John Gerard Hanafin (Fianna Fail)

I am very pleased to support the supplementary budget, although I take no pleasure in the fact that there were cuts and tax increases. They were entirely necessary. In light of the realities, this Government has gone to extraordinary lengths to ensure fairness and equity and the public has accepted that, first, the Government has gone to great lengths to ensure we can prepare for the future and bring our finances back to order, and, second, that the plan we have for a five-year recovery will be accepted by the international markets.

If anyone had been in solitary confinement for the past seven years in America, Japan or any other state in Europe until today, by 1.30 p.m. he or she would have been well aware that there is an international recession. We are a major trading nation that has achieved much success and we are a very open economy, so naturally we would be hit. When this recession began, our national debt was at 20% of gross national product, GNP, we had put money away in the National Treasury Management Agency and we had one of the lowest — if not the lowest — rates of individual taxation in the OECD. We also had 2 million people at work so we were well placed. Many people ask where the money went but it went on low taxes, investment and putting people to work.

It is surprising to hear people speak of the Government buying €90 billion of bank debt because this is not true. The Government will buy — in a fire sale — the severely marked down value of properties that in any ordinary circumstances would be a multiple of what the Government will pay. We only have to point to the Swedish experience in that regard. In the 1980s that country was obliged to bail out its banks and its Government took similar action. At the end of the term there was a full recompense and a profit for the Government in taking over the assets.

Another misconception was stated clearly by Senator Twomey. He indicated that people on this side, including me, supported the maintenance of fixed rate mortgages in banks. If I, with the best intention in the world, made a fundamental error in a health matter, Senator Twomey would very quickly correct me in a proper manner. How does Senator Twomey believe the banks can pay people 4% or 5% on fixed rate deposits over five and ten years? It is simple; they are matched to fixed rate mortgages. If we do away with fixed rate mortgages, we must also take the fixed rate deposit which people live on. Banks cannot pay out more in interest than they get in. That is simple economics. If there is a fixed rate mortgage, there must be a balance on the other side because rates can fluctuate and affect the income or expenditure of the bank. This is not a difficult process and once it is explained, I am sure it will be accepted as an economic fact that cannot be altered.

I am aware that over recent years we have had considerable success with social partnership and I trust the unions and other social partners, in recognising the work undertaken by the Government to achieve a high level of fairness, will co-operate further in the renewal of the economy. Easter is a particularly appropriate time to speak of renewal.

If Mr. Peter Sutherland stated that we still had very sound fundamentals, I have no reason to doubt him or to believe he went on that programme other than to speak the truth. Our income per capita is still one of the highest in the world and even after the necessary budget we still have one of the lowest tax wedges in Europe. The tax rate is still lower than what it was in 2007 for a worker earning €25,000, and a single worker earning €60,000 in 2009 still has a lower tax rate than the average in 2004. We had a balance between spending cuts and allowing the economy to grow. It is a fundamental tenet of any economy that the only one safe job is a competitive job.

We need to restore our international competitiveness. The world economy will recover in 2010 or 2011 and it is expected that the Irish economy will begin to grow again. However, it will take time for such growth to filter through and allow for the creation of real jobs. When I refer to real jobs, I mean competitive jobs. In the interim, it is the responsibility of the Government to try to protect the most vulnerable. The reality is that social welfare and health account for the entire budget at present.

I am sad that our overseas aid is being cut. However, I am conscious that every cent of that aid is borrowed. We are not, therefore, donating our money, it is someone else's. Such money must be paid back. As a result, we must live within our means and according to our budget.

The Government must explain to people the nature of the difficulties with which we are faced so that they fully understand the position. There must be no knee-jerk reaction. The Government must assure people that in buying out the assets of the banks we are operating on the basis of sound economic principles. It must further assure them that these assets will stand to us in the future. There is no better way to inject money into the economy than through the banks. We must protect the structure relating to the banks and there is a price to be paid in that regard. The knee-jerk reaction is that we have bailed out the banks. However, we will obtain a fine premium on the money we have invested in recapitalising the two main banks. In addition, we also have a right to shares in those banks. If further assistance is required, the State will obtain the assets at a complete write-down value and further shares. As a result, we might end up owning the banks.

It is fundamental to our economy that we have a viable banking system. It is also fundamental that we should not remove too much money from that economy. The budget strikes the correct balance in that regard. If there are conclusions to be drawn from what I have said, the first should be that we are not buying assets worth €90 billion. We are instead buying those assets at reduced or fire sale prices.

No one on this side of the House would claim to willingly ask people to maintain fixed rate mortgages. The only reason such mortgages must be maintained is that they are linked, on the opposite side, with fixed rate deposits.

This budget was absolutely necessary. It strikes the right tone in the context of equity and fairness. Difficult decisions have been made. I would like the Christmas bonus for certain social welfare recipients to be restored. I am conscious that there has been a 3% increase in social welfare this year. In light of the 4% decrease in inflation, there has been a net increase of 7%. Notwithstanding the latter, if at all possible and if economic circumstances allow, I ask that the €100 million required to pay the Christmas bonus be found from somewhere. If it is not possible to restore the bonus, I fully accept that certain measures must be taken. This budget strikes the correct balance.