Jim Walsh (Fianna Fail)

I welcome the Minister of State, Deputy Finneran, to this important debate on the Finance Bill. In the last two Finance Bills we have had to address issues which were unprecedented in my time as a Member of the House. I am sure that is the case for most Members. There has been a global economic downturn which has challenged not only the capacity of our small economy to deal with it but also the capacity of the largest economies in the world. Like other countries, we are slowly and gradually trying to work our way through it as best we can.

When one considers the scale of the difficulties that emerged in 2008 - the banking sector difficulties leading to the property collapse, the total global downturn, the ensuing huge unemployment and the consequential huge fiscal deficit - it is fair to say that anybody who found themselves facing such challenges could quite easily have been overwhelmed. It is acknowledged by fair people on all sides of the political divide and elsewhere that the Minister for Finance has risen to these challenges in a way that is commendable and has inspired people that we can work our way through it. While difficult challenges still face us for the future, we have shown, without being scared of taking very difficult political decisions, that the capacity and potential of our State to recover is reasonably good. We will only recover when there is a global improvement. There are varying opinions as to when that is likely to occur, a point to which I will return.

The big issue is the failure of banking worldwide. We experienced a huge increase in property prices here. Lending was provided at an irresponsible level, mainly in the pursuit of short-term profits. There was an abject failure of our regulatory authorities to recognise the risk factors involved and to take any effective action to try to bring some semblance of reality to the situation. That mirrored what happened in other countries, not least what happened in the United States where, I understand, more than 100 banks have collapsed. In time the fact that Lehman Brothers was allowed to collapse may be seen as a huge mistake on the part of the Bush administration because of the systemic importance of the bank. It was far from the biggest bank in the United States, but it had a huge knock-on effect. The size of the economy and, in particular, the markets in the United States meant the collapse reverberated across the western world.

There has been much debate here about some of the decisions taken regarding bank guarantees and the establishment of the National Assets Management Agency. If we are truthful only time will tell the success of these measures. It would be fair to say there has not been any real well-argued alternative to doing what we did. While it is unpalatable for the establishment of an agency which is under the support of the State, failure to take such action would have led to more adverse problems.

All of this feeds directly into the Finance Bill. It created a situation whereby there is now a huge hole in our public finances. It is fair to say some of that has arisen because of excessive growth in the cost of the public service. In 1998, some 220,000 people were on the public payroll, which included those working in all of the public services which we administer and all pensioners who are paid from those services. That figure is now approximately 370,000, an increase of 150,000. Our expenditure increased to some €57 billion. In the halcyon days of property development and the consequent revenue stream which came from properties, it was possible to cover that. The revenue stream last year was some €32 billion. There is a very significant gap of, I understand, €24 billion.

We need to be conscious that, early last year, we endeavoured to reduce the deficit to €20 billion for 2009. That was the stated intention. Despite the significant reductions in expenditure and tax increases, the deficit was some €24 billion. Statements on public finances for the first few months of this year indicate that, despite the fact that there was a reduction in €4 billion in the last budget, there will be a deficit of some €22 billion or more. There is a lot of disquiet in the public service about the reduction in pay but, unfortunately, in the good times pay in the public and private sector was allowed to develop at a rate which made us uncompetitive. That is a huge issue for us now and will be in the future.

In October 2008 I articulated that we needed a 10% pay cut. In effect, we needed to reverse benchmarking. It brought nothing by way of productivity to the public.