Brian Hayes (Dublin South West, Fine Gael)

I wish those colleagues who have decided to go into battle again and who have run around the country over the course of the past few weeks every success in next week's Seanad elections.

It is a great privilege to have been appointed as a Minister of State in the Department of Finance and in the new Department of Public Expenditure and Reform and as colleagues are aware, I have responsibility for the Office of Public Works, OPW, side as well.

The mandate the new Government received brings an enormous responsibility for those of us privileged to have been given ministerial office. The mandate is a simple one. It is to do whatever we can to fix this huge problem we have all inherited in a way which tells the people the truth about the scale of the challenges we face and which is honest and up-front about the kind of decisions this country must take over the course of the coming years to ensure we can get back to a sustainable path of economic growth and that jobs will ultimately flow from that.

There is no magic bullet answer to these problems, as colleagues are aware, but what the new Government has done successfully in the past five weeks in Government is instill some confidence that we can take decisions rapidly. We have communicated decisions to the public across the board about the necessity to get on to the next stage of recovery. That twin objective of being honest and up-front about those problems and speaking plainly about those issues, and being prepared to take decisions quickly, marks out new territory that we need to be in to bring the economic recovery we all wish close to hand.

I am pleased to be here today and in my remarks I will briefly take stock of recent economic trends before outlining the policies the Government is putting in place to support economic recovery and to maintain the public finances on a sustainable path. In terms of putting public finances on a sustainable path, I stress that the Government will be fair and will endeavour to cushion the impact of consolidation on the most vulnerable in our society.

As all Members know, the economy is in the midst of an extraordinarily difficult adjustment. Gross domestic product - the most comprehensive measure of economy activity in Ireland - continued to fall last year, the third successive year of declining activity. Economic activity has fallen by around 15% since its peak at the end of 2007, implying a substantial decline in our living standards. We have seen an adjustment in terms of our own public finance position of approximately €20 billion over that period.

I have made the point, as have other Ministers, that this country has gone through an enormous period of restructuring in terms of that public finance position. It is fair to say that despite the difficulties in countries like Greece and Portugal we have already seen an extraordinary adjustment of about €20 billion and, as colleagues are aware, it is the clearly stated position of the Government as set out in the programme for Government that the accumulated adjustments for 2011, the €6 billion, and for 2012 have been clearly stated to the international community and that we intend to continue on the path of trying to correct our public finance position to ensure the international community has a clear view that this country will fix the fiscal position which has been allowed to get out of kilter dramatically in recent years.

The recent data, however, provide some grounds for optimism. Perhaps most encouraging has been the performance of the exporting sectors, where an increase of 9.5% was recorded last year, the strongest rate of growth in a decade. The broad-based nature of the increase in exports is also noteworthy. On foot of the strong export performance, the current account of the balance of payments - essentially our trade and income balance with the rest of the world - has moved into surplus. Ireland as a whole, therefore, is once again paying its way in the world.

Foreign direct investment inflows have also recovered, with the bulk of these inflows being in high technology sectors, which is where our comparative advantage lies. Several well-known multinational firms have recently announced new investments in Ireland, generating employment in high value-added, knowledge-intensive sectors. They include Intel, Google, eBay, Facebook and many others. I see that as a strong vote of confidence in the Irish economy and its future.

While our international reputation has suffered in recent times, it is also fair to say that we retain the key underlying strengths which make us one of the most attractive locations in the EU for mobile, direct investment flows. All in this House would endorse the Government's strategy concerning the 12.5% corporation tax rate. It is a key growth driver in our economy and any changes would hamper our ability to get ourselves out of the current difficulty.

The impressive export performance and the increase in FDI inflows reflect, in no small part, the significant improvements in competitiveness that have taken place in recent years. A substantial realignment of unit labour costs relative to those in our major trading partners has taken place, while consumer price inflation has been below that in the rest of the euro area since the beginning of 2009. Moreover, the necessary adjustments to our cost base have occurred over a fairly short period, demonstrating the inherent flexibility of the economy. This adaptability is a beneficial feature of our economy, and has helped to differentiate us from other peripheral economies in difficulty.

I assure the House that the Government will maintain its efforts to secure further competitiveness improvements, in order to strengthen our economic recovery based on boosting exports and investment. While the recent information flow on the exporting front has been encouraging, unfortunately the same cannot be said about internal demand. Conditions in this area remain weak, as excesses that were built up during the bubble period remain to be unwound. For instance, the downsizing of the construction sector, the necessary fiscal consolidation and the repair of household balance sheets are all continuing to depress domestic demand. It is as if we have two economies because exports - which traditionally are not job rich compared to the local domestic economy - are flourishing and showing extraordinary signs of growth. Meanwhile, we have an internal economy which effectively is not working because people are afraid to spend and make investment decisions. At a time when people are saving as never before, we effectively have two economies - a domestic one that has not recovered and an export-led one that is leading the way. The objective of all the Government's decisions taken, and to be taken, is to bring some confidence back to the economy so that people will be encouraged to spend again, making small investments in their homes or businesses.

The Government's other task is to ensure that the banks' restructuring plans are implemented along with the €30-billion investment over the next three years. We must be honest and blunt in saying that there has to be a political imperative from the Department of Finance to the Central Bank and everyone else involved to ensure that the lending capacity, which will soon be put at the heart of these over-capitalised banks, needs to be driven to make sure that credit lines are there for domestic and business borrowers. That is the only way we will shock the economy into having the confidence we all hope for.

The contraction in activity has taken a severe toll on the labour market where the unemployment rate has almost tripled since 2008. Of particular concern is the increasing drift from short-term to long-term unemployment - the latter now makes up half of all those who are unemployed. We know this is happening across our constituencies, particularly with young men, when we look at the shocking statistics concerning the numbers of people who cannot find work at the moment.

Turning to the public finances, it is clear that this is an area which will continue to occupy a considerable amount of the Government's time and energy for the foreseeable future. Two key issues need to be addressed: first, the deficit must be reduced; and, second, the budgetary architecture needs to be improved. As regards the deficit, the situation appears to have stabilised. Data for the first quarter of 2011 were broadly in line with expectations. The end-quarter fiscal outturn was also in line with the performance criteria set under the joint EU-IMF programme of financial support, with the targets for the Exchequer primary balance - that is, the Exchequer balance excluding debt interest expenditure - and net national debt being achieved.

Last week, the troika acknowledged that at the end of the first quarter of this year, the fiscal outturns were well within the target limits. Notwithstanding this stabilisation, it is abundantly clear that a large and unsustainable deficit remains. Most of this will not be corrected by the economic cycle, so further budgetary consolidation will be required if the State's spending and revenues are to be more closely aligned in the coming years.

The Government is firmly committed to reaching the 3% of GDP deficit target by 2015 and is committed to implementing the necessary fiscal consolidation to ensure that this target is met. That sends out a positive signal to the international community and those partners who are working with us on the financial difficulties we face, that there is a clear commitment that we want to reach a 3% deficit target by 2015.

It is abundantly clear that robust action on the public expenditure front is necessary to ensure that consolidation targets are achieved. In this regard, the Government has initiated a comprehensive review of public spending, which will form the basis for deficit reduction in the coming years. The challenge of the review lies in examining not only how we can spend less, but also how we can do more - in other words, it is about boosting productivity. The review also involves asking the question as to how we can achieve our policy objectives differently, as well as how we can be more effective and efficient. The objective of the process will be to provide the Government with a comprehensive set of options.

One of the most exciting decisions taken by the new Government in its first five or six weeks in office has been the comprehensive spending review. Previous Governments, through the Department of Finance, took the view that a percentage reduction in one Department should be sought without having regard to the various programmes which are run by those Departments and are ultimately accountable to the line Minister. If we are to reach our targets and achieve the necessary efficiencies, it must be led by Ministers in their Departments. Ministers need to have the confidence to go through departmental Estimates with their officials line by line and vote by vote to see exactly what is involved. They must ask themselves if particular programmes are required, can they be done better or can services be shared as a means of reducing ultimate costs. This review is the most radical departure in public expenditure in a generation because it puts the responsibility involved on the line Minister, and ultimately on the Dáil and Seanad. If we are to get out of this hole we need a totally new way of budgeting with Ministers putting forward plans early. We must move away from this dreadful cloak and dagger budgetary process in which the Minister for Finance stands up in December with a great tome of wisdom, which has been leaked the previous Sunday. That approach is no longer good enough and it is not fit for purpose. We need a budgetary process in which information is in the public domain possibly four months in advance, so there can be an open and honest debate about the options facing Ministers. Such debates should be held in public rather than the smoke and daggers approach that currently exists.

My ministerial colleague, Deputy Brendan Howlin, is currently dealing with this area on behalf of the Government. The comprehensive spending review is crucial to our recovery, as well as the reform agenda and ensuring that this State gets back on its feet again. The current budgetary process is not working and is not fit for purpose.

I would like to comment on the banking sector. There is a realisation now that as regards the stress-test reports that have been published, there is a sense both locally and internationally that we are getting to the bottom of the banking problem. There is a sense that we have been told the truth about the potential scale of liabilities the banks will ultimately have to face. That is the first step on the road to restructuring our banks. The statement by the Minister for Finance in the Dáil last Thursday three weeks was about over capitalising our banks to ensure they have higher capital ratios than Swiss banks so that people can be assured their money is safe in them. The largest outflows of deposits have been on the capital side, not the retail side. The economy cannot function unless it has a functioning banking system. We have to ensure there is confidence in our banks and the decision taken by the Government on the two pillar banks is about the future. There is a sense that we have a plan in place to deliver that future through a much stronger supervisory role for the Department of Finance, the Central Bank and others. It was crucially important that this first step in restructuring our banking system was taken by the Government.

This was set out clearly by our party and the Labour Party during the election campaign as the most important issue. It was addressed within three weeks of the Government taking up office and I am proud of that. However, the policy now must be driven, as there is no point in having a plan and demanding reform in the banking sector with new bank boards and management systems, unless we get to a new position. There must be a fundamental cultural change within our banking system. The old arrogance, the notions of grandeur and the days of the bank manager knowing best are over. Managers have to get to know their clients again. They must be involved in their communities and they must be aware of the decisions that have to be made to assist SMEs in towns. The new cultural change means we must return to traditional banking methods if we are to seriously turn everything around.

We face daunting challenges but the Government has hit the ground running and within five weeks of taking office, major policy announcements were made covering political reform, public sector reform and the reorientation of banking and fiscal policies. It has started as it means to go on by taking decisions that are needed when they are needed. I look forward to the contributions of colleagues on this historic final sitting of this Seanad. I have always believed that the contributions made in the House form an important part of the national debate.