Martin Mansergh (Tipperary South, Fianna Fail)

Four weeks ago on 30 September I addressed this House as my contribution to statements on the economy on a day that I described as being critical in our recent development. On that day, the Financial Regulator announced the total capital requirements for the restructured financial entities and the Minister for Finance issued a statement on the matter. The Minister stated that the overall cost of State support to our banking system remains manageable and can be accommodated in the Government's fiscal plans in the coming years. He added that it is imperative to remain focused on our major challenge, which is to ensure that our public finances are returned to a stable and sustainable path. Today, I propose to comment on our economic situation, but more particularly on the scale of the adjustment needed in the public finances over the coming four years, the reasons such a large adjustment is needed, what the Government proposes to do to meet its consolidation target by 2014 and why we cannot delay making considerable progress towards this target in December's budget for 2011.

Four weeks ago, I devoted most of my contribution to making the case that the considerable amount of negative, sometimes even defeatist, comment about the economy at the time was overdone and that there was much that was positive in recent economic data and developments. I do not intend to repeat in detail these comments, but it is useful to refer to the main points. Following the most severe economic downturn in the history of the State, the most recent national accounts figures, while somewhat lower than expected, nevertheless pointed to a stabilisation of activity in the first half of this year. Export performance was robust in the second quarter of the year and, encouragingly, the range of exports was shown to be broadening. Yesterday, the Irish Exporters Association released figures that showed the value of goods and services exported in the third quarter was 9.3% higher than in the comparable period last year. This strong export performance reflects the considerable improvement in competitiveness through a fall in pay costs and prices. I also pointed out that the labour market, which has been severely affected by the downturn, was also providing evidence of stabilisation in employment and unemployment. There has been a substantial underlying fall in unemployment in September and, on this basis, it is reasonable to expect that the outcome for this month will also be favourable.

In the following week, clear evidence was provided that the Government's efforts to stabilise the public finances are having a positive impact. The Exchequer returns of revenue and expenditure, covering the period to the end of September, showed that the overall Exchequer position was in line with target. Other positive features of the figures were that total tax revenue was exactly in line with profile, expenditure was almost €1.6 billion down year-on-year and the underlying general Government deficit this year is expected to be broadly in line with the budget target.

It is no accident that the public finances are stabilising: Ireland is now into the third year of a difficult process of consolidation and the Government is fully engaged in formulating its consolidation plan for the next four years. The Government's record since the middle of 2008 demonstrates a sustained, politically courageous and determined commitment to bring the public finances under control in circumstances that could be hardly less ideal.

I shall briefly summarise the main steps taken by the Government over this period. In July 2008, a range of efficiency and savings measures was put into effect, including a 3% reduction in payroll costs for all Departments, State agencies and local authorities. Budget 2009, which was brought forward to October 2008, included a tax package to raise almost €2 billion in 2009. Against a backdrop of sharp downward revisions in the global economic outlook, the Government set out a multi-annual fiscal consolidation plan in January 2009, with the objective of bringing the overall deficit back within the 3% ceiling in a credible manner. Further programme and payroll savings of the order of €3.5 billion were announced in the first half of 2009, of which the main element was the introduction of a public service pension-related pay deduction. The supplementary budget in April 2009 continued the process begun by these earlier savings measures, consolidating the expenditure reductions through a range of programme savings.

Budget 2010 continued the process of implementing our multi-annual plan, with an expenditure reduction of €4 billion delivered through a combination of payroll, social welfare and other programme reductions. The special group report, published in July 2009, made a contribution of central importance to the expenditure strategy in budget 2010 with savings of some €2.1 billion in 2010 arising from the report to date. In all, these measures have amounted to €14.5 billion.

Despite adjustment on this scale and of as much again to be done, the Irish economy has proven to be resilient and is set to emerge from recession. It has been a formidable achievement to secure these savings, but the hard reality is that as much again and a bit more must be secured over the next four years. Specifically, the Government has decided that a total budgetary adjustment of €15 billion over the next four years is needed to achieve the target deficit of 3% by 2014. Two key reasons make this necessary. The first is that there has been a sharp increase in the interest demanded on Irish debt. The second is that even with a resumption of steady economic growth, expected to average 2.75% over the four years to 2014, this will not be sufficient to generate the revenue to meet the present level of public expenditure.

The pattern of adjustment will not be the same for each of these years because some front-loading in 2011 will be needed. Also, in order to protect the basis for economic growth as much as possible, the balance of the adjustments will favour expenditure cuts over tax increases. The Government's decision to front-load the adjustment in 2011 was made in full awareness that this approach is likely to dampen economic growth in the short term. However, the greater imperative in the short term is to secure the confidence of the markets so we can continue funding our public services. The options facing us therefore are not appealing and the choices to be made by the Government, or any party in these Houses, are not easy.

In the face of the current state of the economy and the public finances and the compelling necessity to secure the confidence of the markets, we stand at a critical time for our country. It is our responsibility as representatives of the people to do our utmost to decide what is in the best interests of the country and to act accordingly. The correct decisions will safeguard Ireland's long-term economic prospects, but the wrong ones could cost us dearly and it is not necessary to spell out why.

Following the Department of Finance's briefing of the Opposition spokespersons and leaders on the state of the public finances and the economic outlook, all parties are now clear as to the size of the task facing us over the next few years. We are in a position of great economic uncertainty, but equally it is vital that we act quickly and decisively to demonstrate a credible commitment to restoring stability to our public finances.

I am encouraged by the acceptance by the main Opposition parties of the target to reduce the deficit to 3% of GDP by 2014 and I have stressed this positive factor on recent visits to the ECB in Frankfurt and to a think-tank attended by leading economic commentators in London. This development will enhance the confidence of those watching from abroad that Ireland is committed to appropriate fiscal adjustment and that Ireland can return to a path leading to sustainable public finances and sound economic growth under successive governments.

The scale of the adjustment needed in the public finances is such that, in order to achieve stability, it is unavoidable that almost everyone in this country will need to make some contribution towards achieving it. Therefore the Government is determined that one of the key principles that will underpin its four-year plan will be that of fairness. Although perceptions of fairness can be subjective, I am confident that the Government can succeed in this regard. When they are convinced that the burden they have to bear will be shared equitably, the people will accept it.

From what I have just outlined about the challenge facing the Government to meet the 3% of GDP deficit target by 2014, it is obvious that proposals to achieve it must be clear, comprehensive and credible. This response will be presented in the Government's four-year growth and fiscal consolidation plan by mid-November and will be presented to the Oireachtas. There have been some criticisms by the Opposition in the Dáil that not enough figures have been presented to them. I want to assure Members of this House that the Government will do its utmost to ensure that, when published, the plan will contain as many figures as can reasonably be provided. The plan will be a wide-ranging document and, using the most up-to-date economic and fiscal data, it will set out clearly the revised annual headline targets and the necessary adjustment to adhere to a credible deficit reduction plan over the medium term. In addition, it will also map out the path of the economy and the public finances towards recovery over the years 2011 to 2014 with special emphasis on the adjustment required in budget 2011.

The plan will not be just about correcting the imbalances in the public finances; it must also include a strategy to underpin and encourage sustainable economic and employment growth over the medium term. In order to ensure the fiscal targets which we set are delivered, the four-year plan will also feature reforms to the budgetary framework. Structural reform will be an important element of the plan. Structural reform is about making the public and private sectors of the economy work better. If we simply confine our efforts to sorting out the public finances and ignore structural reforms, we will not be able to achieve the basis for strong economic growth over the long term. In summary, we have to ensure that no part of the private sector or public sector will be a drag on the economy. Structural reform measures often take several years to have full effect, but including them in the plan will make an important contribution to demonstrating its credibility. I should add in this context that Ireland will submit an initial draft of its national reform programme under the EU 2020 strategy to the European Commission in November. This document, which will be consistent with the four-year plan, will contain the key structural reforms which can be implemented most quickly with greatest effect.

Addressing the challenge of stabilising the public finances is formidable, complex and will take hard decisions over several years. Nobody in this country relishes the task ahead, and it is therefore not surprising that there are some who in good faith are saying that we do not have to act now and that we should delay doing so for one or two years. The reality is, however, that we have no choice but to act now on the commitments that we have made to the EU Commission, EU Ministers and the ECB, even in the unlikely event that the markets would allow delay. On the positive side, by taking action now, not just to stabilise the public finances, but also to make the economy work better, we will in a short time secure the basis for sustainable growth and a fairer and better society for ourselves as well as enabling our young people to attain the potential of their talents and ambitions in their own country.