubble which had a knock-on effect in the collapse of the valuation of telecommunications companies, not only in Ireland but worldwide. We were suddenly presented with a radical change in the world environment in which we operate as part of the new global economy. This was compounded by the local impact of the foot and mouth disease crisis and the worrying increase in the rate of domestic inflation. The final element in this dangerous cocktail was the global economic slowdown that followed the events of 11 September 2001 in the United States.

The writing was clearly on the wall in the run-up to the last election. There were plenty of reasons that we should trim our sails to meet the changing wind and many ways in which we needed to prepare our economy for the new challenges ahead. The Government, however, ignored all those warnings in its focus on keeping the electorate satisfied until after voting had taken place. Instead of sounding a prudent warning of caution, the former Minister for Finance, Charlie McCreevy, advised people to "party on". Instead of trimming its sails, the Government abandoned all restraint. Exchequer spending ballooned in the months before the election, as did employment in the public sector.

I say all this not to rehash an old argument but to explain why we should be cautious now. We must look out carefully for warning signals because, on past experience, we cannot rely on the Government to do so. When we seek to forecast how people will behave, usually a good guide is how they behaved in the past. For this reason, I approach with great scepticism any Government assessment of how the economy is currently performing. In the debate on housing in this House yesterday, I drew attention to the misleading effect that statistics of economic growth can have if they are taken at face value without any attempt to look behind the gross figures to divine their deeper meaning.

The Government claims that while our economic growth is lower than it was in the Celtic tiger years, everything is fine because that growth is still far above the average in the EU as a whole. This simplistic approach, which is driven by electoral considerations, masks a different underlying reality, one that we must acknowledge and tackle. The figures show that growth today is radically different in nature to the growth fuelled during the Celtic tiger years. In the late 1990s, our growth was driven by the output of our manufacturing and services industries, and this was reflected in a corresponding growth in exports. This was healthy and sustainable growth.

In stark contrast, the growth we have now is far less healthy and sustainable. It is driven by two main factors, consumer spending and activity in the construction industry. Consumer spending is a bad horse to bet on unless it is underpinned by real added value. If we spend what we earn in the world economy, that is fine. However, if we go on spending while the amount we earn from the world economy is not growing at the same rate we will soon find we are driving very fast up a cul-de-sac. I referred to it yesterday as making one's living by taking in the washing from one's own home. The warnings in this area are the almost total absence of growth in the manufacturing sector and the virtual stagnancy of our exports. We ignore these warnings at our peril. The latest publication from the National Competitiveness Council bears out what I said yesterday in this regard.

Similarly, the part of our growth based on construction is unhealthy and unsustainable. We must build houses and infrastructure, but we also need the activities in the world economy that will pay for what we spend in those areas. Unless that balance is there, growth in construction is unhealthy. It is certainly unsustainable. Nobody believes we can go on building houses and ramping up our infrastructure at the present rate forever.

These are some of the warning signs but they are not the entire picture. In recent weeks, we have had disturbing indications about the fragile nature of some of the international activities so vital to our future prosperity. I refer to the practice, which has apparently grown up in the past several years, of using this country as a tax haven for royalties on intellectual property. Last week, there was a hostile editorial in The New York Times, drawing attention to this practice by some of the largest United States companies, including Microsoft and Google. These companies have put in place legal structures that take advantage of the fact that income from royalties on intellectual property developed in Ireland is totally free from taxation in this country. I am fully in favour of this idea. By funnelling most of their world royalty income through an Irish company, however, these multinationals completely avoid tax. This is an advantage that can add billions of dollars to their bottom line.

Understandably, the United States taxation authorities are not in favour of this. In the coming months and years, we can expect them to exert increasing energy in trying to stop this practice. They will, in particular, look closely at the argument that the intellectual property protected in this way was developed here. It is fine from their point of view if that is the case. The more closely they look, however, they will realise that in many cases this claim is largely a sham.

I have always been a great supporter of the IDA. In particular, I have supported its shift into internationally traded services. I have also supported its efforts to get multinationals to develop research and development facilities here. In the knowledge economy, that is the way to go. However, we must build our progress in this area on a sound foundation, not on the shifting sands of being regarded as a tax haven. We must set up genuine research and development facilities that will carry out real research, not ones that act as a cover for tax avoidance.

Our prosperity has been built on our low rates of corporate tax. Let us not be in any doubt that they have always been an important driver of our foreign direct investment. We must acknowledge that there will be changes in this regard in the future. We are already facing pressure on this issue from Europe. This comes, on the one hand, from member states that want to harmonise tax rates upwards. I congratulate the Minister on avoiding such a change thus far. On the other hand, there is pressure from new member states that are prepared to undercut our rates to attract mobile investment. It is not widely known that Cyprus, for example, already offers a 10% corporate tax rate.

As the economies of the new member states develop, it is highly unlikely that this country will end up with the lowest tax rate. These trends present us with major challenges we have not yet acknowledged, let alone developed a strategy with which to tackle them, other than a policy of denial and a refusal to even discuss the issue of harmonising corporate tax. Our traditional position is unsustainable in the long term. We must acknowledge this and face up to the consequences as soon as possible.

Meanwhile, in the other direction, a new threat has arrived on the scene from the direction of the United States. In how the United States authorities react to the loyalty schemes in operation here lies the risk that Ireland will become branded as an offshore tax haven. We have worked hard to avoid this branding in the past 30 years and the IDA and everyone else has been successful in doing so. However, by refusing to acknowledge this as a problem, the Government puts at risk all of the progress we have made over the past generation. It would be sad if the imminence of a general election were allowed to mask those looming realities from us. If we allow it to happen we can be sure we will pay for it dearly.

I am using this opportunity to speak about the Estimates, which others have done well today, in order to spell out and sound a reminder and warning that, unless we are very careful and watch what is happening in our economy, we could be in danger of masking the reality. I do not wish to sound as if I am a Jonah, someone crying wolf or a pessimist. I am an optimist but I am also a realist. I urge the Government to carefully consider the points I raised.