Jim Walsh (Fianna Fail)

Cuirim fáilte roimh an Aire. Bille tábhachtach atá á phlé againn. The Finance Bill is one of the most important items of legislation debated by the Houses each year. Recent events - I refer to the political shenanigans that occurred during the past week or so - appear to indicate that the Bill has been relegated to a position of minor importance. It is extraordinary that people who would argue strongly for time to be allowed between the Stages of a fairly minor Bill would seek to accelerate the Finance Bill through the House. I acknowledge that the Labour Party and Fine Gael have facilitated the passage of the Bill. It is for them to explain the contradiction between on the one hand facilitating it and on the other voting against it. It is like having one's cake and eating it. This attitude is regrettable at a time when the political system has come under the microscope.

Some of the difficulties we are facing are the consequence of increased public expenditure during the good times. The Opposition criticised the Government for not increasing expenditure even further. All of us should apologise for practising the politics of sound bites and populism. I apologised in this House for any part I may have played while I was here during the good times. I am pleased the new leader of Fianna Fáil, Deputy Martin, has also given a public apology. The political system needs to be thoroughly examined. It is too easy to demand that the Seanad be abolished. That is a one line sound bite when we need to examine the entire system, starting from local government.

I join Senator Harris and others in commending the Minister, Deputy Brian Lenihan, on his contribution and the manner in which he has conducted himself in response to the most serious fiscal and economic challenges this State has faced. I recall attending a meeting in July 2008 at which the former CEO of the Bank of Ireland, Michael Soden, expressed his concerns for the financial system. He described the precipice on which we were standing as being similar to that which led to the great depression of the 1930s. That was the first time I realised the seriousness of our situation and I approached the Minister about it. The Minister has consulted Mr. Soden and a number of other people in order to get an understanding of the problem and the potential solutions.

Between 2000 and 2008, public spending increased by 140% compared to a 35% increase in the consumer price index, CPI. Sadly, if we had increased spending at the same rate as the adjustments to the CPI our expenditure would match current revenue. In other words, we would be close to a balanced budget. On a recent visit to Switzerland I learned that country's constitution prohibits its Government from bringing a deficit budget before Parliament. Perhaps we should consider that type of discipline for our system.

In regard to social welfare changes, it was decided to maintain the State pension at its current level. We should have done the same in respect of the widow's pension. I have made this argument in years gone by to Charlie McCreevy and subsequent Ministers for Finance because I have personal experience of being raised by a widowed mother from the age of five. I understand the difficulties that people in such circumstances face. I would like to think the Department of Finance will at some stage bring the widow's pension in line with the old age pension. However, we should also recognise that social welfare benefits have increased by 117% since 1997, compared to a 40% increase in the CPI. Fianna Fáil led Governments during this period also brought significant reductions in taxation levels, the widening of bands and the removal of many people on low incomes from the tax net. Our policy was to ensure the benefits of the Celtic tiger were distributed to those who had not been benefitting. While these decisions must be acknowledged in hindsight as unsustainable errors, the motivation was justifiable and the other parties would have introduced similar measures.

I will briefly address the bank guarantee in light of the significant expenditure required to pay the interest on our debt. Shareholders and subordinated bondholders were burned during this period. Those who would argue the Government was wrong to provide the guarantee should indicate whether they would have deprived domestic and international depositors of their deposits by allowing the banks to fail. That would have been the result if we had not introduced the guarantee.

With regard to senior bondholders, I met two leading international economists over the past three months. The first was Roberto Newell, a former consultant for McKinsey & Company. He was adamant that allowing the banks to fail was not an option because it would have led to catastrophic results. During his time with McKinsey & Company, he was involved in the financial crises in Peru, Ecuador and Argentina. The only loan Argentina was able to get since it defaulted in 2001 was from Venezuela and the interest rate on it was 11%. The second economist I had the opportunity to meet was Dr. Nouriel Roubini, with whom several of my colleagues and I had dinner in December. Dr. Roubini is a leading US economist and is regarded as one of the top 100 intellectuals in the world. He explained that a sovereign debt default is an illusory proposition. In regard to senior bondholders, he advised us to act in a co-ordinated manner within the framework of the European Union. He argued that the debt could be restructured by extending it over a longer period and by making a significant reduction in the coupon being paid. Everybody recognises that the interest on the EU-IMF loan facility is too high. The facility itself has been positive for this country in giving us certainty about our ability to meet the ongoing costs of the State and allowing us time before returning to the markets. Any reduction in the interest rate must be done by agreement but we must keep up the pressure if the rate is to be set at a more acceptable level.

I have outlined my views on numerous occasions regarding the macro-economic choices between tax increases and public spending. Fianna Fáil has opted for a 2:1 ratio of cuts to tax increases, Fine Gael chose 3:1 and the Labour Party would prefer a 1:1 ratio, which would increase taxes to an unsustainable level and adversely affect the economy. Personally I concur with the British Prime Minister, David Cameron, who today told the World Economic Forum his Government is applying a ratio of 3:1.

In 2002 I advised the then Minister for Finance to introduce a war on waste campaign. Waste is endemic in most big organisations, particularly within the public service. Value for money is not being achieved in the public service and greater discipline and controls on spending are needed. The Croke Park agreement is progressing at a pedantic rate and it is probably too late. Productivity improvements, modernised work practices, efficiencies and cost effectiveness and better quality of management are urgently required.

Pay levels within the public and private sectors are too high. Supreme Court judges get €100,000 per year more than their counterparts in the United States. Our university professors are paid 50% more than their counterparts in Britain for lecturing 16 hours per week. In fact, most of them in the economics departments have been operating throughout this period as freelance commentators on all television and radio channels and, presumably, getting paid for it. However, if the quality of what they are expounding is similar to the quality of their teaching, I would be concerned for future generations of economists in this country.

Hospital consultants here are paid 50% more than those in Britain. This is unsustainable. I have also mentioned the tribunals and legal costs many times. I hope these issues will be tackled as a result of pressure from the IMF and the European Union.

How are we paying for all of this? We are increasing the level of income tax. The marginal rate is 41%, while the rate of PRSI is 4%, all of which comes from the productive sectors of the economy. The universal social charge at 7% is not tax deductible. If one calculates the tax payable, one arrives at an effective universal social charge of 12.73%, which is very high. I accept that in the current fiscal climate the Government does not have an alternative but to try to bridge the gap. My criticism is that we need to apply the scalpel far more enthusiastically to public expenditure. That must be done as a matter of urgency. If not, we will be in further difficulty.

With regard to capital acquisitions tax, the threshold is being reduced by 20%. There are also changes in stamp duty on residential property. We must be careful in capital taxation that we do not create a disincentive for investors similar to income tax creating a disincentive to work. With regard to approved retirement funds, I note that PRSI will be reduced by 50% and that the annual distribution is moving from 3% to 5%.

I am concerned about some of the taxation measures in the pensions area. Only 50% of people pay into a pension scheme. As we have an ageing population, the demands and challenges will be huge in the future. We must take another look at how we tackle this issue and it must be done in a co-ordinated and cohesive way.

I concur with what has been said about section 23 relief. People acted on the basis of commitments from the Government and there should not be changes in the middle of the game. Investors are facing substantial losses and many of them are heavily leveraged.

I will conclude on a positive note. A recent economic report found that the GDP ratio per capita in Ireland in 2009 was ahead of that in Britain, Canada, Japan, Germany, France, Sweden and the USA. Only Denmark, Switzerland, Norway and Luxembourg had a higher GDP ratio per capita. The world economy is projected to grow by 3.1%, the US economy by 2.4%, the euro area economy by 1.4% and Chinese economy by 9%. The Irish economy is at least twice as open as that of any other country; therefore, these global positive projections will have a beneficial effect. It is not without risk, but the news emanating is good. Ireland's export growth figure is also good, but we need to restore confidence for consumers and investors.

However, there is also negativity. Contrast the remark of the man who hopes to be Tánaiste who said the economy was an economic corpse and the statement of the next Minister for Finance, Deputy Joan Burton, that the country was banjaxed with the positive and constructive approach being taken by the Minister, Deputy Brian Lenihan. It is time for people to take stock, not to vote on what happened in 2007 but to look to the next five years, at where we are going, how we will extricate ourselves from these difficulties and who is best equipped and determined to do it.