Marc MacSharry (Fianna Fail)

I welcome the Minister of State to the House and I am pleased to have the opportunity to contribute to the debate. We live in a time of almost unprecedented economic uncertainty and while I usually begin with a retort to Senator Twomey, I will leave that to the end of my contribution. A number of potential downside risks to the economy were identified in last year's budget and all of them materialised. They included weaker growth, increased commodity prices, currency appreciation, spillover effects from financial markets and lower housing output. The upheaval in global financial markets, especially in recent weeks, is unparalleled and it is difficult to know how this will ultimately impact on economic development. There is no upside to these developments.

Ireland is also experiencing a housing market adjustment. Lower output this year will reduce economic growth by 4%. The difficulties and issues in the housing market have spread to other sectors of the economy by impacting on employment, confidence and taxation revenue. Reflecting these developments, the economy has moved into recession and growth for the year will be negative with a cumulative decline in output of 2% over the next two years. While positive growth is expected to be relatively weak in 2010, the economy is expected to be back on a more sustainable growth path in 2011.

Lower growth and, in particular, the contraction in consumption and house building have had a major impact on tax revenue, which is 10.5% lower this year. The increase in unemployment has put pressure on spending, with the result that a general Government deficit of 5.5% of GDP is in prospect this year and it will reach 6.5% next year. This turnaround in the public finances from a surplus in 2007 is unprecedented in the EMU. Unemployment has increased. Averaging 4.5% last year, the forecast for 2009 is 7.3%.

Senator Twomey focused on our economic fundamentals, many of which remain strong. Our population in the early 1990s was 3.6 million, but it is now 4.4 million. Where there was a workforce of 1.2 million, that figure is now 2.2 million. For some of the reasons I have outlined, one would obviously acknowledge that the level is rapidly decreasing. GNP in the early 1990s was €66 billion, but it is now €160 billion. GNP per capita was €10,800, but is now €36,100. The rate of unemployment was 16% and is heading for 7% now. The debt to GDP ratio was 95%, but is currently 25%. While it will increase to 43%, this is well below the EU average of 60%.

When heading into the difficulties of the mid to late 1980s, my father, Ray MacSharry, did not have economic fundamentals as strong as these when delivering his budget in 1987 to lay foundations, which we are now attempting to do to position ourselves to maximise potential benefits from the upturn. It was necessary to take tough decisions when preparing this budget, the aims of which are to bring order and stability to the public finances, to enhance productive capacity, to ensure fairness in public spending and, importantly, to protect the most vulnerable in society.

Like Senator Hanafin, I am proud to stand on this side of the House and welcome the increases in social welfare in the context of our current economic difficulties and tax revenue. The Minister of State referred to some of them, but they are worth noting again. The non-contributory and contributory pensions increased by €7 to €219 and €230, respectively, per week. The qualified adult allowance rate increased by €6.30 for those aged 66 years and over and €4.60 for those aged under 66 years. The fuel allowance has increased by two weeks with an extra €2 per week. Carer's allowance and carer's benefit increased by €6.50 per week. The lowest full adult social welfare rate increased by €6.50 to €204.30. The qualified child rate has increased by €2 to €26. The threshold for the family income supplement increased by €10 per child per week. The minimum maternity benefit and adoptive benefit rates increased by €8.50 to €230. Some €20 million extra has been allocated to fund school therapists and psychologists, €10 million each for the Departments of Health and Children and Education and Science. Some €55 million extra has been allocated to implemented the fair deal for nursing homes.

The budget has been financed against a background of the most challenging fiscal and economic situation for a generation. In particular, we are confronted by severe budgetary pressures and negative economic growth. The budget's aim is to restore order and stability to the public finances with fairness in mind, to increase productivity and competitiveness and to protect to the greatest extent possible the position of the most vulnerable. Against the uncertain international and domestic economic background, the Government is determined to pursue prudent and sustainable policies that will help everyone through this challenging period.

There is no question but that the budget was tough. Listening to various broadcasters and reading the print media today, one could feel a sense of anger, fear and worry about the toughness of some measures. There are concerns about the 1% and 2% levies. As Senator Twomey mentioned, there are concerns about the over-70s medical card. As the Taoiseach mentioned, only 6% of people will be without those cards when one takes into consideration the other measures. I understand the fear and anger in this respect, but I am confident the Minister will take these concerns into consideration.

I also understand the natural level of frustration with the 1% levy on all income. However, it is vital that we all shoulder a burden proportionate to our means. As a rebuttal to Senator Twomey's comment that this is a 1% levy on the poorest, tax on the poorest was 20 times as high when his party was in government.