Martin Mansergh (Tipperary South, Fianna Fail)

We must protect the jobs we have and invest in retraining; support and stimulate economic confidence as much as we can within the resources available; and restore our reputation abroad.

Foremost in our minds has been the achievement of fairness in taking the measures in this budget. We have been guided by the principle that everyone should contribute according to their means. For instance, the tax increases announced are progressive in that those who can best afford it will pay most. This will be more than compensated by the fall in the cost of living. For example, as a result of the changes proposed, a person earning the minimum wage, which is approximately €17,500 per year, will be asked to pay €350 per annum or €7 per week, representing 2% of their net wages. A person earning €50,000 per year will pay €1,500 or €29 per week, which is 4% of their net income. A person earning €300,000 per year will pay €15,655 or €300 per week, which is 9% of their net income. Fairness also requires that the real value of social welfare benefits should be protected as far as possible.

The deterioration in revenues since 2007 illustrates that in recent years our tax system had become over-reliant on construction sector activity. It is necessary therefore to restructure our tax system to suit an export-led economy growing at a more sustainable pace. In the context of a rapidly rising deficit, it also has been necessary to look at ways of reducing expenditure and increasing revenues. The total reduction in gross spending for 2009 comes to €886 million in current spending and €576 million in capital. This is equal to €1.8 billion in a full year but, together with measures announced in the main budget last October and in January, will amount to close to €5 billion. The Minister gave notice that further savings of €4.8 billion will be required over the period 2010 to 2011. The total tax and levies measures will raise €1.8 billion in 2009 and more than €3.6 billion in a full year. Again, the Minister stated that while the measures outlined in this budget have necessarily concentrated on income, in 2010 and 2011 he will turn to other areas of taxation to achieve the necessary adjustment in later years.

The Government has agreed with the European Commission that five years is the appropriate timeframe for addressing our structural problems and the necessary multi-annual consolidation plan is now being implemented. Spending reductions and savings will continue to be necessary as well as additional revenue over the period. The scale and nature of adjustments over the later years of the five-year plan will depend to a great extent on the strength of the economic cycle. If growth is better than forecast, less will need to be done at that stage.

As regards specific measures in the budget, I refer to taxation. Among the measures on taxation, the 1%, 2% and 3% income levies are all being doubled and the respective thresholds are also being reduced. The changes to the levy are progressive in that those with higher income pay the most and the burden on lower earners remains low. Approximately 30% of income earners, 670,000 people, remain exempt from the levy as do medical card holders above the threshold. The principle of fairness was central to the Government's decision and this is demonstrated by the fact that the top 1% of income earners, those with income in excess of €175,000, contribute 24% of the total income levy yield while those earning over €50,000 contribute 70% of the total levy yield.

The entry point to the income levy is still €750 higher than the entry point to the tax net in 2005. The average tax rate of a worker earning €25,000 will still be lower in 2009 than it was in 2007 and the average tax rate for a single worker earning €60,000 in 2009 is lower than the equivalent tax rate in 2004. In addition, the Government has ensured the over-65 exemption limit will remain unchanged at €20,000 for a single person and €40,000 for a married couple.

The challenge facing the Government requires that the tax base be widened and the reduction in the minimum threshold will bring an additional 110,000 earners into the income levy net for the first time. The levy only will apply to earnings over €15,028 per annum or €289 per week. The health levy rates will double to 4% and 5% with effect from 1 May 2009 and the threshold for the higher rate is being reduced from €100,100 to €75,036. Again, this is a progressive measure, which ensures those who can afford to pay the levy will do so. The reduction in the higher rate threshold means that an additional 89,000 income earners now will pay the higher rate. In terms of fairness, 50% of the yield from this levy will come from those paying the higher rate. The Government has ensured more than 1 million income earners, that is, those with income under €26,000, as well as medical card holders and the over-70s, remain exempt from the health levy.

The PRSI ceiling is being increased from €52,000 to €75,036. This will mean that 220,000 income earners will now make additional PRSI contributions and the progressive approach of ensuring those who can pay do so will be maintained. Mortgage interest relief is being retained in such a manner that it will only be available for the first seven tax years from the date on which a mortgage is taken out. This means any taxpayer who has received mortgage interest relief for more than seven tax years on an existing qualifying loan will no longer be eligible for such relief from 1 May 2009. However, the measure continues to protect first-time buyers and others who bought their homes when house prices were very high. In addition, the new rules for mortgage interest relief will continue to provide significant support for first-time buyers and others who now take out a new loan to purchase a new home, move home or take out a loan for the repair, development or improvement of their current home.

The Minister also announced a proposal for a stamp duty trading up swap scheme. This new scheme will be set up by the Government so that people who want to move to a bigger property for personal or family reasons will not be prevented from doing so. It is essentially an exchange of dwellings between a developer and a purchaser where the purchaser buys a new house or apartment from the developer who subsequently sells on the swapped or traded-in house. The purchaser of the new property will not have to pay stamp duty, unless the new property is over 125 sq. m, in which case a reduced rate of duty applies as is the current position. The developer taking the second-hand property in exchange or part-exchange will not have to pay stamp duty when the properties are exchanged. Stamp duty on the swapped house will not arise until that property is sold on.

The scheme will be in place from the date of the finance Bill up to December 2010 and full details will be in the Bill. It is estimated that there will be no cost for the scheme but that it will lead to an increased yield in VAT, income tax and corporation tax from developers who currently hold unsold housing stock.

The basic rate of deposit interest retention tax, DIRT, is being increased from 23% to 25% for interest from bank accounts etc. It is also being increased from 26% to 28% for interest on longer-term savings products, for example, life assurance and fund products. The Government has ensured that those aged over 65 years are exempted from DIRT and they may hold DIRT-free accounts. This and other capital tax changes will ease the additional tax otherwise required on labour and consumption and toward taxation on wealth and sources of wealth.

Significant increases in welfare payments have been provided over the past decade. However, the Government has had to examine how we can use the €21 billion welfare budget to afford maximum protection to those most in need in the light of the current budgetary constraints. Limited changes in eligibility to certain benefits are therefore being introduced. Specifically, jobseeker's allowance for the under 20s will be halved to €100 a week. The Christmas bonus will not be paid in 2009. Payments under the rent supplement scheme will be reduced to reflect the fall in prices in the rental market. We also will intensify the campaign against welfare fraud. The Government has also decided that child benefit will be either means tested or taxed in the budget for next year.

However, the social welfare adjustments include some positive measures too. The Government has maintained the increased support payments provided in the October budget and, as part of our response to the current levels of unemployment, has refocused resources on the enterprise strand of the back to work allowance which supports people into self-employment. Under this initiative, the employee strand of the back to work allowance will be closed to new applicants and replaced by two new back to work enterprise allowance schemes. This will enhance access and provide a two year support regime for the participants, thus encouraging enterprise and, in due course, creating additional employment opportunities.

The early child care supplement monthly payment is being halved to €41.50 per child, with effect from 1 May 2009, and will be abolished at the end of the year. It will be replaced in January 2010 with a pre-school early childhood and education scheme for all children between the ages of three years and three months and four years and six months. A capitation grant will be payable to service providers who provide free pre-school places. Approximately 70,000 children will be eligible to qualify for the new pre-school year under the new pre-school early childhood and education scheme.

The early child care supplement was introduced to assist parents to meet child care costs and, while appropriate at the time, it is not as well targeted as it might be because it is paid on a universal basis. The Government recognises that pre-primary education is a key determinant of student performance at all levels of education, which in turn raises the private and social returns from all future investment in their education. Government investment in infrastructure, through both the EU co-funded equal opportunities child care programme and the national child care investment programme has facilitated the introduction of this pre-school year scheme, which is an exceptionally progressive measure.

The Government is establishing an enterprise stabilisation fund to assist vulnerable and viable businesses by supplying direct financial aid in conjunction with the banking system over the next two years. This fund will have a total budget of €100 million over two years and will be administered by Enterprise Ireland with existing support for Irish companies in 2009. The fund is intended to focus primarily on small and medium-sized enterprises engaged in exporting.

For those who have lost their jobs, there is a need for retraining and further education. In addition to measures already announced by the Government, a further wide range of activation measures was announced in the budget with the overall cost being met through the reallocation of current resources within the relevant Departments. Within available resources, the Government will continue to pursue policies in support of further training and education services for the unemployed. The Government will implement measures to support the smart economy through investment and incentives to reach a research and development target of 2.5% of GNP by 2013.

Restoring Ireland's competitiveness is a priority so that we will be well positioned to exploit the global economic recovery when it emerges. There are positive signs in this regard. Prices and wages are adapting to the new economic realities and this should progressively improve our cost base and, in turn, our competitiveness. It is important to recognise that our medium-term prospects remain favourable, with positive demographic trends and the relative flexibility of our economy.

The current weakness in the markets poses a serious challenge to the financial system as a whole and to economic policy-makers and regulatory authorities around the world. Ireland, in line with other countries, has taken action to protect the stability of its financial system, working in close liaison with the European Commission and the European Central Bank.

The measures introduced by the Irish Government are based on the following principles: the State will not let any systemically relevant institution fail; any State involvement in financial institutions will protect the interests of tax payers; the State will have regard to legal implications, particularly under European law; and the State will support the flow of credit to the real economy. We have provided very substantial support to the banking system through the bank guarantee, bank recapitalisation and the protection provided by public ownership.

To address the issue of asset quality in the banking system, the Minister for Finance announced on budget day the setting up, on a statutory basis, of a national asset management agency under the aegis of the National Treasury Management Agency. This agency will purchase from the banks their land and development loans and their largest aggregate associated exposures. The Minister pointed out that these assets pose the main systemic risk to the banking sector and the most significant obstacle to the recovery and restoration of lending into the economy by the banking system. The transfer of these asset types from the banks will ensure that the balance sheets of the banks are strengthened and uncertainty over bad debts is reduced.

The agency will have an independent commercial remit and will be expected to protect the taxpayers' investment. The Minister made it clear that all borrowers will be required to meet their full legal obligations for repayment to the agency. Senators will recall that the Government's recapitalisation measure for the two main banks contains a credit package, through which the banks concerned have committed to increasing lending capacity for SMEs by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. New statutory codes of conduct on mortgage arrears and business lending have also been introduced.

All these measures will help to ensure that the banking system can play its vital role in extending credit to individuals, households and businesses in the real economy. Departments and State agencies have engaged with banks and business representatives in a variety of settings on issues concerning the flow of credit for business. A formal structure for those contacts on an ongoing basis will be finalised shortly. An independent review of credit availability, funded by the banks and managed jointly by the banks, Government and business representatives, is also under way.

The Minister is bringing proposals before the Government to introduce new structures of regulation of financial services. This will include the integration of Central Bank responsibilities with regulatory and supervisory functions. The Central Bank of Ireland will in the future be chaired by a commission, chaired by the Governor. These changes are designed to restore Ireland's reputation, and are in line with the emerging international agenda for reform in the financial services sector. The Minister has asked Sir Andrew Large, former Deputy Governor of the Bank of England and former member of the UK Monetary Policy Committee, to advise on the process to select a new head of financial regulation within the new institutional structure. The structural changes and a substantial increase in regulatory capacity will lead to a more effective and efficient financial services regulatory system which will be aligned to the best international standards.

The Minister for Finance said stabilising the public finances was the first and most urgent step we must take. My responsibility for public procurement gives me an opportunity to make a significant input towards this objective and, at the same time, to achieve increased value for public expenditure.

Last July, the Government decided to assign responsibility for procurement to me and that a national office for the procurement of goods and services should be established in the Office of Public Works. This has been done and a project board has been set up under my chairmanship to oversee the development of what will be now known as the national public procurement operations unit, NPPOU. Part of the remit of the unit is to encourage the development of greater North-South links. I am grateful to have the services on the board of the official from Northern Ireland who heads the central procurement area in the Department of Finance and Personnel. It has been decided that with immediate effect, the NPPOU will manage the purchase of goods and services common to all areas of the public service, such as office equipment, furniture and fittings, fuel, electricity, printing, stationery and office supplies, uniforms and transport fleets. The existing Government supplies agency in the OPW has been disbanded and its duties in the above areas will be assumed by the NPPOU.

Sector-specific items such as drugs, medicines and military equipment will continue to be managed within the relevant sectors, for example in the HSE and the Department of Defence. The value of goods and services within those categories, which had been dealt with by the Government supplies agency, amounted to approximately €65 million and usage by Departments and agencies of its services had been patchy. A key measure of the success of the unit will be the extent to which its range of activities can be expanded. There is plenty of room for expansion, as the total value of the categories which it is proposed should be placed in the new unit's remit amounts to about €500 million.

In order to achieve savings of €25 million in the current year as required by the Government, the unit is actively examining the potential for immediate savings from a reduction of 8% in all contracts for goods and services over €100,000. The Government is most anxious to ensure that reform of structures, practices and procedures in the procurement of goods and services does not crowd out small and medium-sized enterprises at present supplying goods and services to the State. Accordingly, the unit is examining a range of measures to counter the risk of such crowding out.

Although there has been some reduction in the capital provision for OPW in 2009, there remains a very substantial provision for capital work, including flood relief works and the decentralisation programme. Decentralised offices due to be completed and delivered this year include Newbridge, Wexford, Trim and Clonakilty. Flood relief schemes in progress include Ennis, Mallow, Clonmel, with works due to start in Fermoy in the near future.

I recommend the budget to the Seanad and look forward to hearing the views of Senators.