John Gerard Hanafin (Fianna Fail)

I welcome the Minister of State. In joining the debate I note there was a call for a change of Government. Considering the past two years, there was a divergence of opinion on major issues in the Opposition parties and I wonder what kind of Government they would have formed and how long it would have lasted. It would not have even got over the first hurdle, which was the agreement to underpin the deposits in the banks. If they could not deal with such a simple issue undertaken by all major European economies subsequent to our underpinning of the banks, it is surely time for a party which is in a position and willing to take the tough decisions to undertake them.

These are tough decisions. We find ourselves in an almost unique position and going back to the 1930s is the nearest parallel we can find. It is fortunate we have the 1930s as a template as we know what we should not do. The first action that period shows us should not be taken is to act on the temptation to impose trade barriers. That was taken from the system very quickly and the American economy ensured it would not happen. The Gramm-Rudman Act created all the difficulties where tariffs started to increase around the world.

The second issue was to implement a Keynesian policy of spending money at a time when the public was beginning to slow its expenditure. That is beginning to show positive results. There is a clear consequence to that because in the printing of money, somebody loses out; unfortunately for people holding American debt, the value of the dollar has decreased because of the amount of extra money primed into the economy.

Notwithstanding this, although the recovery appears tentative, it is there. We saw a reversal during the week in Dubai, where debt was put into default and the stock market collapsed for a short period before recovering on the basis that things were not quite as bad as people had feared. The recovery is tentative but we appear to be on the right track.

Being on the right track means the Government took steps which had to be taken. The first was to stabilise our banking system and we are in the middle of the second step, the stabilisation of our economy and fiscal position. I have no difficulty in doing what needs to be done as long as we do it right. It appears the Government has spent hours, days, weeks and months in ensuring the forthcoming budget will be fair. It appears there is no lack of compassion in Fianna Fáil but as Mr. Colm McCarthy quite succinctly put it, there is a significant lack of money.

Fianna Fáil and the Government would like to have kept the rates as high as they were, and we did so in the good times. I have no doubt there will be changes but the Government will ensure such alterations are targeted, and only those who can afford to take the cuts will be affected. It is very easy when in Opposition to say that when the Government does A, it should have done B, when the net result is the same.

If a very high earner is taxed more or has social benefits decreased, it probably has the same net effect. Invariably, the Opposition has said it would have been much better if the Government acted in a different way. People who are very high earners are invariably those people who have availed of every possible tax shelter. They have section 23 and section 48 tax exemptions, allowances for capital allowances and we can be sure they will have invested in employment benefit opportunities where they can take tax relief on investing in a new business. What great benefit would accrue from increasing the taxation on such people? There are ludicrous cases where people on as much as €100,000 per year could be in a negative tax wedge; in other words they get more from the State in benefits than they pay in tax. That has to be rectified and I hope it will be rectified by the Government.

There is the idea that the problems can be solved by just increasing taxation and in one fell swoop everything would be cleared but I am sure that route would have been taken if that was the case. That route was taken in the 1980s and it cost us dearly. It took us a long time to get back to a competitive advantage. Considering the amount of tax that is being paid, a very large portion is being paid by 4% of people. That is the way it should be and I have no difficulty with those who can afford to pay doing so. As I have also said, those who can afford to pay can also do without their benefits or at least with fewer of them.

Where is this leading us? There will clearly need to be cuts in public expenditure. We have come back from the brink and the Government was largely responsible for bringing the country back from that precipice. The public, in the fullness of time, will see that we did not take popular or political decisions. We did not take decisions to put on the long finger the hardship entailed in getting our economy right. We are looking to correct the economy now. We are doing it in a measured way to ensure those who are less well off do not suffer as a result of us taking the action we need to take to ensure fiscal stability in the economy. The economic projection that there will be a GDP drop of 7.5% this year, followed by a drop of 1.5% next year plus the fact that unemployment levels are decreasing in terms of the number of people and the rate at which they are losing their jobs are positive signals. They are not the new dawn but they are heading towards a new dawn. The only way to get to a new dawn is by ensuring we have our banks right. As I said, the Opposition would not have done this correctly, but we are putting the banking sector on a sound footing. We must also get the economy right, which we are doing, and be competitive. The private sector is becoming more competitive and there has been a 7% fall in real terms in our competitiveness index. In other words, costs here have decreased by 7% and it is becoming easier to attract manufacturers back into the country and get businesses up and running.

The public sector has also played its part. It saddens me when I hear people pitch the private and public sectors against each other. The public sector has played a marvellous role in ensuring the nation achieved what it has achieved. It is worth noting where we are currently. Despite all the changes and difficulties and despite the current position with the economy, the gross domestic product per head in Ireland is $52,390. In Germany, it is $38,520, in Denmark, it is $57,000, which is one of the highest in Europe, and in Italy, it is $36,000. In other words, we are looking at a situation where major economies have significantly less output per person than the Irish economy. In the United Kingdom GDP per head is $36,000 and in Sweden, a major economy, it is $46,000. GDP in Switzerland is $60,000 per head.

The economy starts from a very high base and we must ensure the public realises the need to get our finances in order and the benefits this will bring to the economy and bonds. We want to get to a situation where economists can agree that Ireland is doing what needs to be done. That is what economists are saying about the economy. I suggest members of all the major parties recognise there is no alternative. What other Members here have spoken about are different methods of getting to the same point, but there is no alternative to what the Government is setting about doing.

In the past, I have often quoted The Economist when it suited. It is a fine publication but an article in it comments that Ireland is tapping the same capital markets as the richer stronger nations and that we may find it more difficult to access capital. The fact that people are now saving 13% of their income, rather than the usual 2.5% to 3%, has proven a boost for the Government. We are borrowing practically all we need to borrow at home. Therefore, we can fund our deficit at home from people's savings. This is positive because at least our borrowing is not foreign borrowing. Therefore, I hope The Economist will adjust its expectation that we may find it difficult to get funding in the world markets. We do not need to go to the world markets for funding.

The Government will ensure there is fairness and equity in the budget, but it is not going to be an easy budget. When Senator Boyle spoke earlier about all round hardship, I understood he meant there would be fairness all round and that everyone would share the burden in accordance with his or her ability. That is what I hope for in this budget.