Brian Hayes (Dublin South West, Fine Gael)

I found the debate on this Bill very stimulating, wide-ranging and interesting. I should first congratulate Senator O'Donovan on his elevation to high office and I look forward to working with him and other colleagues over the course of this Seanad term.

I shall deal presently with the issues colleagues raised but will first paint a broad picture. Yesterday I attended two very important meetings in Brussels, one being the Eurogroup meeting, the other the informal meeting of ECOFIN. Right now this country faces an enormous challenge, as Members of this House are fully aware.

I heard Senator Cullinane refer to a commentator who spoke about the importance of what he described as "radical" solutions. He suggested that the Government has failed to consider such solutions because it is afraid to do so. The immediate "radical" solution that faces this country this year, next year and the following year is the correction of its enormous deficit. If external support were not being provided through the troika and the financial programme we are currently operating were not in place, this country would face an immediate requirement to balance the books to the tune of €18 billion, as opposed to the €6 billion correction that is being pursued with cross-party support. That is the reality Senator Cullinane and his party must face. If one moves away from the financial programme that is in place until the end of 2013, one will only be able to spend what one is taking in. That €18 billion imbalance would have to be addressed immediately.

The Government, which I understand will have been in office for 100 days tomorrow, has not been over-hyping this jobs budget or initiative. One can call it what one likes. We introduced it as a modest set of proposals to help to spark the domestic Irish economy. On the point made by Senator Mooney, it is absolutely crucial to get people spending again. There is €96 billion in ordinary people's accounts. I do not refer to the commercial accounts of big entities, but to the accounts of ordinary people who have salted away €3,000, €4,000 or €10,000. People are frightened to spend in this economy because they are not sure if they will still be in their jobs next week, the following week or next year. They may have to save because their partners have lost their jobs. The savings ratio in this country is way out of order by comparison with normal industrial societies. People are saving as never before. I suspect all of us appreciate that the Government's task, in trying to reboot the domestic economy, is to bring confidence back to the economy, as Senator Conway suggested.

The economy has collapsed in the last three years. As I said in my opening remarks, GDP has decreased by 15% over that period. The Irish economy is a very fragile flower. It is in the accident and emergency ward. It wants to get out of that ward, to get back into the markets and to get some confidence going again. In circumstances in which the lender of last resort is operating in this economy, and will continue to be in the near future, the restoration of a sense of confidence is required. It is important to emphasise that we volunteered to participate in this process, which involves our EU partners, the IMF and other lenders across the international community. Some people have described the broad economic framework in which we are operating as a straitjacket into which we have been put. We are part of this package - it is not something that has been foisted upon us. It allows us to step back from the markets for a year or so. The Minister for Finance has made it absolutely clear, on receipt of advice from the NTMA, that he intends to attempt to gain some foothold in the markets and to test Ireland's support in them at the end of next year. He will go back to the markets in a fuller way in 2013. The objective of the Government, to put it crudely and bluntly, is to get back to the markets in the shortest possible time. We will not be able to do so until we arrest the deficit position.

There is an acceptance across the country that we have to implement the memorandum. The international markets are making it clear that Ireland is doing whatever it can in the midst of the worst economic recession since the 1930s. I referred at the outset to the meetings I attended in Brussels yesterday. I am delighted to be able to report honestly to the House that the absolute understanding of the ECB and the European Commission is that we are meeting our targets at this early stage of the programme. The programme is only in its seventh or eighth month, but the early indications are positive. I refer Senators to the quarterly review of our external funding partners, which concluded that Ireland is on the right track and has met its targets to date. That was the message I picked up in Brussels yesterday. Ireland is not Greece. We do not have a debt to GDP ratio of 160%. It is 100% at present and we expect it to top out at approximately 118% by 2013. It will be enormously challenging to service that debt for the foreseeable future.

In the 1980s, one third of all tax received in this economy was used to make interest payments on the national debt. In our worst position - in 2013, when our debt to GDP ratio will be at its height - the proportion of taxes being spent on interest payments will be no more than 120%. We need to ask whether that is manageable. I contend that it is. We did it in the 1980s. The problem in the 1980s was that we postponed the inevitable consequences of arresting the deficit. As a member of a political party that made mistakes, unfortunately, in the period between 1982 and 1987, I am prepared to take responsibility for that. If we have learned anything from the 1980s, which was a decade of misery, unemployment, high emigration and lack of investment, it should be that if one has a deficit position, one has to fix it. That can only be done internally. We do not need people living in Brussels, Washington or New York to dictate to us on that issue. As a people, we need to decide to live within our means. Public expenditure doubled over an eight-year period before our tax revenue collapsed completely at the end of that time as a result of an over-reliance on property. We have to fix the expenditure problem. Some of it requires increases in taxation. The party opposite, which signed up to the first part of the plan, has accepted the need for €1.2 billion in tax increases next year as part of the €3.6 billion adjustment. It is inevitable that some of this will be done by means of taxes. I contend that the greater part of it cannot be done without cuts in expenditure.

We are two thirds of the way along the path. I accept that the previous Government had to take difficult decisions in this regard. It is not easy. Two thirds of the adjustment will have been made by the end of this year. We will have to deal with the remaining one third. We are making a €6 billion adjustment this year. That will be very difficult, as everyone knows. When the Government came into office, it accepted the need for these adjustments and made two important claims in an upfront manner. We accept the outgoing Government's plan to provide for an accumulated adjustment of €3.6 billion next year. We think it is important to send a strong signal to the international markets to the effect that a €3.6 billion adjustment, which the previous Government told the markets would occur, will occur under this Government. We have to do it, which will be difficult given that taxes increased radically last year and expenditure has decreased. The Ministers, Deputies Howlin and Noonan, and I are facing that task in the context of the comprehensive spending review, which I contend is a radical document. Previously, the view of the Department of Finance was that if one wants an expenditure reduction of 4% or 8%, one should cut by 4% or 8% across the board rather than going through each Department's Vote line by line to ascertain where efficiencies can be achieved.

We need to state honestly that if we are to make the planned adjustment of €3.6 billion next year, whole programmes will have to be knocked out. That needs to be the subject of political buy-in, support and debate. The comprehensive spending review will involve parliamentary scrutiny of the choices and options we will face in that context. We have said that a €3.6 billion adjustment will occur next year under the programme. It is important to stress that we have also said we want to reach a deficit position of 3% by 2015. I remind colleagues that this is an ambitious target. If the Government is emphasising that Ireland is not Greece because of the deficit situation, the restructuring that has happened and the adjustments that will happen, it also needs to tell the world, including its international partners, that it will make a success of this programme - that it will avail of the opportunity the programme presents not only to make crude and difficult spending adjustments but also to do the heavy lifting in terms of public service reform that is needed to make those savings stick across the various Votes.

That is the context we face.

In this tight difficult position, how do we try to engender the confidence within the domestic economy about which Senators spoke and, as I stated, in circumstances where we are not making exaggerated claims about these proposals? We have set out in this Bill, which is the tax element of the jobs initiative, that certain matters can be tweaked with the VAT and the PRSI system as a means of trying to get job-rich growth that we need is the domestic economy. Traditionally, the export-led economy, which is high-end in many respects but also important for manufacturers, does not produce the number of jobs that we would expect to get in the domestic economy. Exports last year were up by 9%. There is exceptional growth in exports. The balance of payments show that we are paying our way in the world. However, the key task is what we can do to get the confidence going that others have spoken about and to get people spending some of that €96 billion that is there, and we have put out these ideas.

Tourism is a good area of the economy. We have built up a really good infrastructure. Thanks to decisions taken by the previous Government, we have a superb tourism infrastructure. It is a really good product which is much more competitive now than it was in the past. We have cut back costs and tourists see real potential in this country. We have lost a significant number of key markets - the British market being one. In terms of what we can do to help people to come back to the country, as other colleagues stated, I welcome the fact that there is broad support for the abolition of the air travel tax, for the changes that we have made on the PRSI side and also for the changes we have made to VAT to spark the potential of tourism so that it can be one of the great exports as it was in the past.

We have had three years of terrible economic contraction amounting to 15%. We will get growth this year. Who knows what it will be at the end of the year? I will not make any exaggerated claims. The official position of the Government is that growth could be approximately 0.8%. There are some who suggest a higher figure, but the ESRI and others suggest differently. At least, there is a broad consensus that we will have growth this year.

However, there is much broader consensus that next year the growth will be approximately 2.5%. That view is held right the way across all of the international commentators, from the IMF to the European Commission, all of which stated that we will see accelerated growth next year in the Irish economy. Once we get to that position, our sustainable position on debt is much more manageable.

I hear what colleagues stated on the question of consultation. The Government produced its plans, but we have had substantial consultation since with the industry and with the Pensions Board. Many of the amendments that the Minister, Deputy Noonan, brought forward on Committee Stage in the Dáil last week were a reflection of that consultation and the buy-in and support that was there.

On the issue of the pension levy, no one likes to pay more tax and no one likes to pay a levy, but we should put matters in context. As other speakers stated, my party put forward the idea of a pension levy well in advance of the general election. It was in our pre-budget submission. It was in our manifesto. While it may not have received a considerable amount of publicity in the course of the election, that was not for the lack of saying it. It was a proposal that we had put forward. I would also say that it was mooted by the pensions industry in discussion with my party while in opposition.

All of the bleating, the gnashing of teeth and the exaggerated claims by the pensions industry cannot get away from one simply fact, namely, it would be more than happy with a pension levy of 0.6% if there was no change to the tax relief at the top rate of tax. As other colleagues stated, that is an issue that must be analysed closely in the context of our discussions with the troika.

I would ask Senators to keep this in context. This is 0.6% in a context where many management fees of these pension funds are in excess of 1% or 1.5% on an annualised basis, and the world has not collapsed when the pensions industry was paying itself those kind of bonuses over the course of the year. As we will see in the course of Committee Stage debate tomorrow, there are opportunities where this small levy can be part and parcel of the fund itself or can be put into the management costs that apply on an annualised basis. People should get a sense of perspective about this. This is not a proposal for the long term. It is a temporary measure. That is why it is set out in the legislation in that regard.

In terms of the existing significant tax break, let us be clear. As I understand it, of the €13.5 billion in tax credits given to people last year, €3.5 billion relate to tax credits to the pensions industry. Hundreds of thousands of citizens across society use the tax system rightly to gain pension cover. When one speaks to people in the pensions industry, what they want is a sense of stability that the Government will not continuously come back, raise this levy or introduce some kind of instability to the market which would be bad for the pensions industry. I would ask people to keep a sense of perspective, but we can deal with that in more detail on Committee Stage tomorrow.

A number of Senators, including Senators O'Brien, Zappone and Gilroy, mentioned ARFs. It is not the case that ARFs have been specifically exempt from the levy. The levy applies to the assets of pension funds and ARFs are not pension funds. As a result, ARFs cannot come within the scope of the pension levy. Annuities purchased in the name of individuals are also outside the scope of the scheme.

ARFs are investment options into which the proceeds of certain pension arrangements can be invested on retirement. ARFs are designed to provide a stream of income to their owners on retirement in the same way as annuities but with more flexibility and control for the beneficiaries over the funds involved. If drawdowns are not made from ARFs, a notional or imputed drawdown amounting to 5% of the assets in the ARF is deemed to take place each year, which notional drawdown is liable to tax at the ARF owner's marginal tax rate. Unlike the pension fund levy which is temporary, the 5% notional distribution is permanent.

The Seanad might note, however, that on Committee Stage in the Dáil the Minister undertook to examine how best to increase the percentage notional distribution of high-value ARFs while ensuring that more modest ARFs would be protected.

The point has been made in this debate by a number of Senators that those top earners who squirrel away vast sums of money through ARFs are not paying any tax on those amounts. That is not true. A different form of taxation applies. It is not done in the way in which the levy has described; it is done by the charge, which last year went from 3% to 5%. Therefore, they pay an annual charge at that percentage rate. The Minister made the point that he would consider an increase in the notional charge between now and December if he thinks that advisable, but that is a matter for the December budget. ARFs do not come under the scope of the levy but they are subject to tax. It is merely a misconception that has been put out there.

Senators Zappone and Reilly mentioned the standard rating of tax relief on pension contributions. I am sure the Senators will be aware, as am I, that the pension fund levy comes at a time when the gradual reduction from marginal to standard rate tax relief on pension contributions forms part of the fiscal consolidation measures in the agreement with the European Commission, IMF and ECB. When introducing the jobs initiative last May, the Minister for Finance gave a commitment to examine this issue. The Government has initiated a comprehensive review of expenditure in order to provide it with a set of decision options to meet the overall fiscal consolidation objectives and realign spending with the programme for Government priorities. The review is to be completed by the end of September this year. The Government will then examine the findings and, in consultation with the EU, IMF and ECB, will introduce fiscally neutral changes to the detail of the EU/IMF programme of fiscal support. The Minister for Finance has undertaken to examine the scope for any change to the proposed standard rating of tax relief on pension contributions in that context.

Senators Michael D'Arcy, Quinn and Clune welcomed the amendment to the research and development tax credit scheme. I agree that this is an important development which will encourage more companies, especially those outside the country, to come and invest here.

Senator Keane referred to the increase in the specified income limit from €12,700 to approximately €18,000 in the context of the extension of the approved retirement fund, ARF, option to all defined contribution pension arrangements in this year's Finance Act. I have noted the Senator's comments. They are not directly related to the contents of the Bill but the increase to which she refers was well-signalled in the National Pensions Framework published in March 2010. The argument is to have a sustainable pension which delivers something for people at the end of the day, but the previous €12,700 limit would not have given any significant relief to people in the real world given the difficulties in the economy. The argument holds that the €18,000 limitation proposed at the time guarantees at least some revenue stream for people on pensions. We will examine the issue in the context of the overall number of people who have pension cover.

Senator Zappone made the point that the real issue is how to guarantee additional pension cover in a circumstance where those comprising whole swathes of the private sector have no pension cover at all and who will, ultimately, depend on only one pension, the contributory pension. That is an issue for wider public debate but I note the Senator's comments.

I agree with Senator Michael D'Arcy's comments in connection with IDA Ireland and the need to have a focused campaign of job extension and opportunities throughout the country. The combined influence of Ireland's increasing competitiveness and business costs, the commitment to the 12.5% corporate tax rate, the transformation of our client operations and activities and our investment in science, technology and innovation will continue to attract and increase the level of inward investment in Ireland.

I endorse Senator Quinn's comments and his suggestion that the role of Government is to stimulate the economy rather than create jobs directly. That is the point. The only way we will get back some of the jobs we have lost and create opportunities for young people who have lost jobs throughout the economy is to have the right policies in place rather than the idea that we can subsidise employment. That will not create the jobs of the future. Senator Quinn referred to the need to encourage individuals to set up companies. The seed capital scheme continues to be available for those in PAYE employment or those who have been made redundant to encourage such individuals to start up their own business. Senators may be aware that the seed capital scheme is part of the business expansion scheme.

Senator O'Keeffe raised the issue of the money advice and budgeting service, MABS, and financial advice available generally. I understand the Welsh Financial Education Unit is providing a rolling programme of advice and support for the planning and delivery of financial education for seven to nine year olds in schools. There is always merit in improving the financial awareness of individuals of all ages, including those of schoolgoing age. In a period of limited resources, however, it may be more appropriate to focus on individuals with actual debt and financial difficulties. The State provides significant resources to MABS annually. The financial commitment amounts to €18 million this year. More than 250 full-time and part-time staff are employed to give direct assistance to people who find themselves in debt or a difficult financial position.

I welcome the comments made by colleagues on all sides. I look forward to the next stage of the debate tomorrow during which we can tease out in a more meaningful way the contributions on Committee Stage. The Government is being upfront with people. These proposals are modest. They are well focused and are about engendering confidence in the domestic economy which has collapsed over the past three years. They will ring-fence those sections of the economy where we believe we can re-boot opportunities quickly. There is broad support throughout the House for the measures as announced. I realise there is opposition on the question of the pension levy. However, we must do this in a fiscally neutral way. It would be dishonest were the Government to spend money it does not have. We are in this difficult financial position because of the financial programme we have entered into with our international partners. To do otherwise would be fiscally imprudent and would not sustain the country or provide a way out of the support we have been given for the next two years or so. The task of Government is clear: to regain the reputation the country once had. The way to do this is to stick to the programme, which has been internationally regarded as yielding some success for Ireland in a circumstance in which there is such an international crisis, especially a crisis within the eurozone.