Martin Mansergh (Tipperary South, Fianna Fail)

I thank all Senators who have contributed to this debate. Tuesday's supplementary budget was produced against an extremely serious international and domestic background. It was designed to address a set of unique, complex and difficult problems in our public finances, banking system and labour market as well as to restore our competitiveness, economic confidence and international reputation. Despite the formidable nature of these challenges, the Minister for Finance has succeeded in drawing up a budget that will provide a sound basis for economic recovery and renewal over the next five years and which can be built on to secure sustainable economic progress for the long term.

The supplementary budget will, however, reduce the living standards of nearly all of us. That will be painful but, unfortunately, it is unavoidable. One keeps hearing that those who caused the problem should bear all of the pain. While one can sympathise with that sentiment, it is also true that we have all — including workers and those getting social welfare payments — shared to a greater or lesser degree in the benefits from rapid economic growth in recent years. Over this period, pay rates and unit labour costs rose faster than elsewhere in the euro area and we became too reliant on the construction sector for economic growth and tax receipts. Our competitiveness is out of kilter with the rest of the euro area and if future growth is to depend on exports, our price and cost structure must fall relative to our trading partners.

For some years unit labour cost growth in Ireland has been much faster than in our main trading partners. Also, the comparatively weak productivity growth we have experienced since 2004 has been accentuated by a high rate of increase in wages, which has resulted in a big increase in our unit labour costs. Those trends in unit labour costs imply that economy-wide steps will need to be taken to reduce wages and improve productivity or a combination of both. In the short term a realistic approach to wage developments will be essential to ensure we address the dramatically changed economic circumstances which we now face. It is also essential this approach is complemented by steps to secure improved productivity.

A report published last year by the National Economic and Social Council, The Irish Economy in the Early 21st Century, presented data from a survey which illustrated the extent to which the average Irish worker had benefited from low tax and PRSI rates. The survey showed that while the average total cost of employment in Ireland was 30% higher than the European Union average, disposable income was 78% higher — second only to Luxembourg — and income tax paid was only 20% of the EU average. It is interesting to note, for example, that the average Hungarian worker with less than 30% of the average Irish wage, paid nearly three times the amount of tax in cash terms than his or her Irish counterpart.

In advance of the supplementary budget there were calls from some quarters that it should be expansionary. One can ask why it took the form it did. There is a simple and compelling reason: we had little choice. If we had not taken the action we have, the public finances soon would have become unsustainable and additional borrowing — where we could get it — would only be available at a prohibitive cost. If pain has to be incurred it is far better not to have it inflicted on us by outsiders.

Every segment of society and sector of the economy can make some contribution to dealing with our shared economic problems that threaten all our futures. If we can do this we will have provided ourselves with a formidable basis for overcoming this crisis and for achieving a robust recovery in the shortest possible time. Not only that, we will also have provided ourselves with the basis for making Ireland once more the most dynamic economy in Europe and for securing a prosperous future for ourselves and for those who will come after us.

Senator Twomey referred to the termination of the capital allowance scheme in the health area. The provision of health services is a matter for the Minister for Health and Children, in particular in the context of the co-location of hospitals, and that issue can be discussed in more detail with her. On the concerns about the transitional arrangements for the phasing out of this relief, as was the case with the phasing out of previous property related schemes under the Finance Act 2006, transitional arrangements will be put in place to cover projects that are in progress and where there is a reasonable and legitimate expectation on the part of the promoters and developers as well as the end users of such projects that they will be completed. The transitional arrangements would cover circumstances where planning permission had been granted or where construction contracts had been signed but where the project had not yet been completed. These matters will be considered fully in the context of the forthcoming Finance Bill.

Senator MacSharry read out a very telling passage from the 1987 budget speech of his father, Ray MacSharry, a former Minister for Finance. There was a comment made on that period in The Economist the week before last to the effect that, when it comes to retrenchment, Ireland has form.

I enjoyed Senator Norris's reference to Madame Defarge, the woman who knitted at the bottom of the guillotine and enjoyed seeing heads roll. While the Senator expressed disapproval of Madame Defarge, he effectively suggested that numerous bankers, speculators and developers should be strung up on the nearest lamppost.