Dara Calleary (Mayo, Fianna Fail)

I thank Senators for their good wishes and welcome this opportunity to discuss the IMF and OECD reports. Much of the debate has been constructive and challenging, with religious figures invoked and dismissed, perhaps, and has touched on the key economic challenges we face as a country. I am happy to engage with any Member of the Opposition on any plans he or she might have to get us through the challenges we face. A shared understanding of our economic situation will help enhance the overall quality of public discourse beyond the House and throughout the environment in which we operate. In some contributions I have heard there has been a feeling that the public discourse does not include a full understanding of the depth of the challenges we face.

Any analysis of the Irish economy conducted by established, reputable international organisations such as the IMF and the OECD will understandably be the subject of much media and political comment. In this context, the assessment of the Irish economy that these organisations provide is timely, valuable and welcome.

In welcoming the IMF report, my colleague, the Minister for Finance, summarised it well when he described it as a balanced and realistic assessment of the challenges we currently face. While endorsing the actions we are taking to counter the effects of our economic deterioration, the IMF has also highlighted the unprecedented nature of our current difficulties and the scale of the correction need to address them. It has also identified the risk remaining to overall economic and fiscal recovery.

The IMF highlights two critical areas that need to be addressed in order to restore consumer and business confidence and provide the necessary environment for future sustainable economic growth. These involve the restoration of sustainability to the public finances and repair of the financial system. In this regard, the IMF has endorsed many of the essential steps for economic renewal highlighted by the Minister, Deputy Lenihan, in the April supplementary budget. With regard to the first of these, the Government has adopted a series of measures which demonstrate its commitment to stabilising the public finances, and we view this as a critical aspect of the renewal of our economy and our country. In this regard, we are focused on stabilising and restoring sustainability to the public finances and we expect the deficit to be below the Stability and Growth Pact threshold of 3% of GDP by the end of 2013. This plan has been welcomed by the European Commission.

The supplementary budget of April should be seen as part of a series of concerted measures to stabilise the budgetary situation which began 12 months ago in July 2008. These were followed by further steps in the October budget and again in February of this year and in the supplementary budget. The significance of the actions taken already should not be underestimated, as the revenue-raising and expenditure-reducing measures introduced since July 2008 amount to the equivalent of 5% of GDP in 2009.

With regard to our future direction regarding future necessary fiscal adjustments, the IMF in its recommendations feels the focus should now be more upon reviewing our expenditure rather than on taxation measures. I believe most people would subscribe to this. In this regard, the presentation earlier this week of the report by the special group on public service numbers and expenditure programmes to the Minister for Finance represents a significant contribution to the policy discussions that will inform the preparation of the 2010 budget, as mentioned by Senator Ross. In carrying out its work, the group has considered critically the number of public servants employed across all areas of the public service and has assessed the scope for transferring staff to priority areas, such as those referenced by Senator Burke, and for reducing numbers overall, as well as identifying surplus staff.

The group has also examined the overall efficiency of the public service, including any ways of doing business that are out of step with the needs of a modern, responsive country. The Minister stated in the Dáil last week that he expects the group will make recommendations for further rationalisation of State agencies beyond the measures already announced in budget 2009. On a separate but related point, the Commission on Taxation is expected to complete its work shortly. When the commission's report is received by the Minister, it will be brought to Government in advance of publication.

I will briefly mention the OECD's assessment of the short-term outlook for the Irish economy, which contains the most pessimistic assessment for economic growth this year. I must point out, however, that this week two sets of forecasts from the banking sector suggested a contraction of 7% this year, although we must bear in mind the health warnings given by Senator Ross. While a 7% contraction is nothing to be pleased with, the latter projections put the OECD forecast of a 9.8% contraction into context. Nevertheless, the OECD does recognise in its report that the underlying domestic economic imbalances may be unwinding and that this could add more strength to the recovery than had been anticipated. Implicitly, the analysis demonstrates the flexibility of our economy, which will stand to us.

One of the greatest priorities of the last number of months has been the restoration of our damaged banking system to ensure credit flows to business and customers. The availability of credit is crucial to the healthy functioning of a modern economy. Accordingly, the Government's priorities over the past few months have been as follows: to prevent the collapse of liquidity to the banking system; where necessary, to maintain and rebuild the capital position of systematically important banks; and to address the issue of confidence in the asset quality of the banking system. The IMF acknowledges that the Government has taken important steps to stabilise the financial system through the bank guarantee scheme, and it has also endorsed our decision to set up the National Asset Management Agency. The IMF's assessment is that if well managed, the distressed assets acquired by NAMA could over time produce a recovery value to compensate for the initial fiscal outlays.

The Government's approach to tackling the financial crisis has at all times been structured and considered, with the Government demonstrating its commitment to preventing the failure of any systemically important financial institution. The IMF also recommends that the Government needs to continue its efforts to provide a supportive regulatory and supervisory regime. To this end, we will continue to work with our European colleagues in this area.

Another crucial challenge we confront is the restoration of our cost competitiveness. We are experiencing a profound recession which has resulted from a domestic housing market correction that is being exacerbated by a global economic and financial crisis of almost unprecedented proportions. Living standards are falling and will continue to do so for some time. However, we are not unique in this regard. Economic activity is declining in virtually all of the world's advanced economies, although the decline here is clearly steeper than in most of our partners.

As both the IMF and the OECD have outlined, we must regain the competitiveness we have lost in order to return to sustainable export-led growth, as mentioned by Senator White. This will mean an adjustment in our labour market with costs and work practices changing in order to safeguard employment. We are already demonstrating such wage flexibility in both the public and private sectors. This is a significant achievement which many countries would wish to emulate. Such economic resilience and flexibility allows us to adjust swiftly to our changed economic circumstances and is already being demonstrated. Our labour force continues to be highly skilled and we are continuing to invest in education at all levels to ensure we have the skills demanded by an increasingly knowledge-intensive economy.

The Government remains committed to providing a pro-enterprise environment and maintaining a relatively low tax burden on business. We are also maintaining capital spending at a high level by international standards. This will allow us to maintain our investment in productive infrastructure, which will also help enhance our competitiveness and increase employment. This year alone we will be spending €826 million on the schools building programme - €423 million at primary level, €191 million at secondary level and €200 million at third level. This will drive employment and investment in that sector.

Before concluding I will say a few words about the latest economic developments. Last week, figures from the Central Statistics Office showed that GDP fell by 8.5% in the first quarter of this year. Although the sharpest rate of decline ever, this figure was broadly in line with our expectations. In this regard, we must avoid double-counting. Previously published data had indicated a poor performance in this period. In other words, we already knew conditions had deteriorated significantly in the first quarter. Moreover, there is a growing consensus that the pace of deterioration in economic activity evident in the early months of the year has slowed. Nevertheless, a return to positive growth remains distant. The economy appears to be evolving in line with expectations at the time of the supplementary budget. This involves a further, albeit more modest, contraction next year, with positive growth in 2011.

Returning to positive growth will require difficult decisions to be made. The Government has clearly demonstrated its ability to make these choices irrespective of the political fallout. The Government is doing what is best for the country by implementing measures that are placing our economy in a position to take advantage of the global recovery when it emerges. The Government is acutely aware that the entire spectrum of society is being affected by the deterioration in economic conditions. In taking these corrective measures we are trying to ensure the burden of adjustment is spread as evenly as possible. The road ahead will not be easy, that is clear, but the Government has put the country on the right path, as has been recognised by the IMF, and will continue to act responsibly in the difficult years ahead in the best interests of the country and its people.

I propose to clarify several issues raised in the debate. Senator Regan referred to the legal advisers recently appointed to NAMA. On that matter, the Minister for Finance stated in the Dáil that the National Treasury Management Agency engaged in standard tendering procedures in which he had no involvement. On the basis of these procedures, the NTMA selected the advisers it regarded as complying to the best possible extent in terms of price offered and the quality of expertise available.

Many Senators raised Government plans to address the fiscal and budgetary position. While I discussed in detail these plans and their impact, it is worth repeating that in the April supplementary budget a multi-annual framework was set out to bring the fiscal deficit below the 3% of GDP, as set out in the growth pact.

Senators O'Toole and Ross discussed the prospects of an economic upturn. As I stated, some of the indicators tentatively suggest that while activity continues to be on a downward path, the pace of deterioration in the second quarter may not have been as severe as in the first quarter.

Senator Donohoe referred the structural fiscal balance. Although the deficit in this balance this year will be 8.2% of GDP, on the basis of the Government's fiscal plans, the deficit will decline to -2.2% by 2013.

I congratulate Senators for their contribution to this enlightening and lively debate which will serve as a good model for future debates.