Jim Walsh (Fianna Fail)

Cuirim fáilte roimh an t-Aire Stáit go dtí an Teach chun an ábhar tabhachtach seo a phlé. I welcome much of what the Minister had to say this morning. He pointed out that Ireland is a good place for business, which has meant that we have attracted much more foreign direct investment than our population would indicate. Much of that success is predicated on a well educated workforce with a very good work ethic. I am always surprised to see young, well qualified people who apply themselves so diligently to their jobs and who work long hours without overtime, especially in the private sector. That is something that has stood us in good stead.

Our taxation policies over the past ten years or more have facilitated the growth in our economy. While we have been playing catch up with our infrastructure, there has been significant improvement through the national development plan in the past few years, and much money has been ploughed into improving transportation, communication and other areas that are vital for business. The investment climate has generally been good. In the current situation, it is important that the fiscal policy we adopt maintains these gains.

Comments have been made in this House and elsewhere about the budget and about the rapid deterioration in the economy and in our public finances. It is a global phenomenon, and countries much larger and richer than Ireland are struggling to cope with their difficulties. Shortly after assuming office last July, the Minister took remedial action on public finances, which is to his credit, by looking for savings of €500 million due to indications that our public finances were going into deficit. Much has been made of the decision to introduce an early budget. At the time, I thought it was a good idea and was done for the right reasons. When the budget is left until very late in the year, the planned savings will come in after a few months of the following year, and the Exchequer does not get the full benefit. Therefore, it was right to do it. However, there has been a significant yet unforeseen deterioration in public finances since then, and we have seen the many problems that have been occurring worldwide.

I have heard a number of economists asked in the media whether they would like to be a Minister for Finance at this time, and they all said "No". Nobody envies the challenges confronting the Minister. I honestly think he has performed well in the short time that he has been there. During the banking crisis in September, our banking system could have collapsed, but very quick action was taken to give the guarantees which stabilised the situation. The Minister has been right to take his time on the capitalisation issue. Other countries took decisions on capitalisation early on, but this has not improved the banking situation for them and the volatility in the sector certainly has not been stabilised.

There are many aspects to this Bill that I would commend, although I would have reservations about some. In his speech, the Minister mentioned mortgage interest relief, and that is not just important for the construction industry. When house prices were seriously escalating, many people were not in a position to get on the property ladder, but now they have been given the opportunity to do so by the increase in mortgage interest relief and through the stimulus package introduced by the Department of the Environment, Heritage and Local Government.

About 18 months ago, the then Minister for Education and Science, Deputy Mary Hanafin, and the then Minister for Enterprise, Trade and Employment, Deputy Micheál Martin, came together to launch a greater emphasis on research and development. This area provides potential for job growth in the future, and I am glad the new plan announced will ensure the benefits and the ideas that come from the research and development will result in job creation. It is essential that we obtain the benefits, and that they do not end up in other economies. That we have targeted that area is to be welcomed.

I listened to what Senator Ryan had to say about VAT. Quite honestly, I do not think the 0.5% increase in the VAT rate will have a positive effect on our fiscal position or a negative effect on consumption levels. The real issue is the deteriorating value of sterling. I do not think any change in our VAT structure would offset that in any way. There is precious little we can do to reduce the financial impact of the decline of sterling. It is obvious that we have to try to cope as best we can until the various currencies regulate themselves and find their own levels.

We have gone as far as we should in respect of pension tax relief. Pension provision will be a major issue in the future. I am not sure the increase of 2% in capital gains tax and the increase from 23% to 26% in certain insurance-wrapped investment products represents a step in the right direction. I can understand why these increases are being provided for in a tight fiscal situation. I would like to think they will be reversed when we get an opportunity next year or in 2010. I think we should have reduced capital gains tax to 18% to attract investment. Fiscally, the increase in capital gains tax means nothing because people are suffering losses at present. It will be of very little benefit in the future.

I wish to comment on the overall position. I concur with the ESRI's prediction that unemployment will increase to 10%. It will be well in excess of what was predicted when the budget was drawn up. The current budget deficit of €4.7 billion will probably increase to €8 billion or €9 billion, unfortunately. The Minister emphasised that there is a real need to restore cost competitiveness. I wish to mention a worrying factor in that regard. I refer to a survey that was conducted in 2007, which involved a comparison of salaries in many EU capital cities. The second highest wage levels, of approximately €38,000, were found in Stockholm. The highest wage levels, of approximately €52,000, were found in Dublin. That indicates to me that our wages and salaries are probably between 25% and 30% higher than those in the countries with which we are competing. It is an enormous difference.

I suggest, from a fiscal point of view, that we should do what companies in the private sector are doing. Rather than merely freezing wages and salaries in the public service, we should claw back the 10% wage increases that were awarded under the benchmarking system. We need to look at numbers in the same way as the private sector. I suggest that a 15% reduction in staff levels would be appropriate. We may have to do this over a couple of years. We should aim to reduce our salary bill by approximately €4 billion. We should try to save a further €4 billion by eliminating wasteful and unnecessary expenditure that does not yield any services or add anything to the economy. I suggest that actions of that magnitude are needed if we are to overcome this serious and difficult challenge.

I agree with Senator O'Toole that a national consensus is needed if we are to achieve our aims. As politicians, we should be more than hurlers on the ditch. We should act as statesmen. If we fail to do so, we might still be talking about these issues five or ten years from now. That would be a sad reflection on all of us.