Feargal Quinn (Independent)

I thank Senator Norris for sharing time with me. I welcome the Minister of State, Deputy Kelleher, and I welcome the opportunity to have this debate. The OECD has predicted an economic contraction of 10% this year. The IMF has warned of a 13.5% contraction between 2008 and 2010, as the Minister of State outlined. The IMF report was highly critical of the Government for stoking the property market in recent years and implementing unsustainable increases in public spending. What I found most interesting about the IMF report was that when it talked about other countries it used adjectives but when it talked about Ireland it used superlative adjectives. Other countries were "high", we were "the highest". Other countries were "poor", we were "the poorest". Other countries were "bad", we were "the worst". It is interesting to note that every time there was a reference to this country, superlatives were used.

Those two reports are damning towards the policies we adopted during the boom years. The IMF report, for instance, spoke of the so-called "output gap" - I did not hear that term previously - at the height of the construction boom in 2007, at 7.1% of GDP. That is a measure of the extent to which economic activity at the time was boosted beyond what was sustainable by a bubble, or alternatively a measure of the scale of overheating. Estimated output gaps of that magnitude are unheard of. In short, the IMF said Ireland was facing the worst - again, a superlative - economic downturn in the developed world due to the property bubble of recent years. That is to talk about the past, but it is worth bearing in mind that two years ago the IMF estimated that Ireland's output gap would amount to just 0.2% of GDP in 2007. That was tantamount to saying that there was no bubble and no problem and that the structural budget would end the year in surplus, to the tune of 0.7%, which was tantamount to saying that fiscal policy was prudent. That is what it said then, and it is demonstrated how wrong it was in its analysis of the situation.

I am not alone in thinking that much economic forecasting and analysis is not scientific. There are many economic theories that are just that - theories - and they have no relevance to the real world. I am drawn to a quote by George Bernard Shaw who said: "If all economists were laid end to end, they would not reach a conclusion." Senator Norris referred to humanising economics. I assume he believes that economists are human, in spite of the criticisms they receive.

That begs the question that if the OECD and the IMF did not properly warn against our looming financial crisis, what external body was there to caution us with some degree of authority against economic mismanagement. I do not believe that this is an excuse for those who were leading the country into the chaos. The Taoiseach said that his regret is that he did not manage to predict that such a seismic shock to the world economy was going to happen, and neither did anyone else. Deputy Bertie Ahern also recently rejected suggestions that policies implemented when he was in power have contributed to Ireland's economic crisis. How can we go on like this? There must be some degree of responsibility from our leaders so that we can move on.

I was particularly struck by the IMF's analysis that we are losing the race for foreign direct investment. That worries me because I did not realise that was happening. The United States is our overwhelming source of foreign direct investment and in the short term we cannot hope to diversify from that 80% dependence. We must pay heed to the IMF's view that recent Government initiatives, such as incentives to attract high value FDI inflows, will have to be continued if we are to better our position as a small island economy dependent on international improvements. There is not a sufficient understanding of the importance of that factor to the country. We must also remain encouraged by the recent moves of a number of companies, including Accenture and the Australian building materials giant, James Hardie, to domicile in Ireland for tax purposes. Other companies have done the same in the past year. It is clearly a huge benefit to us if we can encourage such companies to locate here.

The IMF reports that Ireland has become the most expensive place to do business in the eurozone and it has the highest wages. In 1997 wages were approximately €22,000 a year, which was broadly in line with the eurozone average. A gap of €12,000 has since opened up, as Irish wages soared to €35,000 by 2007. A key factor was generous increases in public sector wages. If Senator O'Toole were present he would have something to say about benchmarking, of which he was very proud, but which is now receiving a lot of blame. The IMF indicated that the recent trend towards wage reductions should bode well for Ireland. It is vital that we continue that trend if we are to have any chance of regaining our competitiveness.

Domestic demand in the first three months of 2009 was down by a massive 15.5% on the same period in the previous year. What is most surprising is that on the one hand the domestic economy is in a state of unparalleled collapse but on the other hand the export sector is performing quite well. It is out-performing all but two of the 30 member countries of the OECD, according to that organisation's latest statistics. That is our only real source of optimism at the moment.

Dan O'Brien wrote in The Sunday Business Post recently:

Services exports counts a lot for Ireland compared to other countries because of the unusually high proportion of services in total exports, at almost 50%. In most economies, goods are far more important than services. In the euro area, for example, export values of the former are almost three times greater than the latter. If the much-heralded international green shoots are to appear, exporters - and services exporters in particular - will be able to hitch their wagon to the global locomotive. Only then is there hope that the Irish economy can be dragged out of the very deep hole into which it has fallen.

We must do something to address the problem. The question to the Minister of State is whether we have the courage to do it. I read today that in the marketplace - supermarkets and other stores - prices have come down because of competition. Food prices have reduced by 3% and textile prices by 12%. At the same time public service costs are increasing. I refer to transport costs such as for buses and trains. Will the Minister of State indicate whether we have the courage to do what is necessary?