Seanad debates

Thursday, 28 October 2010

Macro-Economic and Fiscal Outlook: Statements

 

12:00 pm

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)

I join Senator Twomey in welcoming the Minister of State. He is a regular visitor and while we love to see him, it would be nice if the Minister for Finance could make it from time to time. I am sure he would be with us if there were not other important functions to attend to.

I do not propose to go down the line of indignation again like Senator Twomey. As Senator Boyle said last week, we are suffering from debate fatigue on the economy. Many of us have used the Punch and Judy cliché over the past number of months and it needs to be dispensed with in favour of discussion on the tangible ideas Members have about where they feel savings can be made, taxation increased and structural amendments made that will contribute in a meaningful way to the four-year plan. That is what I am interested in and I would like to make a few personal suggestions as opposed to making suggestions for party political reasons. Many of them may be determined to be unfounded or hare-brained but nevertheless we must have such an exchange. Senators Ross, Harris, Regan, Twomey and others have life experience, particular expertise and ideas and they can outline ways they think we can navigate what clearly will be a difficult course ahead. That is how the debate will best serve us.

In due course, there will be a general election and people can exercise their franchise in the way they see fit and if that is influenced purely by anger, then so be it but, in the meantime, as the Minister for Finance said, anger is not a policy. It is incumbent on us all to come up with the specific policies that will get us out of the current mess. Throughout yesterday's debate in the Dáil, Fine Gael's position was to criticise the Government for not announcing the specifics of the budget. However, governments cannot do that. Fine Gael Members have been in power and they know the announcement must be reserved for budget day. Unlike Deputies Gilmore and Burton, who at least came up with some suggestions, Fine Gael chose to reserve its position and asked for more detail before it would come up with tangibles. I am sad that Senator Twomey has opted for the old set piece blame game by expressing indignation over what got us into the mess and the difficulties that have resulted.

The Minister of Finance announced earlier this week that the Government will make a fiscal adjustment of €15 billion over the next four years, which is a colossal amount. As the Minister of State said, we have all committed to achieving the deficit target of 3% of GDP by 2014. That can and will be done. During debates on our economic difficulties over the past number of years, I have stated on occasion that from a monetary policy point of view, the fact we are not in a position to adjust our interest rates has contributed to those difficulties. On one occasion the Minister of State corrected me because he thought I was advocating that Ireland should leave the euro, which I would never do. However, if the Stability and Growth Pact dictates the debt to GDP ratio of member states, we also need to consider guidelines for governments that are in surplus. The Joint Committee on Finance and the Public Service in its report on the macroeconomic and fiscal policy contribution to our problems stated that since Ireland constitutes less than 1% of the eurozone and interest rates are based on the inflationary outlook of the entire eurozone, interest rates will not be at the optimum position to help our economy. We experienced that difficulty when interest rates were running at 2% while our growth rate was 8%. That did more to fill the punch bowl than take it away.

The four-year plan will be announced next month. It will not only outline budgetary adjustments to be taken over the next four years but it will also provide a plan for structural reform of the economy, which the Minister of State mentioned. That is significant and necessary but at times the pedestrian nature with which we pursue change is frustrating. Senator Twomey, myself and others mentioned the Croke Park agreement on the Order of Business. It was designed more than a year ago having been negotiated in partnership with the unions. It is always welcome when agreement can be reached with the unions in the context of coming up with plans to solve our problems. However, the pedestrian nature with which we are achieving the deliverables under that plan is simply unacceptable. It has been more than one year and there have been no identifiable deliverables. We have seen the implementation plans from some Departments and there is a suggestion that we will realise the deliverables by January. That is simply disgraceful. As someone with a business background, I am aware that when a business decides to change things, they change overnight. We must start to introduce a level of flexibility and agility to our public services and to the way we do our business, whether in Government or whatever aspect of the public service, and we must do so immediately.

In this context the Croke Park agreement must be revisited. I welcome the fact that the Minister, Deputy Brian Lenihan, has stated that we must seek more savings there but I am unsure whether the area of public sector pay can be ignored. There can be no sacred cows and while I do not cherish the potential for my salary to go down the reality is these are difficult times. Let us consider health as an example. Some 70% of the entire health budget of €16 billion goes on pay. It is simply ridiculous to suggest that we will not cut pay at all and that we should cut the 30% that goes to front line services. This is simply wrong and we must engage with the higher paid public servants, especially those above the €60,000 mark, including Members and all senior civil and public servants. We have a limited period to determine if we can survive on a little less and it is vital that we can do so. While the Minister, Deputy Brian Lenihan, has stated that is not the intention at this stage, we need to consider it. If we announce now that we will not touch public sector pay we could be back at the table in another six or eight months and have to revisit things again. These are personal views.

The British Government took a brave decision last week to cut its public service staff by almost 500,000 in the next four years. We do not need to cut our numbers to that extent and I realise that through the moratorium we have saved in the region of 12,000 places so far. However, realistically we may need to have a voluntary redundancy scheme to bring that figure closer to 30,000 people. These are painful measures which no Government would wish to contemplate. However, given the economic crisis we are in these are the measures that must be considered.

Another measure that could be interpreted as political suicide - we are way past political considerations and vote winning measures at this point - is the concept of a property tax. It would be very difficult to administer a property tax but in 1977 Fianna Fáil was in Government and abolished domestic rates. At the time the domestic rate was calculated in an unfair way and it needed to be tweaked but by abolishing it we stifled the ability of the regions to develop on their own steam, whereby local authorities could have substantial budgets and bank their own capital projects. We must consider this area in the interests of sustainable local government funding. I do not propose that any of these measure should be focused on the less well off and vulnerable. There could be an appropriate waiver scheme were something such as this to be introduced. There was also speculation that the levy on second homes could be increased and this should be considered as well.

There have been suggestions from the Opposition parties and on our side of the House concerning the potential to sell some State utilities. An examination of the sale of either Bord Gáis or EirGrid may be possible but I would not seek to sell both. A substantial stimulus is required in terms of employment. There is approximately €4 billion in cash in the National Pension Reserve Fund and it must be invested wisely on behalf of the people to cover the pension liabilities of the future. The best investment of that money would be a scheme to take equity in the SME sector not by way of grants or giving out money or unmeasured expenditure, but to have a robust evaluation system which could be done quickly. It could involve someone good on the accountancy and legal sides and it could allow SMEs to come forward and the State could take equity of between 20% and 30%. Perhaps this could be bought back within a five or ten year period. That would be a good and wise investment on behalf of the people of the money in the National Pension Reserve Fund and it would give a much needed stimulus. An injection of €4 billion would have a significant impact at this time.

Another aspect that should be considered is comprised of an amalgamation of suggestions made by Social Justice Ireland, IBEC and the Union of Students in Ireland concerning a national internship programme. There have been suggestions to link this to people in the public service. Given the large numbers of unemployed and pending a recovery in employment to some extent, there may be a way to get substantial numbers of people off the dole queues. A pilot scheme was run under a Fianna Fáil-Labour Government or a Fine Gael-Labour Government in the 1990s whereby if one was qualified in a given profession, work would be found, one would be paid the hourly rate in line with that profession and one would work a number of hours up to the equivalent amount of the dole payment at that time. This would have the potential to create between 50,000 and 60,000 temporary and part-time jobs and could contribute greatly to people's dignity while, at the same time, increase national productivity at a difficult time. Such a measure could be usefully examined.

Education is another political hot potato. Should those who can afford it pay education fees? Universities constantly strive to compete and increase their position among the top 100 universities in the world. Of the top 100 universities, how many are non fee-paying? How many allow middle class and wealthy people to go to university for free if they are in a position to pay for it?

I realise none of these measure is vote-winning but we must face up to them. There is no way to package the measures that must be taken if we are to meet our guidelines and convince the bond markets of our intent. Today, on the back of substantial occurrences in Portugal with a breakdown of the budget negotiations there and the shortfall of tax revenues in Greece, we have seen the Irish bond spread increase to more than 7%. One could argue that the announcement of the €15 billion target in the coming four years played a part in this as well but, clearly, international sentiment is rather fragile.

We must not be content to resign ourselves to the Punch and Judy show and the blame game rather than focus on the tough, innovative and creative decisions, no matter how painful. We should completely shelve the concept of votes or elections and unless we do that we will not convince the international markets that we are sufficiently in control, that we have taken the bull by the horns, that we will achieve the €15 billion target and that we are being sufficiently innovative by putting €4 billion into our SME sector by investing in it and taking equity rather than simply spending money that will give no return. Otherwise we will have difficulty come January or February when we return to the bond markets. Clearly it is not sustainable to borrow at 7% levels.

The Minister referred to some positives. Exports are strong as is foreign direct investment, the motor car scrappage scheme has gone well, our competitiveness has been improving and labour costs are falling.

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