Derek McDowell (Labour)

The projections made by the Department of Finance in October suggest that we will enjoy economic growth of between 4% and 5% of GNP and GDP for each of the next three years. On the face of it, that is a rosy scenario that we all welcome. There are, however, worrying trends and fault lines in the economy we must be aware of and, as far as we can, address.

The most striking feature is our extraordinary dependence on construction. The sector now employs about 15% of the total workforce and a good deal more if we include people involved in services directly or indirectly linked to construction. This sector, however, is notoriously volatile. In 2001 and 2002 we experienced a rapid slowdown in the sector as a result of certain fiscal measures taken by the then Minister for Finance, Charlie McCreevy. It is clear that developers and builders have the capacity to slow production quickly and I am cynical about their willingness to do so to put pressure on the Government to introduce measures they want and not introduce other measures they do not want.

Things can change quickly in this sector, which leaves us exposed. The Tánaiste said a few months ago that the Government scarcely needs the revenues it gets from stamp duty. If we had anything like the slowdown in the sector we experienced in 2001, the Minister for Finance would quickly find we need that money very badly.

I intended to contribute to the debate on inflation last night but unfortunately I was at a committee meeting. In reflecting on the matter, however, it occurred to me that the most striking factor in the whole debate is that the inflation rate should be far higher than it is given the amount of money in circulation, credit borrowing, low interest rates and the SSIAs maturing. Our rate of inflation should be many percentage points higher and we must look carefully at the reasons it is not. There are factors at play that are worrying.

The most obvious factor in terms of goods is that our manufacturing sector is virtually dead. We simply do not produce the goods so most of the extra money we have is spent on imported goods and that is why it is not feeding through in terms of inflation. We no longer even attempt to compete with low-cost economies elsewhere to produce manufactured goods. We relied heavily on manufactured goods 30 years ago compared with the current economic profile. There has been a revolutionary economic change that will not be reversed. An entire sector that used to sustain us is dying, as reflected in the ongoing job losses in that sector. It is also increasingly being reflected in our trade deficit for manufactured goods.

The rate of inflation for services is much higher, almost 8% this year, although we could expect it to be even higher. It is not higher for one striking reason: the availability of relatively cheap foreign labour. The services sector has become highly dependent on such labour. If the girl washing hair in the hairdresser's were not from eastern Europe or China, the chances are the hair cut would cost a lot more. Having that pool of cheap labour available has kept inflation in the services sector at a tolerable level.

I make this point because it presents obvious social challenges. We have an obligation to ensure immigrants are not exploited and that minimum wage and related labour legislation is enforced adequately. I am not convinced this is so. We also have a responsibility to our own people with regard to securing future employment, particularly for those people with low skill sets. Our primary responsibility to those people is to ensure they upgrade their skills and are retained in training.

The Estimates published last week provide for an 8.1% increase in spending next year, a figure with which I have no great quibble. The figure could have been higher and I suspect it will be so by budget day. Nominal growth next year is likely to be approximately 8%, so we are speaking about marking time or roughly standing still in terms of percentage national output being spent on services.

We should stand back from the issue and ask what we want the budgetary process to do. For me, it is about supporting people who depend on the State, specifically through the social welfare and otherwise, improving infrastructure, and improving services. None of these can be done without spending money, and improved services will not be attained, by and large, without spending more.

I am not one who thinks an increase of 8% is terrible, but I would rather wonder if we could afford or sustain a 10% increase into the future. Any objective consideration of this year's figures suggests we could sustain increases of 10% or 11%, and I suspect we will end up with those. There is no need to make apologies for that, and we need to use these valuable years of economic growth to improve services and infrastructure.

I wish to speak about capital spending. We have not been ambitious enough with our spending on infrastructure in the past ten years. Since 1994 we have had 12 years or so of sustained growth, which has not happened in one country in the post-war period aside from the 1960s period in Germany or Japan. If we were to wake up tomorrow to find the boom over, what would we have achieved? To take transport as an example, it is remarkable that during those 12 years we managed to build only approximately 155 kilometres of motorway. The system on the five or six motorway routes chosen is still only half-built in that time.

Senator Mansergh may be correct in stating there was little provision made in the 1990s for public transport. We are still using, more or less, the same rolling stock in our railways. Although we have spent money on making the network safe, we have hardly improved it. The number of buses on the streets of Dublin is approximately the same, and although we have threatened to do so, we have not extended routes to Navanetc.

After 12 years of an economic growth of an unprecedented kind, we still have not achieved very much in many areas, and progress has been too slow. Part of that has been a deliberate decision of Government, which has decided to restrict capital spending to approximately 5% of GNP year on year. I have always felt that figure to be too low.

This is connected to the argument by members of the ESRI that if we spend more we get less value for money, and that may be correct. However, it ignores the political and social imperative to get work done that we have not been able to do before now. From an economist's perspective it may be reasonable to say we should delay social progress and infrastructural construction for another three, four or five years, but what would happen if we woke up some bright day in 2010 to find we no longer had the resources?

We should spend our resources on work we should have done ten years ago and get as much as we can. We can put in place systems to ensure we get value for money and so on. If we can get the work done at 5% more of a cost than if we had delayed it, we should carry on and do it now anyway.

During the course of his contribution the Minister mentioned value for money. Yesterday I again read his speech to the Institute of Chartered Accountants in Ireland, as well as his contribution on budget day last year, when he set out the improvements in process he intended to make. As with Senator John Paul Phelan, I am still deeply sceptical as to whether there is a real commitment to do this, and the publication of the three-year review in October did not add much beyond what we would have got in the economic review and outlook normally published in August.

Time will tell on the output statements. It is a pity they are coming two or three months before the general election, as we will not have enough time for assessment. It is certainly a good idea, but time will tell if it is effective. The bottom line is that processes used by this House and, more importantly, the other House, to evaluate the expenditure of public money are wholly inadequate. The only effective system is post facto, facilitated by the Comptroller and Auditor General and which the Committee of Public Accounts subsequently uses. The daily review of value for money, performed by the Houses and committees, does not work, and I see no great commitment from this Government to improve that.

In 2002, the Government came back to power with relatively few firm commitments, but I remember some. It committed to 200,000 additional medical cards, 14,000 gardaí before the next election and reducing class sizes in order that no child would be in a class of more than 29 by the next election. As of now it has failed miserably on all of them. Interestingly, we are getting a last blast of sudden public expenditure in one or two of those areas, with money suddenly being spent on the Garda and reducing class size.

There is no possibility, of course, of meeting the commitments come election day, but it will no doubt be argued the Government is on the way. After five years and given the relatively paltry number of commitments made, it is not good enough to say a last-minute effort is being made to make a dent in the commitments. The commitment on the medical card issue seems to have been entirely abandoned.

Many of the provisions of the 2001 health strategy have been similarly abandoned. The most striking of these was a commitment to provide 3,000 additional acute hospital beds, and the number provided is still languishing at about 500 or 600, five years on. There appears to be no mention or commitment to increasing the number of acute hospital beds.

It is an essential part of any health strategy to increase the number of beds. There appears to be a reluctance from Government to commit to do it in particular areas because of local political considerations, but the nettle should have been grasped some time ago, and it certainly should be grasped now.

I am glad we are back on track with overseas development aid, which others have mentioned, but I am somewhat worried about the way we spend it. The overall increase is 16%, which is very welcome, and €811 million is a significant commitment. We are spending an increasing percentage of this simply by writing cheques to international organisations, be they UNESCO, the Red Cross etc. We seem incapable of increasing our amount of bilateral aid, and a certain amount of this goes in direct budgetary assistance to specific governments. I would prefer, as would others in this House, bilateral assistance to manage and finance projects on the ground rather than to simply write cheques for Irish taxpayers' money to others. I would be interested in any comments the Minister might make in that regard.

Overall, I have no great quibble with 8% or 10% of an increase in spending, and if anything it is less ambitious than it perhaps should be. This relatively generous set of Estimates would not be enough to meet the relatively small number of key commitments made by this Government five years ago.