Feargal Quinn (Independent)

I move:

That Seanad Éireann, mindful of the crucial impact of inflation on the nation's competitiveness and the recent figures which show that our inflation rate continues to run well above the EU average, calls on the Minister of Finance to make the containment of inflation during 2007 the top priority in his forthcoming budget.

I welcome the Minister of State at the Department of Finance, Deputy Parlon, to this important debate. I had no problem composing the motion which I worded in a manner that would not invite an amendment. I gave considerable thought to the use of the term "top priority" given that the Government will have other priorities. The reason the motion calls for the containment of inflation to be made the top priority is that our objectives in health, education or on law and order will not otherwise be achieved. For this reason, I was interested to note comments by the Minister for Foreign Affairs, Deputy Dermot Ahern, reported in a newspaper today. He stated:

Prosperity is a prerequisite for all our ambitions — in health, enterprise, welfare and education. To that end, Fianna Fáil in Government will defend prosperity with unequalled determination.

Given that this statement precisely reflects the sentiments expressed in the motion, I assumed the Government parties would not table an amendment to the motion.

It is with some trepidation that I propose the motion to the House two weeks before the Budget Statement by the Minister for Finance. My reluctance arises from the fact that the subject of inflation has become something of a bore. Few Members and practically no one in Government appear to care about it. It is regrettable that this probably reflects the views of members of the public who also appear to be largely indifferent to the danger of inflation. The same factors that give rise to my trepidation also encourage me to persevere with the business of raising this matter in the House again. Notwithstanding the widespread public and political indifference to the dangers of inflation, I strongly believe it is the greatest challenge we face as we prepare the economy to meet the challenges that lie ahead.

The irony of the current position is that the threat of inflation is widely recognised internationally. For example, a recent issue of The Economist gave banner headlines to it and the issue was also a high priority for the G20 group of Finance ministers which met in Melbourne at the weekend. It is also high on the priority list of central bankers around the world, particularly those in Europe. Across the developed world the growing danger of inflation and the need to control it by pre-emptive means is recognised as a major challenge but it is one that many are determined to face.

The irony arises because we face a much greater danger than anywhere else in the world if we allow the current trend in our inflation rate to continue. Throughout the period of the Celtic tiger, domestic inflation has run far ahead of inflation in the outside world. Not once has it fallen below the European average and it has been considerably above average for most of the period. For this reason, the complacency apparent in the amendment tabled by the Fianna Fáil Party is a matter of concern.

In the past week I had the opportunity to visit Brazil and Argentina. I remember my experience of inflation in Brazil during my only other visit to the country, which was in 1976. As one drove around one could see three or four Volkswagen cars in the front gardens of homes. Inflation had reached such a level that using hard currency to buy goods which would hold their value for several months was the only way to protect oneself from the problem.

I visited Argentina in 1991 shortly after the country tied its currency to the dollar. That position continued for ten years until late 2001, when the Argentinian Government lost control of the currency and its value collapsed. Having experienced the danger of inflation in these two countries 30 years and five years ago, respectively, I am worried by the level of complacency evident here.

An article in yesterday's edition of The Irish Times noted: "Exports fell in September, reversing gains made in August, according to trade figures released yesterday by the Central Statistics Office (CSO)". Despite the threat posed by inflation, the Government is complacent, as the amendment illustrates.

The difference between the Irish inflation rate and that of our European partners over several years has had a cumulative effect in that Ireland's starting point vis-À-vis its EU counterparts worsens every year. The result, as everyone is aware, is that Ireland has moved from being a low cost to a high cost country in the past decade. In many respects, this is the most expensive country in Europe. This is not a controversial statement — everyone knows it is true — but, astonishingly, no one appears to care. While there is, as one would expect, some griping about high prices, nowhere is there a full awareness of the implications of creeping inflation for the future of the economy and the economic well-being of every person who lives and works here. Inflation is the elephant in the room, the subject about which no one wants to talk.

Why is this? People are not stupid so our inability to face up to the consequences of inflation is due a national complacency economic success has created. We have fooled ourselves into believing that because things have gone so well in the past decade, they will continue to go well in the future and there will be no end to the prosperity we currently enjoy.

This blind complacency has prevented us from doing the sums on inflation, and the sums involved are simple. For every year that passes when our inflation is higher than the outside world, we lose a corresponding degree of national competitiveness. This impact has a cumulative effect because we do not start afresh each year, we inherit the playing field from the previous year and it is frightening how quickly things can go wrong, even when the figures involved are modest. If our inflation is 2% above the norm internationally, that does not appear much but if we continue like that year on year, as we have done for a decade, it rapidly amounts to a major difference and that is what has happened.

Yesterday I attended the board meeting of an international organisation where we were planning the fees for next year. The chairman, who is not Irish, said that we would increase the fees by 2% because people would readily accept that. Two Japanese colleagues on the board howled that it would be dishonest and that Japan had experienced deflation for a number of years and expected prices to fall. We are so complacent that we assume a 2% increase is acceptable.

Without realising, we have become highly uncompetitive. The goods we produce for export markets have become less competitive than they once were and, more importantly, when we try to attract foreign direct investment, the lifeblood of the economy, we have made ourselves much less attractive than many of the countries competing with us for that investment.

In The Irish Times yesterday, there was an article headed "Moody's stresses importance of foreign investment here" and it reported:

In its 2006 credit analysis, Moody's described the Irish economy as resilient, flexible and characterised by high growth rates. However, despite the State's considerable strengths, foreign direct investment levels declined over the past two years, Moody's noted.

"One point of concern for international cost competitiveness is the Irish inflation differential with the euro zone," Mr. Kockerbeck said.

In the past two years we have seen many businesses close down and leave Ireland for less costly locations in eastern Europe and Asia. Ominously we have lost not only manufacturing concerns but some of the service industries we have started to emphasise.

Those closures have generated publicity but they are not the most serious part of the picture — the greater number of companies that are not choosing to locate in Ireland. They do not even bother to visit IDA Ireland because they know the sums do not add up. There are many other elements in competitiveness than costs but they are the crucial hurdle we must overcome to attract and retain investment. If we cannot compete on costs, we often do not get the chance to compete on other factors where we might not be at such a disadvantage. This is the elephant in the room that is sending out messages we seem determined to ignore.

Can we do anything or must we stand helpless while the realities of a global economy slowly come down to bear on us? We cannot wave a magic wand and make this problem disappear, we can never make Ireland a low cost location again, and we do not want to. We can, however, hold back the tide and that should be a national priority. We should run the economy on the basis that the important task we face is to contain inflation. We should identify inflationary trends and threats in advance and focus on those we can control to some extent. We cannot control the price of oil but we can control our dependence on it. We cannot control euro or dollar exchange rates, although we can act to mitigate the negative impact of currency movements that go against us. In the matters where we have control, it should be a priority to contain inflation.

The way we have handled the impending increases in the prices of electricity and gas is a perfect example of what we should not do. In August, the regulator approved massive increases in gas and electricity prices based on the level of oil prices at the time on the assumption those levels would continue for the year ahead. Circumstances have shown these price increases were based on a totally false assumption. After peaking in August, oil prices have fallen to their lowest level in more than a year. Incredibly, however, the regulator, supported by the Government, has stubbornly refused to revisit the price increases. If this situation is allowed to continue, we will shoot ourselves in the foot and we will deserve everything that happens to us.

The overall situation with inflation is so serious it calls for urgent and dramatic Government action. Measures can be introduced to the forthcoming budget that will alleviate this threat. My purpose in tabling this motion is to encourage the Government to take those measures and to recognise the elephant in the room.

I discovered an example today. The Competition Authority is investigating complaints that some taxi companies have formed cartels and are telling their drivers not to charge the full cost of fares introduced by the taxi regulator in September. Drivers for some companies have been told they will not be allowed to work if they impose the full fares. The new fare structure aims to create one rate for the entire State, including a €2 charge when drivers are called out to collect passengers. Some taxi companies, however, have decided not to charge the call out fee and have told their drivers not to impose it. We are saying that they must charge the extra fee but by doing so we are encouraging cartels, the very thing the Competition Authority acted to prevent when a group of oil suppliers in the west tried to achieve a similar outcome.

We must keep our eye on the ball to ensure nothing we do encourages the growth of inflation.