Martin Mansergh (Tipperary South, Fianna Fail)

I welcome this opportunity to address the Seanad on the state of our economic prospects. We have witnessed their dramatic deterioration over the past year, which we must face up to. In the days of our prosperity, perhaps we should have heeded the words of the psalm, "though wealth increase, set not your heart upon it". Certainly, any belief here or elsewhere that the economic cycle could be abolished or softened represented the triumph of hope over experience. It will be a long time before any country makes such an assumption again or mistakes the dangers of indulging runaway growth.

An almost unprecedented set of circumstances has now emerged. The relatively new globalised economy is facing a most uncertain outlook. From an Irish perspective, the fall-out from these developments means we are confronting major challenges on all budgetary, banking and economic fronts. It is understandable that people are afraid or angry or both. Our duty in the Government and in the Oireachtas is to give back a sense of responsibility and direction to support the basic level of confidence needed for any society to function effectively.

The origins of the global financial market crisis are well known in outline. Nevertheless, the causes of the problems and the solutions to them are complex, as indicated by the broad range of policy responses so far employed by the relevant authorities in other countries to address them. Global financial market conditions remain extremely difficult, negatively impacting upon almost all of the world's economies. Access to credit has been restricted in most of our export markets, weighing on household expenditure and on normal business investment and activity. The European Commission recently revised downwards its projections for growth in all our major export trading partners for this year. It is projected the eurozone, the United Kingdom and the United States will all experience a recession this year, with at best a modest improvement in the next year. Combined, these economies represent the destination markets for about 80% of our exports which will limit our ability to export. Yesterday, in one day, 72,500 jobs were reported to have been lost worldwide.

Factors outside our control such as recent exchange rate movements have also contributed to the declining competitiveness of our exports on global markets. Particularly vulnerable are many of our small and medium-sized enterprises which export to the sterling area. Many of these firms are small and labour-intensive. The recent fluctuating appreciation of the euro against sterling has eroded the competitive position of these firms.

While we cannot influence exchange rate or other external developments, we must focus on those aspects of competitiveness over which we can exert influence. These include pay and non-pay costs, infrastructure, the skills level of the population and the regulatory environment. Our objective must be to position the economy to take advantage of global recovery when it emerges.

Difficulties on the international front are being compounded by sharp contraction in the construction sector. The level of house building this year will be around one quarter of that which prevailed in 2006. The slowdown in the house building sector has spilled over to other sectors of the economy, with results in recent months being especially poor. Employment is declining, unemployment is at its highest level in over a decade, consumer confidence is poor and tax receipts have declined drastically.

The Department of Finance expects the economy to contract by 4%, following a decline of nearly 1.5% last year. A further contraction, although at a slower pace, is projected next year. If so, this will represent the first time in the State's history when there were three consecutive years of declining economic activity.

The sharp deterioration in economic growth has had a huge effect on the public finances. Tax receipts last year were almost 14% below their levels in 2007, with those tax heads most closely aligned with the housing and the international financial markets worst affected. Ireland complies fully with its international obligations in respect of taxation. The world is becoming ever less tolerant of unco-operative tax havens which maintain absolute bank secrecy to facilitate illegal tax evasion by high worth individuals or companies.

Reduced levels of tax revenue mean that not enough is being collected to finance the increases in public expenditure over recent years. Ireland is once again borrowing significantly to fund day-to-day spending, while totally funding all capital expenditure from borrowings at a level which simply is not sustainable.

In the absence of further policy action, a general Government deficit in the range at least of 11% to 12% of gross domestic product would be in prospect for each of the years to 2013. This situation is untenable and as a result, the Government has submitted a plan to the European Commission which prioritises the elimination of the current budget deficit and the restoration of a general Government deficit below 3% of gross domestic product by 2013.

The plan will restore balance to the public finances by prioritising current expenditure and adjusting both expenditure and taxation levels to reflect changed realities. At the same time, capital investment has been retained at a high level to provide, in addition to automatic stabilisers, a significant fiscal stimulus while boosting the longer term productive capacity of the economy. In this context, the Commission on Taxation and the special group on public service numbers and expenditure programmes will have a key advisory role to play. However, substantive immediate action is also required. With that in mind, the Government agreed expenditure savings of €2 billion have to be made in 2009. We must demonstrate clearly, both nationally and internationally, that in response to the exceptionally difficult environment that we face, our public finances will be managed in a stable and sustainable manner and brought back on track.

We are tackling these challenges starting from a position of relative strength. The period of extraordinary economic growth which Ireland experienced allowed the significant reduction of the general Government debt. At the end of 2008, it stood at 41% of gross domestic product, still well below the 60% which is the benchmark level for the eurozone. In addition, the general Government debt does not measure the significant value of the National Pensions Reserve Fund or the substantial cash balances the National Treasury Management Agency holds. When account is taken of these, Ireland's net debt is closer to 20% of gross domestic product. This low initial level of public debt provides some leeway to target a restoration of balance to the public finances over several years. Doing it over a shorter timeframe would inflict unacceptable extra costs and job losses on the economy.

Vital discussions are taking place at present with the social partners on all aspects of the public finances, including the public service pay bill. Decisions need to be taken by the Government in the near future. I do not wish to say anything to prejudice the outcome of these deliberations given the critical sensitivity of this process. However, it is clear all elements of public expenditure need to contribute to the package that will be implemented by the Government to begin restoring balance to Exchequer finances.

The position of the banking sector is fluid and the Government continues to monitor developments closely, both nationally and internationally. The Government is committed to providing a platform for a regulated and profitable banking industry of high repute that operates in a national and international financial services environment. The bank guarantee scheme, recapitalisation and linked credit package, and the nationalisation of Anglo Irish Bank are intended to meet these objectives. Requirements for the banking sector are that the banks will serve borrowers, small and medium-sized enterprises and all stakeholders in an honest and straightforward way to ensure customers and consumers are treated in a reputable and respectable way. Those ci-devant movers and shakers who by their manipulations have betrayed public and stakeholder trust and thereby greatly exacerbated an already difficult situation will be brought to account.

Significant falls in the share prices of Irish banks pointed to the capital market's belief they were undercapitalised. The Government's plan to recapitalise is intended to stabilise the Irish financial system and secure its funding base. Discussions are ongoing with Allied Irish Banks and the Bank of Ireland on recapitalisation. Discussions are also continuing on the capital requirements of our other financial institutions.

The nature and thrust of Ireland's regulatory regime needs to adjust to the new realities. Lessons will be learned from mistakes made and from the international experience of the recent period of worldwide financial disruption. Work is under way on forging a new model to govern the conduct and behaviour of the financial sector, both domestically and internationally.

I wish to say a few words about the current role of the Office of Public Works in regard to expenditure reduction and investment. The OPW's expenditure has been reduced by roughly €200 million, or 30% in real terms, since I took office last May and further savings are likely. Minimal constituency staff, comprising one unestablished civil servant in each of Dublin and Tipperary, are employed by my office. Further substantial works to Leinster House have been postponed. A national procurement operations unit to rationalize and economise on procurement policy across most of the public sector was approved in principle by the Government last July. As manager of much of the State's property portfolio, our job is to bring down and keep down the cost of rents. The decentralisation programme has been rationalised and concentrated on the more immediately viable projects and a review of others will take place in 2011, when much of the programme will have already been fulfilled.

Heritage management is a vital area of activity, with direct relevance to our domestic and foreign tourism industry. The OPW manages a large number of the most important tourist attractions in the country. Our objective is to maintain and develop these sites and properties and open public access to them at a level that can be economically justified in broad terms.

I have given absolute priority to flood relief schemes because of the serious incidence of flooding in recent years and the need to increase the strength of our defences ahead of the threat of further climate change. All the evidence indicates that there can be a substantial return on investment in such schemes in built up areas and that small works in villages and parts of the countryside, whether carried out by the relevant local authority or the OPW, or both, can often make a big difference. I visited the works under way in Clonmel and Mallow last week and on the River Dodder last December. A scheme to protect properties in Mornington, County Meath, will commence next April. Tenders on the first phase of a scheme to reduce the flooding in Fermoy were issued last Friday and work should commence in May. Flood risk assessments for all the river catchment areas in the State will be commissioned over the next five years. Improved levels of flood protection will help to minimize risk to life and serious damage to property, as well as reverse the decline of urban areas regularly prone to flooding. They are a good example of infrastructural investments related to the environment that improve both quality of life and the scope for viable urban renewal. They are, therefore, being prioritised in the current economic conditions.

Like all other open trading nations, we are in an acutely difficult international and domestic economic environment. The Government has been pro-active and difficult decisions are being made which will help build the path to future recovery. We must not lose sight of the fact that we have strengths, including our very low level of public debt which gives us some leeway over the short-term by allowing the public finances adjust, and our level of employment which is still high at some 2 million in work, or over 600,000 more than was the case a decade ago. We are still a high income country by international standards and our underlying growth potential remains strong. Many important and worthwhile projects and public improvements are still in the pipeline. Without underestimating the issues currently facing us, the challenges we face must be overcome in order to maintain maximum employment and to set up a position that is conducive to renewed employment growth in the future. I look forward to a constructive and informed debate.