Brian Lenihan Jnr (Dublin West, Fianna Fail)

I welcome the opportunity to contribute to this Seanad debate on the stewardship of the economy by the Government and to acknowledge the productive investment being made under the national development plan. This plan consolidates and enhances Ireland's economic competitiveness. In particular, I would like to take the opportunity to outline the main measures that the Government is taking to address our current economic challenges. I assure Senators that through enacting policies that support our economic and budgetary stability, the Government is taking resolute steps to ensure that we are well positioned to take full advantage of a future upswing in the global economy when it emerges while at the same time maintaining steadfast in our commitment to protect the vulnerable in our society.

While the focus is on our current situation and the actions announced by Government, it is worth reminding ourselves of Ireland's transformation in both economic and social terms over the past decade. We have experienced unparalleled levels of economic prosperity and success. During this time the rate of economic growth in Ireland has averaged approximately 7% per annum. This very strong rate of expansion has facilitated a convergence in Irish per capita incomes not only up to but beyond those enjoyed in other advanced economies. This Government and its predecessors have soundly managed the public finances. For example, we have delivered budget surpluses in ten of the past 11 years while managing to fund a substantial investment programme.

Of equal impressiveness has been the performance in our labour market. We now have over 2 million people in work compared with 1.5 million a decade ago. This has facilitated a decline in the unemployment rate from over 12% to the current position now, where we enjoy one of the lowest rates of unemployment in the eurozone. This has also led to the ending of involuntary emigration and Ireland has become a destination country for migrants in recent years. The current situation in the labour market is not as good and while we expect to see a pick-up in unemployment throughout this year, we must not lose sight of the fact that the economy is still producing jobs — good quality, high end jobs. We still have a very high level of employment in this country.

However, as Senators will be aware, in common with other countries, the economy has now entered a more challenging period. Domestically, the pace of transition for the new house building sector to more sustainable levels of output is having a significant dampening effect on economic growth. Global economic developments have compounded this situation. A continuation of international financial market difficulties, rising food and oil prices, adverse exchange rate movements and a general weakening of the economic outlook in several of our major trading partners are also causing problems.

As a small open economy focused on international trade, our scope to mitigate the effects of such global economic developments is restricted. The impact of this combination of domestic and external shocks means that our economic growth has plateaued for now, albeit at a very high level.

As Senators are no doubt aware from last week, my Department, taking account of the latest available data, has revised downwards its economic growth forecasts for this year as the downside risks identified in the budget last December have materialised. It is now expected that GDP and GNP will expand by just 0.5% this year. However, in considering this very modest rate of real expansion in the economy this year, it must be recognised that the significant investment in the housing sector represents a drag of the order of 4%.

Apart from the construction sector, it should be pointed out that the rest of the economy has performed well given the international circumstances we face. The outlook is for tax revenues to remain weak for the remainder of the year with a tax shortfall of the order of €3 billion now being factored into the budgetary arithmetic.

On the spending side, Government expenditure is running at 11% higher than the same period last year with a number of spending pressures due mainly to higher unemployment. It is Government policy that these pressures must be met without adding to overall spending this year and that is why we have taken the action we announced yesterday.

The change in the public finances as outlined by my Department last week means that, based on our current assessment, the general Government deficit, could be close to the Stability and Growth Pact limit of 3% of GDP in 2008 and, in the absence of corrective action, could breach that limit next year. It is not just a question of observing rules — it is ordinary common sense that one does not borrow to meet ongoing expenditure. This country has to live within its means.

We will not repeat the mistakes of the 1970s where failure to act in time and in the right way resulted in severe problems which persisted through much of the 1980s. If we do not pursue measured and sensible action now when confronted with the twin developments of falling revenues and pressures on expenditure, the financial situation facing us for 2009 will be more difficult and the action required will be more urgent and severe.

Yesterday, the Government announced proportionate, measured and sensible action to ensure that the public finances in the years ahead are kept on a sustainable footing. Sound public finances have been critical to our success over the past decade and are critical to future growth. The measures we are taking are designed to maintain a prudent fiscal outturn for 2008. They are also designed to limit the negative effects of any corrective action on vulnerable sections of the community.

I will outline for the House the decisions taken by the Government yesterday. All Departments, State agencies and local authorities, other than the Departments of Health and Children and Education and Science, will be required to reduce their payroll bill by 3% by the end of 2009 through all appropriate measures identified by local management in the light of local circumstances. The parameters of this exception for the health and education sector are to be agreed by the Departments concerned with the Department of Finance. That does not mean these Departments are immune from a payroll reduction. It means that because of the sensitivity of some the frontline services they provide, care will be taken in the implementation of the payroll cut. Indeed, yesterday's Government announcement drew attention to the fact that the one area in which it was willing to make funds available for voluntary redundancy was in the area of surplus administrative staff in the Health Service Executive.

All expenditure by Departments and agencies on consultancies, advertising and public relations will be significantly reduced for the remainder of this year and by at least 50% in 2009. Further savings in 2008 and 2009 are to be secured by a range of measures, including those identified as a result of the budget day efficiency review initiated by my predecessor. All of the aforementioned efficiencies will apply equally to State agencies. In addition, I have asked that these agencies be reviewed to examine whether they can share services, whether it would be appropriate to absorb some of their functions back into their parent Departments or whether some agencies should be amalgamated or abolished. The outcome of this will be considered by the Government in the autumn.

To those who urge that I should publish a list of affected bodies, it should be borne in mind that many of these bodies are established under statute and have established personnel, practices and locations of work. It is essential that in doing a comprehensive review of all of these agencies, we come to conclusions about them having listened to what they have to say. The House should be under no illusion about my determination to deal with the issue of the proliferation of State agencies and bodies. I am determined to deal with it and proposals will be brought to the Government in the autumn to reduce the number of such entities.

Capital investment will remain a top priority. Capital projects will be examined and prioritised to ensure that resources are targeted at construction-related investment in core economic infrastructure that adds to productive capacity. We will also take account of our climate change obligations in having regard to how we proceed on capital investment.

The Government has also decided, in light of the current Exchequer position, that further expenditure for the acquisition of accommodation for decentralisation will await detailed consideration of reports from the decentralisation implementation group. My colleague, the Minister of State, Deputy Martin Mansergh, will head up a joint public procurement operation between the OPW and the Department of Finance to drive a programme of reform and to produce a business plan for purchasing savings to be achieved by Departments and other public bodies in 2009. He will report in the autumn with specific proposals to target at least €50 million savings in 2009 on this front.

Given the projected revision to GNP and other factors, there will be savings in overseas development assistance, ODA, of some €45 million this year. The revised total contribution in 2008 will be over €200 per citizen, totalling approximately €900 million. Ireland is far ahead of almost all other developed nations in our rate of ODA.

In addition to these measures, the Department of Finance and the Department of Health and Children will draw up proposals for a targeted scheme to reduce surplus staff in the HSE as soon as possible. We will consider extending this scheme on a selected basis to other public service agencies where staff surpluses are identified. These and other savings announced are estimated to deliver €440 million and the fiscal position will continue to be rigorously monitored and controlled. The Taoiseach already set out earlier today in the Dáil a breakdown of the components of the aggregate savings.

The delivery of the productive investment priorities to be financed under the national development plan will ensure our economy is well positioned to take advantage of a future upswing in the global economy. This investment will also improve our competitiveness and provide a better quality of life for everyone in the country. The investment in economic infrastructure and human capital will boost the productive capacity of the economy and facilitate a repositioning of the economy in the production of knowledge-intensive goods and services. I stress to Senators that I am committed to investment in the infrastructure and productive base of this country. Of course, projects will have to provide value for money to the taxpayer, but if they pass that test and add to our competitiveness, they will be prioritised.

The comprehensive 2007 NDP annual report laid before the Oireachtas last week shows the Government's commitment to making the investment necessary to consolidate and enhance Ireland's economic competitiveness. The report outlines the financial outturn of each NDP sub-programme, the outputs resulting from NDP investment and expenditure and the contribution of NDP investment to promoting all-island co-operation, regional development, environmental sustainability and the development of the rural economy.

For many, the most visible outputs from NDP investment can be seen in our steadily improving transport network. By the end of 2007, 313 km of the major interurban routes linking Dublin to Belfast, Galway, Limerick, Cork and Waterford were completed and a further 324 km were under construction. NDP investment in 2007 also helped to augment our public transport infrastructure through the provision of new rolling stock, new stations in the greater Dublin area and the commencement of the extension of the Luas red line trams to carry more passengers.

In the built environment, some €670 million in NDP investment in 2007 helped to upgrade our environmental infrastructure and facilitated commercial and housing development. This investment also supported the NDP's objective of enhancing environmental sustainability. NDP investment also supports the progressive implementation of the strategy for science, technology and innovation. This will help firms in Ireland to produce high-quality, value-added and innovative goods and services that will generate competitive exports. In 2007 some €635 million in NDP investment went into research, development and innovation in various sectors.

The NDP also assisted our enterprise sector, both in terms of helping indigenous firms to grow and prosper and in attracting foreign direct investment. Some €432 million of NDP investment in 2007 helped create 210 high-potential start-up companies, helped indigenous firms enhance their export readiness through productivity improvements and created over 9,000 new jobs in overseas companies located in Ireland.

The tourism sector was also supported under the NDP to market Ireland and to provide people working in the sector with the skills and training that will enhance Ireland as a tourism destination. The NDP also enabled work to begin on the new convention centre in Dublin, the progress of which is highly visible on Dublin's quays. Through prioritising such productive investment, we will lay the foundations for future improvements in living standards so as to ensure that our economy's competitiveness can be among the best in the world.

The Taoiseach remarked yesterday that we intend to manage this challenging period through the social partnership framework. That framework has played a vital role in delivering economic and social benefits over the past number of years and ensures that all stakeholders in our economy have a shared sense of the difficulties that are emerging and that inappropriate policies are not implemented. This approach can also ensure that competitiveness is restored, thereby enabling a rebalancing of activity towards sustainable growth.

I remind the House that we face our current challenges from a very strong position. Although we are now facing into a number of short-term difficulties, the economic prospects beyond these still remain favourable. Our remarkable economic progress has not been reversed overnight. Its underlying health remains strong. We must not forget that the economy has responded quickly and effectively to difficulties in the past.

Our markets are flexible, allowing us to respond quickly to difficulties, we have a dynamic and well-educated labour force, we have a pro-enterprise oriented society and taxes for both workers and businesses are low. It is worth reflecting that not many countries face the current global economic difficulties from such an enviably strong position. While growth this year will be very weak, my Department anticipates it will pick up next year to somewhat of the order of 2.25% and towards trend growth of 4% by 2010. None of this will happen unless we observe the necessary disciplines. It is just not good enough for Opposition critics to suggest, as an informed commentary on the Government's plans announced yesterday, that we can cut taxation and increase spending. That will not solve our economic problems; it will compound them.

Our perspective on the positive medium-term outlook for the Irish economy has been shared recently by the independent economic research body, the Economic and Social Research Institute, in its Medium Term Review 2008-2015. However, I must stress that this benign scenario will not materialise unless we observe certain necessary disciplines now. On account of our sound economic management and the underlying health of the economy, the institute agrees that the Irish economy is flexible and resilient and has the ability to absorb a downturn.

In conclusion, the objective and priority of the Government is to balance the need for fiscal restraint to ensure domestic recovery with the need to protect the vulnerable. Our economy is resilient and through priority investment in the economy underpinned by measured, decisive action, we will be well-placed to take advantage of a future recovery in the world economy and return to our potential growth rate as soon as possible.