Ivor Callely (Fianna Fail)

This debate takes place against the background of the most dramatic deterioration of our economy and a widespread loss of confidence across the broad spectrum of society. The 2008 end-of-year results have been calculated and are not good, and the first quarter results for 2009 are likely to be the worst in modern times. No one yet knows the full extent of these developments but an almost unprecedented set of circumstances has now emerged which translates into an enormous challenge on all budgetary, banking and economic fronts.

It is understandable that people have lost confidence. We live in uncertain times, are in uncharted territory, and people are afraid and angry. It is only natural that when things go wrong, people will look critically at those who represent them, at leaders in social, community and business circles, and at all who are entrusted to manage and show leadership in their respective roles when necessary. They have been found wanting in recent times.

The dire state of the economy warrants unity, purpose, firmness of resolve and belief in our ability to overcome. We are obliged to offer leadership, direction and hope, especially to our young people who had no input into this mess we find ourselves in. I welcome the Taoiseach's initiative with the social partners to re-enter discussions to avoid social and industrial unrest and wish all well with their endeavours. We all have a stake in each other's success because the more each individual succeeds, the more all will succeed and we must be positive about our future.

On the jobs front, there has been an almost total collapse of the building and construction industry, with serious consequences for related activity. In other industries there have been widespread factory closures, job losses and redundancies. We must strive to protect employment and find new areas to create job opportunities, especially in the knowledge-based economy and renewable energies. Employment is declining, job opportunities are reducing and the worldwide economic recession is limiting our ability to find other markets, making it all the more necessary to encourage small and medium enterprises by offering a range of enterprise incentives.

There is a fine balance to be struck to reduce the gap between income and expenditure. To increase tax alone without a clear three-year recovery strategy is likely to damage our economy further rather than cure it. We must focus on solutions rather than blame. At this time we cannot look outward for solutions. Solutions and recovery must be found within. This is a time to be brave and to think outside the box.

I do not have time to deal with all aspects but I wish to mention some points of interest. The taxation system in Ireland has been overly reliant on the property sector and now that sector is undergoing a severe correction. This situation is made worse because it is happening at the same time as a global financial crisis which is having a serious impact on other sectors of the economy as well. The effects on the public finances of the property downturn have been exacerbated because of the combination of reduced income levels from stamp duty, VAT and construction related taxes allied to increased expenditure on social welfare supports. A serious gap has arisen between the income and the expenditure of Ireland Inc.

There is little to be gained, however, in diagnosing how we got here. We need firm and workable strategies to allow us to deal with the current situation and return the economy to a position where the curse of endemic unemployment and immigration does not return and this country can return to a growth path. We must revise our budgetary approach to ensure the State continues to support the development of the social and economic fabric of the nation.

The lavish overspend of former years now must give way to a sober reflection on what we can afford based on making difficult choices. As stated by the Minister for Finance, Deputy Lenihan, these choices will be underpinned:

[B]y the principles of fairness, sustainability and affordability and by the need to put in place measures to enhance our economic performance. The Government is committed to protecting the economy from the worst effects of the current international downturn and to ensuring our international competitiveness is maintained and enhanced.

It would be tempting to spend our way out of this current situation but this is not possible. Opposition politicians have suggested that we should not increase taxation levels or reduce expenditure levels but that we should rely instead on increased borrowing. Such suggestions are unrealistic and would expose our economy to even more problems in the future. The solution to our problems will involve a combination of a widened tax base, reduced current expenditure, a re-examination of capital expenditure as set out in the national development plan and recourse to borrowings where justified and sustainable.

Every earner should pay tax, even if it is at very low rates for the lowest paid workers. Those who earn more should pay tax at higher rates. Fiscal incentives to enable risk takers to reduce their personal or corporate tax bill should be available but strictly controlled so that public policy objectives are paramount in any decision to introduce or maintain such incentives. Any such incentives should be limited in their effect so that, for example, a higher rate taxpayer cannot use any incentive or combination of incentives to reduce the rate at which he or she pays tax to below the standard rate of tax. All existing tax shelters and tax incentives that allow a top rate reduction should be reduced immediately to the standard rate of tax. With citizenship come

Widening the tax base necessarily means that those on low income levels will become liable for tax. This will be unpopular and resisted but the benefits of citizenship are there for all and that means that everyone who can must be prepared to pay for those benefits. At the same time, we must ensure the tax system, in combination with the social welfare system, does not create or maintain disincentives to work.

As we all know, the Commission on Taxation is at work and I would like to see its proposals, if even in draft format, brought forward as a matter of urgency. The commission was established in February 2008 to review the structure, efficiency and appropriateness of the taxation system. We need its proposals now even if they are incomplete.

The terms of reference for the commission take into account commitments on economic competitiveness and on taxation contained in the programme for Government, including keeping the overall tax burden low and implementing further changes to enhance the rewards of work while increasing the fairness of the tax system, ensuring our regulatory framework remains flexible, proportionate and up to date, introducing measures to lower carbon emissions further and to phase in on a revenue neutral basis appropriate fiscal measures, including a carbon levy, over the lifetime of the Government, and guaranteeing that the 12.5% corporation tax rate will remain.

Apart from the guarantee on the corporation tax rate of 12.5%, which is essential, these terms of reference appear to need revision or at least clarification, especially to keep the overall tax burden low while allowing for a flexible, proportionate regulatory framework. We need a tax burden that is fair and appropriate but not necessarily low. In addition, we need a comprehensive and robust regulatory framework, not a flexible one. Regulatory frameworks in areas such as banking and finance must be strengthened to show the international community that Ireland is a reliable and sound environment to do business.

Apart from restructuring of the existing tax system whereby limits, thresholds, tax bands and so forth are revised, there is a need to identify new areas of taxation. According to the most recent quarterly report from ComReg, the total number of SMS messages sent by mobile users in Ireland totalled 2.8 billion in the fourth quarter of 2008 compared with 2.5 billion in the previous quarter. SMS messaging volumes have increased by 32.5% since the fourth quarter of 2007 and by 70.3% since the third quarter of 2006. To put these numbers into context, a tax of 1 cent on each SMS would raise more than €100 million euros in a full year. Similarly, almost 3 billion mobile voice calls were made in Ireland in the last quarter of 2008. A tax of 1 cent on mobile voice calls would raise almost €120 million.

This sum would not on its own solve our difficulties but is an example of where new sources of taxation can be generated. Other industries and sectors also need to be examined to see whether such initiatives would generate taxation revenue. We should also examine extending the public sector levy to all those in Anglo Irish Bank or any other financial institution nationalised or supported by the State, and imposing a super tax on any individual or group of individuals found to have unjustly profited at taxpayers' expense.

As regards reduced current expenditure, particularly in health, education and social and family affairs, there needs to be a root and branch review of where the money is spent, focused on expenditure which is not directly consumer or customer-related. The proliferation of schemes, as well as the overlap and duplication between such schemes, means that some services are being provided in a wasteful and unco-ordinated manner. Where there is waste or where value for money cannot be demonstrated, then all such expenditure should cease.

The Office of the Comptroller and Auditor General has a specific value for money remit. It should be given additional resources to carry out such root and branch, value for money reviews, directly and indirectly.

Another area that appears a likely opportunity for saving is in the proliferation of small agencies, quangos and other such bodies. Such agencies are required to comply with an onerous but necessary burden of compliance on matters such as internal audit requirements, maintaining complex financial systems and health and safety requirements. I understand that many such agencies buy these services in from outside providers at huge expense. Ways should be examined to co-ordinate these requirements on a shared service basis through directly appointed employees. I pursued this issue when I was a member of the former Eastern Health Board and the Eastern Regional Health Authority. When we brought in shared services massive savings were achieved.

As a trading nation our future prosperity depends on making Ireland an attractive and efficient location for exporting and importing goods and services. The national development plan is comprised of numerous projects, each of which needs to be assessed by comparing the economic costs and benefits.

The Department of Finance has well established guidelines to carry out such appraisals and recommends that benefits are discounted at a rate of 4%. This discount rate should be increased to ensure that we are supporting, in a fair and objective manner, only those projects which exceed the current minimum threshold. Following this, only those projects showing the highest benefits compared to costs should be supported within the available financial resources. Only projects which can demonstrate that the economic benefits outweigh the economic costs should proceed. A stricter cost benefit analysis appraisal should be used to prioritise the projects to be completed first.

We must continue to stimulate the economy through rolling out our national development plan. Despite the challenging times ahead, we should tap into what will be competitive tendering processes for projects that can be achieved in the months and years ahead.

These are just some views that may be considered in the great challenges our country faces. There has been a careful assessment by the Department of Finance of the extent of our problems. Well qualified economists, accountants and other professionals are available to the Department in its consideration of the extent of those problems and the exceptional effort it will take to improve the situation.

It is often said that people on this side of the House do not put up their hands and accept a certain amount of responsibility. If there is one area in which we have faltered, it is that the Government has failed to get the message across concerning the extent of the problem and the exceptional effort it will take to improve the situation.

If people fully understood the position and could relate to a clear recovery strategy, there would be a greater willingness to help get our country back on track. Given the position we now find ourselves in, the best way to undertake such a strategy would be over a three-year period. We require a three-year recovery strategy that people would fully understand. If they do not understand it, they will not be willing to sign up to it. The exceptional effort needed to respond to the problems and improve the situation should be clearly outlined.

Because of the position in which we find ourselves, departmental decisions based on annual budgets must be re-examined in a totally different context. A multi-annual budgetary plan must be found, together with a clear strategy to help the public understand the seriousness of the situation.

I wish the Taoiseach, the Minister for Finance and their Cabinet colleagues well in facing this very difficult and challenging position.