Eugene Regan (Fine Gael)

We can feel reassured after Senator Callely's presentation. It is no time for arrogance from Members on the Fianna Fáil benches. Fianna Fáil has dragged us into this economic situation and has failed to maintain the international reputation of this country to the extent that Mr. Peter Sutherland had to make an intervention today to speak up for the country, to say that the economic difficulties were capable of being resolved. The Government failed to do that because of its inaction since it came into office. Notwithstanding the fact that it was staring the deterioration straight in the face, it failed to act and recognise or acknowledge the extent of the problem. It failed to act on regulation when systemic failure became apparent. It failed to respond adequately when issues of governance and malpractice were highlighted. All the Minister for Finance could say last December about one of those instances, concerning hiding directors' loans, was that it was disappointing. That inaction and lax approach to managing the economy and the government of this country led to the deterioration in the reputation of this country. Therefore, I welcome the intervention of Mr. Peter Sutherland, who has come to the aid of this country at this difficult time.

The notion of the mini-budget, which was not so mini, is not an original idea of the Government. It was urged by the same Mr. Peter Sutherland, who said the Government had to bite the bullet on the serious economic situation. This was also highlighted by the former Fine Gael Taoiseach, Mr. Garret FitzGerald, who urged the Government to act. Belatedly, the Government decided to take action. As recently as December, the Minister for Finance indicated there would be no early budget in 2009, nor was there a need to raise taxes or do anything other than what had been done with regard to the public finances and the banking system.

We now have the proof of the mess that this Government and successive Fianna Fáil Governments have led us into. It is there in black and white and we will all pay the price for the mismanagement of the economy. It is extraordinary to consider the state of the country, the marvellous success of productivity growth, employment growth and export performance in previous years, the dramatic reduction in national debt and see it all destroyed by this Government. In the first two years of this Government we have economic growth of -10%. We will have a quadrupling of the national debt with what is proposed regarding the national asset management agency. The situation has been created by the Government and, instead of being arrogant about how wonderful the Government is in taking these measures, a little humility is required in acknowledging the extraordinary failures of successive Governments, and the belated actions of this Government in recognising and acknowledging the mistakes made.

The argument advanced is that in good times we enjoy reduced taxation and in bad times we take it on the chin when the Government imposes increased taxes and pension and income levies. It is not as simple as that. If the Government is to manage an economy properly, it should cater for cyclical swings and international factors that may throw an economy off course. It has provided no safeguards for that situation. We know the unsustainability of the budgets of previous years, which the Government was adept at using to secure power. This was done on a false basis.

The balance between taxation and expenditure savings is wrong, as economic commentators have acknowledged. We are attempting to tax our way out of the economic recession. That is the fundamental failure of this Government. There is no emphasis on value for money, nor any addressing of waste in public expenditure. There is no action in creating or retaining jobs. Yesterday in the Dáil, the Taoiseach spoke about public sector reform, as he has spoken many times, but there was no element of this in the budget. There is no economic thinking underpinning this budget, it is purely an accounting exercise. For that reason it will not solve the economic problems we face.

I refer to the banking proposal. Last autumn the Government was bounced into the bank guarantee scheme. It did not consider all the options and lost control of the banking sector because it did not plan to introduce such a scheme. It had intended to ensure restructuring of the banks but, once the guarantee scheme was in place, it was not in a position to ensure any such restructuring. It did not have control over remuneration, governance or illegal practices. Late in the day, it got its act together on these matters. After extensive constructive opposition to these matters, where the matters that needed to be addressed were highlighted, we have the proposal for the national asset management agency and the toxic debts of our banks.

This proposal is ill-thought out and reminds me of the decentralisation proposal of Mr. Charlie McCreevy in a previous budget where he tried to distract from the bad news. This is thrown into the budget to distract from the bad news. Just like the decentralisation scheme, it has not been thought through. There was a grand announcement but no precision on the quantum of what is involved, no outline of how the loans are to be priced or the ultimate risk to the taxpayer. There is a suggestion that banks will be levied to take account of future losses on the loans but there is no advantage to the bank in the first instance if the State is ultimately going to charge the bank for the cost of this exercise. The editorial in the Financial Times puts it well:

There is no point to a bad bank that absorbs no risk. One could achieve a similar – slightly better – change to banks' risk profiles more easily and without large outlays by forcing them to write down assets to the prices at which the government currently intends to buy them. This would also leave the assets in the hands of people who have strong incentives to manage them effectively.

The Government is also talking about passing legislation to force the banks to participate. The whole proposal is fraught with difficulty. I am not saying this mechanism cannot be made work. Why is it that every initiative taken by the Government is done in a ham-fisted manner? The Government does not do its homework, set out a comprehensive scheme, have the legislation prepared and then present it to the Oireachtas. It has given control to the banks and property developers indebted to the banks. It has shown its hand and put all its cards on the table. Once again it has lost control of the matter.

The Minister of State indicated in his speech — the Minister, Deputy Lenihan, also said it in the Dáil on announcing the budget — that all borrowers will be required to meet their full legal obligations for repayment to the agency. A significant proportion of these loans are non-recourse loans so it is nonsense to suggest that borrowers will be held to account and the full rigours of the law will be applied to force them to uphold their legal obligation.

This proposal has not been thought through and was instead thrown out to distract attention from the negative news in the budget. It has tied the hands of the Government when it comes to dealing with the banks. Developers will simply throw the keys of a project on the table and indicate that the Government can take it over and do what it likes with it as it is not their problem. There is potential for developers and those associated with them to make a second killing at the expense of the taxpayer.

This is all because the Minister for Finance and the Government have not done their homework or prepared a scheme that is comprehensive and which has covered all these issues. The proposals are so vague as to be open to abuse by those with whom the Government is dealing. The ultimate cost of this lack of clarity will be to the taxpayer. The international commentary on this proposal is reflected in the rating agencies' views of Irish banks and has not helped. Moody's assessment has taken account of the Government scheme. With the manner in which the Minister for Finance has gone about this business, he has increased the potential cost to the taxpayer.