John Gerard Hanafin (Fianna Fail)

I am very conscious of what Dickens said in the 1800s in the preamble to one of his books: annual income twenty pounds, annual expenditure nineteen aught six, result happiness; annual income twenty pounds, annual expenditure twenty pounds aught six, result misery. I am very conscious too that we have a job to ensure the national finances and to put the Government back on track to avail of the upturn that will, inevitably, follow in international markets. Whatever changes we make, whether cuts in expenditure, increased taxes or borrowing, we must not make those changes as people who relish what they must do. None of us likes being in a situation where we must make cuts or increase borrowing and taxation, but we must undertake the task with responsibility and sell the proposals as necessary. Only necessary cuts should be made and cuts should be made only after having measured twice. I am conscious that some people will say we cannot cut here or there, but, unfortunately, there will be cuts that will be unpalatable.

We have a responsibility to the public finances and to international markets. All the income generated by the State is taken up by the Departments of Social and Family Affairs and Health and Children. Therefore, even the amount we give in foreign aid is borrowed. When the tide goes out on the economy, everything falls. Misfortune comes not as a single spy, but in legions. We have lost out on VAT receipts, income tax, corporation tax and in all income areas, including stamp duty. This loss is an opportunity we should grasp to re-examine our taxation system.

We have the opportunity to make arrangements with the North. We are already co-operating at many levels with the Executive there, including building a motorway to Derry. The Scottish Parliament has put a minimum pricing order on the price of alcohol. It would be appropriate for us to co-operate with the North in doing the same here. Co-operation puts an onus on both sides to ensure tax harmonisation between the North and the Republic. This would have the effect of cutting out cross-Border shopping, which has a knock-on effect. It is very difficult to look for an increase in services when Border towns such as Letterkenny, Buncrana, Monaghan and Cavan are suffering because of cross-Border trade. There is an onus on us now to set up a meeting with the North of Ireland Executive to seek harmonisation of taxes and to arrange for that with the UK Government. This would help improve the income stream of both the Northern Executive and the Republic. What is even more important, any temptation for people to traffic goods illegally, whether petroleum products or cigarettes, or defraud VAT would be immediately removed. Some of those involved in illegal trafficking of goods wear a false cloak. They pretend to have a political motive, but gangsterism and defrauding Revenue is behind much of the action.

There is an onus on us now to sort out the banks. Unfortunately, regulation has failed and it has become apparent there is a disconnect between the reality on the ground and what has been happening in the banking sector. The first major mistake made was off balance sheet lending. This meant that billions were borrowed abroad to invest in a property bubble in Ireland. That was not regulated at the time. The situation now is that the banks are indebted for many billions, but the Government has taken the necessary steps to deal with that. However, there is an onus on us to ensure that in future only a certain percentage of deposits are allowed for property and commercial lending — perhaps 50% of total borrowing — and that all off balance sheet lending, which goes against all proper business practice in banking, is disallowed. That would ensure that while it might be more difficult to get a loan, we would not have another property bubble.

We have a responsibility in the budget to create and save jobs. There is only one possible route for us to continue the economic success of the past — we must be competitive. The only secure job is a competitive job. We were competitive in the 1990s, when our success started, and that lasted until the early 2000s. Real wealth was created then. Despite the difficulty when seeking cuts, we should continue to allow tax savings for people who create employment. I refer to the exemptions for those exclusively engaged in employment creation. It is time we cut back on property related exemptions which are way past their sell-by date. Any that are outstanding at the top marginal rate should be reduced immediately to the lower rate.

In the budget we have a duty to assist those who are less well off. We have some of the highest welfare rates in Europe and some facilities in the State are unavailable in other European countries. There is no doubt that there will be changes. It is known that there is duplication which we cannot afford. The beauty of social welfare has always been that it targets those in real need but abuse should be stamped out wherever it occurs. This involves ensuring airport manifests of people flying in from Third World countries to claim benefits are checked to identify the repeat flyers and ensure those from Northern Ireland who are signing on can no longer do so, unless they are genuinely available for work and living here. The disparity in rates between the two states is over €130 a week.

We have a responsibility to ensure our international reputation remains intact. It was under threat from certain members of the financial institutions in the city of London. They denigrated the Irish economy and the economies of some of the peripheral European states such as Greece, Spain and Portugal. Unfortunately, given that they took such a set against the euro from the outset, nothing would have suited them better than it not succeeding.

We are very fortunate Ireland is not like Iceland. Iceland, a major member of the group of advanced economies, suddenly found itself so much in debt that it is now technically bankrupt. Ireland benefits from the stability and security of being in the euro zone and is very fortunate in that regard. As mentioned previously, we have a very low tax rate. When asked what we did with the benefits of the boom, the response is that we had very low taxation, put money aside in the National Treasury Management Agency, paid significantly higher wages and increased the number employed in the public service. We also had the lowest national debt.

In the light of the fact that it is incumbent upon us to sweeten the medicine we must take, I accept it is absolutely necessary in the short term to increase our borrowing. We spoke about the tide going out but when it inevitably arrives again at our shores, it will lift all boats. The economy which was well placed to take advantage of international economic trends must continue to benefit from the hard work that ensured we had the lowest rate of corporation tax, the best facilities available and the highest standards of employment and education. We should continue in this regard.