Martin Mansergh (Tipperary South, Fianna Fail)

Since last September Ireland has been caught in and particularly badly affected by the severest global economic and financial crisis of the post-war years which has cost an estimated 59 million jobs worldwide. Domestically, it has had grave consequences for employment, living standards and the public finances, as well as for a now vulnerable banking sector which has only been sustained by radical State intervention.

The causes and responsibility for the effects felt in Ireland will be hotly debated for a long time to come. Some causes arise because this is a globalised country dependent on external trade. The country was in a rapid catch-up phase which, in certain respects, overshot. We became, if not over-ambitious, certainly over-extended and underestimated the risks. As more than 30 academicians in Britain stated in reply to a royal question, the optimism worldwide about light regulation, incentives for short-term financial profit-making and the belief this was a new financial world order, together with the feel good factor for households, businesses and government from ready credit and overflowing revenues, all contributed to the disaster. No one properly understood the effect of a series of interconnected imbalances.

For some 15 years Ireland headed the international growth tables and was one of the countries which benefited most. Many benefits will be lasting and survive the current crisis. This is not to claim that all moneys were well spent but until 2008 most of the pressures on the Government from the Opposition and the media were to spend more and tax less, rather than for greater prudence and restraint. The country has critical choices to make with respect to our economic and political future in the coming weeks. I welcome the opportunity on behalf of the Government to contribute to the statements in the Seanad on the economy. The referendum on the Lisbon treaty, the establishment of the National Asset Management Agency to address the issue of confidence in the asset quality of the banking system and the framing of the next budget are all major and immediate challenges.

It is impossible to overstate the fundamental importance to our economic recovery of resolving our banking crisis. This is the reason the Government, like governments and central banks across the globe, has provided substantial support for the financial sector and broad economy in the current crisis. In all our actions in the past year our overriding concern has been the best interests of the wider economy. Credit remains the lifeblood of any economy. It allows business to source funding for productive developments and foster creativity and innovation in order that we can become a more competitive, export oriented economy. It allows individuals to access mortgage funding and finance the purchase of consumer goods. The only way to restore the flow of credit is through a cleaned up banking system. In the past year the Government's priorities in this sector have been, first, to secure the liquidity of the banking system; second, where necessary, to maintain and rebuild the capital position of our systemically important banks and, third, to address the issue of confidence in the asset quality of the banking system through the establishment of the National Asset Management Agency, NAMA.

The National Asset Management Agency Bill is the centrepiece of the Government's plan to solve the problems that have beset our financial and credit system. The decision to establish NAMA was taken following expert advice from at home and abroad. The asset management approach has a proven track record internationally. Our proposal has received the backing of the International Monetary Fund and the European Central Bank. The proposal has credibility in the financial markets, since the cost of borrowing by the State has fallen as bond spreads above the German ten-year benchmark for Irish sovereign debt have halved from almost 3% to just 1.5%. Last week's edition of The Economist takes the view that "Ireland's toxic-asset plan makes a good fist of a bad situation" and compares the plan favourably to American and German initiatives.

The National Asset Management Agency is not a bailout for those who have operated irresponsibly. In relation to those who took out development related loans, the agency will treat them as borrowers who continue to owe the full amount of their loan. The agency has a duty to maximise taxpayer returns and the Government expects it to use the range of powers available to it. The National Asset Management Agency Bill includes a risk sharing mechanism with the banks that will protect the taxpayer from overpaying for the assets to be transferred to the agency. In due course, the House will have an opportunity to discuss the NAMA legislation much more fully. The Government is determined to re-fashion the financial and banking system and address and correct regulatory and governance shortcomings. The sole purpose is to get our banks back to what they should be doing, namely, underpinning and encouraging much needed sustainable activity.

The sharp decline in economic activity has led to a chasm of €20 billion opening up in the public finances. The April supplementary budget projected tax revenues in 2009 between the 2003 and 2004 levels. Fortunately, Ireland's public finances entered the current economic difficulties from a relatively strong position. We ran general government surpluses in ten out of 11 years and reduced our general government debt ratio to one of the lowest in the European Union, at approximately 25% of GDP in 2007 or even less if calculated net. However, continued borrowing on the current scale is simply impossible.

April's supplementary budget was the latest in a series of measures commencing in July 2008 designed to stabilise and then bring sustainability to the public finances. These measures which amount to almost 5% of GDP in 2009 are spread between both expenditure and taxation and include the introduction of an average 7.5% pension related pay deduction for public servants. A pay round due under the social partnership Towards 2016 transitional pay agreement was postponed, estimated in 2010 to achieve up to €1 billion in savings on the pay bill.

The April supplementary budget set out a multi-annual consolidation plan for the public finances to bring the general government deficit to 3% of GDP by the end of 2013. This plan has been welcomed by the European Commission but requires difficult decisions. In addition to adjustments made in 2009, the supplementary budget set out targets for adjustments to taxation and current expenditure in 2010 and 2011. While the specifics are still being formulated, the overall policy areas for examination have been announced. As part of this process, the Government established the special group on public service numbers and expenditure programmes to examine critically every area of Government expenditure to identify potential savings. The group's report was published in July and will be taken into account by the Government in making future spending decisions.

The Government also established the Commission on Taxation as an independent group, charged with providing an assessment of how the tax system can be reformed. The report of the commission, published earlier this month, will contribute to the medium to longer-term framework within which tax policy will be set over the next decade.

The Minister for Finance has stated that the balance of the corrective action in the 2010 budget will have to come from the expenditure side. We cannot tax our way out of this recession. Resolute action will restore confidence to the wider economy and help Ireland towards recovery.

Next week, the Irish electorate will vote on the referendum on the Lisbon treaty in light of the guarantees obtained to meet previous concerns. Ireland's economic and political future requires full participation at the heart of Europe. We cannot allow ourselves to be consigned to the margins, in the shadow of the UK. We should reaffirm our pro-European policy that underpins our real independence and that has served us well since the 1960s. We fight our battles from within. EU membership with access to an integrated market of 500 million people has brought immense economic and political benefits. A positive vote will be a critical step towards restoring our economic fortunes. In the recent difficulties in the banking sector, membership of the European Union and of the eurozone in particular has been vital - the real difference between Iceland and Ireland. The European Central Bank has been highly supportive of this country. We need to take this into account when voting on 2 October.

We also need to identify new opportunities and be ready to take advantage of these when international economic recovery resumes. The lesson from previous downturns is that while the immediate concern is to address short-term issues, countries also need to reorient their economies towards taking advantage of emerging growth opportunities. In this regard, the Global Irish Economic Forum, which took place at Farmleigh last weekend, was attended by members of the international Irish family and friends of this country from across the globe. Distinguished participants from a variety of fields shared their insights on the economic and related challenges confronting us. A number of innovative, constructive ideas came from the forum and provide the basis for follow-up action.

The publication last year by the Taoiseach of Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal sets out our agenda of reorientating and reprioritising the business of Government to achieve the goal of building a more competitive economy which will help underpin our future. The Government is pursuing policies to facilitate the development of a smart, green economy with high productivity across all sectors, both private and public. The Government remains committed to implementing measures that continue to support the smart economy through investment and incentives to increase research and development expenditure to reach a target of 2.5% of gross national product by 2013. Ireland has already trebled economy-wide research and development expenditure over the past decade to around €2.5 billion.

From a medium and longer-term perspective our future pattern of growth will, by necessity, be predicated on a more sustainable, export-led economic model. This will require continued focus on improving our competitiveness. Our economy remains flexible and resilient and this will facilitate an adjustment to reflect the prevailing environment. There is evidence of wage flexibility in both the public and private sectors, a significant achievement, which many countries would wish to emulate. Adjustments in work practices have taken place and other labour market costs are being addressed to safeguard as much employment as possible. Our labour force continues to be highly skilled and flexible. We have made significant investment in education at all levels to ensure we have the skills demanded by our increasingly knowledge intensive economy.

The Government has introduced a number of measures to support the competitively exposed sectors. An enterprise stabilisation fund has been established. This fund has a total budget allocation of €100 million over two years to provide targeted support to indigenous companies to assist them in the current exceptional business environment. A temporary employment subsidy scheme has also been set up by the Department of Enterprise, Trade and Employment. This is a €250 million scheme which will protect up to 27,400 vulnerable jobs in the productive sector. The scheme will provide a subsidy of €9,100 per employee over 15 months to qualifying exporting enterprises.

We are facing tough challenges and to succeed we must continue to pursue appropriate policies to position the economy to benefit from the global recovery when it eventually emerges. The Government is acutely aware that businesses, families and almost everyone in our society is affected by the deterioration in economic conditions. We are attempting to ensure the burden of adjustment is spread evenly and fairly. The economic, budgetary and banking sector issues we confront as a country are very important to resolve. They will benefit from the debate and scrutiny they receive here in the Seanad and elsewhere.