Marc MacSharry (Fianna Fail)

I am glad to have the opportunity to make a few points on yesterday's budget. Two days ago Goldman Sachs stated:

While the situation in Ireland remains severe, the Government and, more importantly, the Irish public have shown an impressive resolve in responding to the economic and budgetary crisis. Although the Government, the opposition and the trade unions continue to debate where and how the knife should fall, there is no dispute about when and by how much the budget should be cut. This contrasts with the situation in a number of other European countries where, despite similar budget problems, there appears to be a reluctance to acknowledge, let alone confront, the problem.

This was evidenced on Tuesday when we saw Greece having its credit rating downgraded to the lowest in the eurozone, Triple B plus, with a negative outlook. The same has happened in Spain today. There can be little doubt that there is international agreement that the appropriate action is being taken here.

Our tax revenues have fallen close to 2003 levels, which means the deficit is €22 billion. To bridge this gap, we are borrowing €400 million a week, but we simply cannot continue in that vein. Nobody would set out by design to contemplate the kind of budget announced yesterday, including wages cuts and reductions in social welfare. I regret that circumstances have changed to the extent that these have become necessary. It would be good if social welfare payments had not been affected and if those earning less than €30,000 per annum did not have to take a cut of 5%. These measures are severe and will bring pain to every household in the country, which is highly regrettable. That does not dilute, however, the necessity for such measures in these difficult economic times.

The ambition of the budget is to stabilise the deficit in a fair way. I agree with Senator Twomey that we must focus on the creation of employment, but it is important to stabilise our current financial situation. The budget sets out to begin restoring our competitiveness, foster sustainable employment and safeguard those worst hit by the recession. As these measures begin to take effect, we must be extra vigilant to ensure less well-off families receive support under the various schemes in place. If we can identify anomalies, we must take the appropriate steps to address them. I am sure the Government agree with this.

The steps taken in the budget will inspire confidence domestically and internationally. We have seen the reaction today from quite a few quarters abroad. The Financial Times reported:

If there was any doubt about Ireland's seriousness in hauling its budget deficit, nudging 12% of GDP, below the eurozone 3% limit by 2014, Mr. Lenihan's last big push speech put paid to it. Such measures are an example to other eurozone countries, such as Greece, Portugal and Spain that have refused to grasp their deficit problems by the horns.

The Wall Street Journal commented:

Ireland has delivered what many commentators billed as the most painful budget in a generation. Budget cuts by the European Union's economic success story are likely to please Brussels but alienate voters and particularly public sector workers who have been asked to contribute a serious amount.

There can be no question about this, but we have gone way beyond politics in the last few years in terms of the steps that need to be taken to address the deficit and the many difficulties we have been experiencing.

The Minister of State has gone through in detail a number of measures introduced in yesterday's budget. I want to touch on a few of them. As regards income tax, I welcome the fact that from 2011 a universal social contribution will be introduced replacing employee PRSI, the income and health levies. It will be paid by everyone at a low rate on a wide base. I also welcome the levy of €200,000 per annum on wealthy Irish domiciles, regardless of tax residency status. That is very important. To the extent that anyone can, I welcome the wage reductions throughout the public service, by which we are all affected. It would be great if we were in a position to avoid such reductions below the €30,000 income level. It is regrettable, but it is necessary and must be done. However, there remains scope for including individuals earning over €150,000. The Minister might consider this in preparing the finance Bill, whereby such persons earning in excess of that figure could make an additional contribution. They are in a position to do so and I believe they would accept it.

I welcome the initiative to extend mortgage interest relief to 2017, including for new applicants up to 2011. Obviously, there will be transitional arrangements in place after that date. In his Budget Statement the Minister said that, as part of the code of conduct on mortgage arrears, he would ask the Financial Regulator to examine extending the moratoriums to 12 months. I would welcome such a move. While the Irish Bankers Federation and MABS protocol seems to be operating for the mainstream banks, it certainly is not for those not covered such as Start Mortgages and Springboard. According to the court lists, that is where all the applications for repossessions are coming from. I ask the Minister to consider if it is possible to introduce legislation to bring other lenders under the protocol. Other appropriate measures could also usefully be introduced. They include the reintroduction of an insurance scheme for mortgages, as was in place pre-2000. The problem of mortgage arrears and the threat of families losing their homes are likely to increase in the coming months as we see interest rates rise in the eurozone. That will undoubtedly put additional pressure on mortgage holders.

The new carbon tax provides a good incentive to think green and contribute more to the sustainability of our environment. The automotive industry should move a little faster on options such as electric cars and other new modes of transportation. In that context, the Minister should bear in mind the rural transport initiative and ensure it has the maximum possible reach. I am pleased the scheme will continue, but we should seek to improve it because it is an exceptionally good one. Rural areas do not have the benefit of Luas or DART services; therefore, the rural transport scheme is vitally important.

I welcome the reduction in excise duty to tackle cross-Border shopping. It is not to exacerbate any problem with the levels of alcoholism, but it seems most of those travelling to shop in the North are doing so to achieve better value for money due to the sterling exchange rate and the lower VAT rate. As they tend to buy alcohol, I welcome the new measures as a first step to stem the loss of €500 million in revenue. The Minister should be vigilant in this respect and consider if there are other ways by which the situation can be improved. Naturally the 0.5% reduction in VAT is also to be welcomed in this regard. Again the six Border counties have been suffering greatly in terms of retail employment in recent months. This may help somewhat, but further measures may need to be taken.

As regards VRT, I also welcome the relief of up to €1,500 for cars over ten years old. In terms of reducing the cost of the public service, I welcome the fact we are having substantial reductions. I am glad the Taoiseach, senior Ministers and Secretaries General of Departments are taking a substantial reduction. I do not accept that this is, effectively, only 5%, since it will involve pensions and everything else, and I believe it is an appropriate level of cut.

It was impossible not to go below the €30,000 figure. As severe as that is, we shall all have to face into it and get on with it. In terms of capital investment I am glad there is still a commitment of €6.4 billion this year and €5.5 billion in each of the two subsequent years. It is very important we ensure we focus on labour intensive projects such as schools to maximise employment throughout the country and focus on schemes that will contribute in some way to our competitiveness. In that regard I would like to see more investment in education and people.

The national solidarity bond is a very good initiative. We shall see many people availing of the possibility to buy five-year, seven-year or ten-year bonds and obviously a dividend will be paid annually and investors will be entitled to a final redemption bonus on maturity. In terms of cuts in social welfare, it is regrettable we have had to take 4% off payments. As the Minister pointed out, there has been a reduction of 6% or thereabouts in the cost of living in recent times, but nonetheless, €200 a week is not a great deal of money when people are trying to run a home. I hope we can be vigilant in identifying other supports that families may need to counteract this loss of income.

While the employment subsidy scheme is a good initiative, I ask the Minister to expand it to cover other service areas and other employers. Many employers could afford to keep on a receptionist or other member of staff if there were some supports. They might not be contributing in terms of high growth industry, but right now it would be of some help if that initiative could be expanded. I would like the Minister to focus on the housing stock all over the country in light of the overwhelming numbers there are on local authority housing lists. If we were to build the houses this could not be done for the price at which they can be bought. While there were no measures in the budget to do that, I believe it is something we could usefully address.

On banking generally, the lack of steps being taken to provide against the type of catastrophe we have witnessed over the last couple of years concerns me greatly in an international context. At a recent G20 meeting the British Prime Minister proposed that the banks should pay into a fund to have resources for when this might happen again. It is crazy that we should even contemplate such an eventuality. We should be agreeing a basic set of regulatory parameters on a global basis which could prevent this type of thing happening again and I would like to see Ireland taking a lead in trying to push that. However, there has not been much evidence of this to date.

It has been a severe budget. It is regrettable that some of the steps have had to be taken, but they are necessary. I am confident as things come right that success will become self-sustaining, jobs will be more readily available and we will have a stronger economy in which to improve conditions again.