Brian Lenihan Jnr (Dublin West, Fianna Fail)

I thank the Leas-Chathaoirleach. I am very glad to have the opportunity, on my first visit to Seanad Éireann as Minister for Finance, to speak in support of the Government's amendment to the motion on the prospects for the Irish economy. We have seen the publication today of a very favourable medium-term assessment of the economy by the ESRI. However, before commenting on both our short-term and medium-term prospects, we must put our current economic environment in context.

Over the past decade or so, Ireland has experienced unparalleled levels of economic success and prosperity. Our economic environment has been transformed through the implementation of appropriate Government policies, underpinned by stakeholder participation, as shown through the social partnership framework. Under several key measures our economic achievements have been remarkable.

Since 1997, the rate of economic growth in Ireland has averaged 7.25% per annum. This buoyant rate of expansion has propelled average per capita income in Ireland not just up to convergence levels but has surpassed those enjoyed in most other developed economies. We have changed from a country that had to send its people abroad for work to a country that now welcomes a substantial inflow of persons from other European Union member states and further afield. Our labour force now stands at over 2 million. The total number at work has risen by some 700,000 and the unemployment level decreased from some 10% in 1997 to approximately 4.5% in 2007. More recently, however, unemployment has increased, thus reflecting the slowdown. The pace of economic growth this year is far slower than it was in preceding years.

It is true to say the economic environment has become more challenging in recent months and the outlook is less benign and more uncertain. The risks that we identified in the last budget have materialised. They include risks such as recent developments in the international financial markets, further appreciation of the euro against the dollar and sterling, lower international growth and, at domestic level, a sharper slowdown in the housing market. We must accept that the short-term prospects are more challenging and ensure that we respond appropriately.

Global economic developments play a key role in shaping Ireland's economic horizon. As a small open economy, Ireland is highly integrated into the global economy. The difficulties in the United States stem mainly from the housing market and especially from the sub-prime mortgage segment of that market. These developments have impaired the functioning of international credit markets and it is fair to say these problems have persisted longer than had been initially expected.

Domestically, the residential house building sector is undergoing a sharp slowdown following a prolonged period of catch-up. Uncertainty remains regarding the projected level of housing output for this year and how long it will be before the medium-term sustainable level of activity is achieved. However, we know the underlying demand for housing remains strong and it is driven by a relatively young population and continued inward migration. While we may experience a year or two of less than 50,000 completions, it is reasonable to expect over the medium term that the annual completion rate will return to a sustainable level that will remain high by international standards, reflecting the strong underlying demand for housing in Ireland. This is a point that today's ESRI review has factored into its medium-term assessment.

One aspect of the change in the housing market, which is being overlooked by commentators, is that the moderation in house price levels, when combined with measures on stamp duty and mortgage interest relief, taken by the Government at budget time, means that better value is being obtained by those who wish to buy their own home, especially first-time buyers.

The key message of the ESRI's medium-term review is that the Irish economy is flexible and resilient. Given our sound economic management and fundamental fiscal factors such as our low ratio of debt to GDP, and the substantial surpluses that we have had for the past decade, our economy has the ability to absorb shocks in an efficient manner.

In view of the Government's sound economic management and fundamental fiscal factors, such as the low debt to GDP ratio and the substantial surpluses Ireland has enjoyed for the past decade, the economy has the ability to absorb shocks in an efficient manner. By this I mean there will be limited economic fall-out and a return to trend growth within a reasonable period. Based on the ESRI's analysis, real growth in GDP of 3.75% per annum is sustainable over the medium term. This rate of growth is far higher than elsewhere in the euro area. In contrast to the prevailing mood of pessimism, the ESRI shares my view in that we should see a return to trend growth from 2010 onwards. As I noted previously, economic conditions in 2008 and 2009 will remain weak but sensible policies will be pursued. The Government remains determined to press ahead with its infrastructural development programme, thereby enhancing Ireland's productive capacity. Discipline on current expenditures under all headings will be critical in the next few years, given the changed resources available.

As a nation we will be obliged to manage our expectations more prudently and to focus clearly on what are our spending priorities. While this is a challenge for everyone, it must be seen in the context of the highly significant increase in the amount of Government spending that has been provided for in recent budgets. While there is no denying that our fiscal position has changed from that envisaged at budget time, it is important to point out that the current situation is manageable given the strong position of the public finances. Despite the underlying strength of the public finances, my Government colleagues and I are determined there will be no unnecessary loosening of fiscal policy. Current spending must be controlled to keep it in line with resources. I will consider these issues closely in the coming months as I prepare for the budget for 2009. It is crucial for Departments to adhere to the highly significant levels of current day-to-day expenditure provided for their activities this year.

Successful achievement of this objective when resources are constrained must be based on sound priorities. The priorities of the Government are clear and straightforward. They are to protect the weaker in society through maintaining a high level of social spending; to deliver better and more effective public services; to seek value for money at all levels of public spending; and to continue the programme of substantial investment in public infrastructure.

Ireland has been hugely attractive to multinational investment given its skills base, pro-enterprise regulatory environment and low taxes on capital and labour. The Government is committed to fostering the development of dynamic and innovative Irish companies. A proactive initiative in this regard was the establishment of a seed and venture capital scheme by Enterprise Ireland in 2006. This €175 million scheme targets young, high-technology start-up firms. These companies have high growth potential and operate in sectors such as software, communications and the life sciences. This development complements the re-positioning of the economy in the production of knowledge-intensive goods and services.

Everyone is aware of the impact that unemployment has on the individuals affected, their families and wider communities. Despite the success of the economy in sustaining several hundred thousand additional jobs in the past decade, there have been a number of recent high-profile instances of companies making workers redundant. The various State agencies and appropriate bodies are providing opportunities to allow affected workers access training programmes to update their skills in order that they can then access new employment opportunities. I might remind Senators that as the Minister of State at the Department of Finance, Deputy Martin Mansergh, noted in the Dáil last night, as part of its ongoing implementation of the Irish national employment action plan, a strategy introduced in 1998, FÁS reduced the employment action plan referral threshold from six months to three months for first referrals as long ago as December 2006. Last year, under this proactive labour market initiative, more than 51,000 people were referred by the Department of Social and Family Affairs to FÁS, of whom approximately 32,000, or 63%, had left the live register by the end of the year. FÁS also is placing particular emphasis on the training of low-skilled workers in vulnerable industries to ensure that in the event of becoming unemployed, they will have the skills necessary to make the transition to other employment.

The Government has given priority to full implementation of the national development plan and has provided for an increase in capital spending of approximately 12% this year. In the short term, this will help to absorb some of the capacity emerging from the new house building sector. The medium and longer-term impact of this spending will be more important. Spending on human and physical capital under the national development plan will help boost the productive capacity of the economy. It will remove critical infrastructural bottlenecks and will facilitate the re-positioning of the economy in the production of knowledge-intensive goods and services. This is how Ireland will become an even more knowledge-based economy, will lay the foundations for future improvements in living standards and will sustain the economy's competitiveness.

The implementation of the public service modernisation agenda has been and continues to be driven by the various partnership agreements across the public service. The current partnership agreement, Towards 2016, builds on the progress made under previous agreements and ensures continued co-operation with change and modernisation initiatives, as well as improvements in productivity across the public service. It provides an important framework for meeting the economic and social challenges ahead and builds on the achievements of previous agreements.

The OECD review of the Irish public service was published recently and it acknowledged the central role played by the public service in contributing to an economic success story that many OECD countries would like to emulate. It states that while service provision is good, scope remains for improvement. The key will be to get the public service to become more efficient. Growth in new public sector bodies must be reined in and what is already there must be rationalised. The Taoiseach will announce shortly the appointment of a task force on public service reform to report to the Government with a comprehensive programme for action.

It has been known for some time that in riding out a storm, economic flexibility is crucial. The Government knows this from having overcome difficulties in the past and the ESRI review, published today, restates this point. The limited economic fall-out from the global information technology shock at the beginning of this decade is one of the best examples of the economy's resilience. In other words, while the short-term prospects are unfavourable, we face them from a position of considerable strength and the economy is sufficiently resilient to ensure the medium-term prospects remain relatively benign. This, of course, is predicated on implementing the correct policies, which the Government is determined to do.

Under the Government's assured stewardship, the fundamentals of the Irish economy will remain strong. Because of this, Ireland is well placed to absorb the housing adjustments and external shocks in order that its medium-term prospects will continue to be favourable. The public finances are sound, with one of the lowest levels of debt in the euro area. Irish markets are flexible, which allows us to respond efficiently to adverse developments. Ireland has a dynamic and well-educated labour force and a pro-business outward-looking society. The tax burden on both labour and capital is low. Not many countries anywhere in the world face the present global economic difficulties with such advantages.

In addition to corrective action, if Ireland is to keep its medium-term prospects bright, we must reassert our rightful position at the heart of Europe through a "Yes" vote on the Lisbon treaty in June. I listened to Senator Doherty's contribution a few moments ago, which extolled the merits of export-led growth. I am astonished that a party is campaigning against the Lisbon reform treaty when its principal spokesperson in Seanad Éireann extols the merits of export-led growth. Fundamental to export-led growth is Ireland's continued participation in the European Union on the terms we have negotiated in the Lisbon treaty. These terms were negotiated by the then Taoiseach, Deputy Bertie Ahern, and the present Taoiseach, Deputy Brian Cowen, in his former capacity as Minister for Foreign Affairs, ably assisted by many of the best in the Irish public service. This is not a treaty which is being imposed upon us from Europe. It is a treaty to which some of the best and brightest of a particular generation in Ireland applied their minds. In economic terms, it is highly important for Ireland to reassert its position at the heart of Europe through a "Yes" vote on this treaty in June.

Participation at the centre of a large political and economic grouping, the European Union, gives Ireland real negotiating power in international relations, particularly in the area of trade and increasingly in the field of diplomacy. Only yesterday evening, I attended the meeting of the European finance ministers which takes place on a confidential basis, to meet the officials of the European Central Bank. Through such a medium, Ireland, in common with the other smaller countries, as well as the greater countries that are in the European Union, has the access to at least make its views heard regarding the monetary policy that binds us all. Previous generations of Irish statesmen, leaders and representatives did not have such access. Ireland's membership has provided free access for Irish indigenous industry and international firms to an internal market, which now numbers 500 million consumers. I commend the Government amendment to the House.