Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I want to make something clear to the Senator because he is a very slow learner in this regard. We will ensure that the economy comes out of the negative territory in which his party left it. We will ensure the economy grows in so far as we can. As I have repeatedly said, the economy is a bit like a cork bobbing up and down on a huge ocean. More than any economy in western Europe we are very exposed to the international markets. We have a thriving economy and a well trading economy. We have an economy that is highly deleveraged and highly privatised. It is not like the Mediterranean example. We actually have a smallish public sector vis-à-vis many other economies in Europe. As the world comes out of this difficulty and as we get some stability back into the eurozone, the economy will come back quicker than most. That is the view of the Minister for Finance and the Minister for Public Expenditure and Reform.

Let us consider the issue of VAT. When we increased VAT last year from 21% to 23%, the Opposition advised that the total take in that area would reduce. However, since then there has been an increase in the amounts of money coming into the economy from VAT. We have made it absolutely clear that there is nothing more to give in this regard, particularly in the area of indirect taxation. We did it deliberately to ensure that last year we did not increase income taxation.

I do not agree with Senator Michael D'Arcy on corporation tax. When there is such uncertainty the last thing to do is to have further doubt. One of the great advantages of the 12.5% corporate tax rate is that it creates absolute certainty on which there is political consensus. It sends a clear signal to international investors that Ireland will not change its 12.5% rate and that is the right message to send in circumstances where up to 250,000 direct and indirect jobs are related to foreign direct investment - the kinds of jobs that can move very quickly overnight. Of course they are not only coming here for the 12.5% corporate tax rate, as the Senator and others know. They are coming here because we have a well-educated workforce, we speak English, our currency is the euro, the demographics are good, and our workers are excellent in their flexibility and productivity. One of the great stories from this recovery is the way in which we have still managed to obtain very significant investments from US and other companies coming to Ireland and I believe we should not change the corporate tax rate.

I understand that five years ago the amount we were taking in in corporate tax was just over ¤7 billion. The amount this year will be ¤3.6 billion. I do not believe it makes sense to increase the corporate tax rate when the yield has reduced by almost half. At the height of the boom we were taking in ¤59 billion in taxes - corporate taxes, personal taxes, VAT etc. That reduced in 2008 to ¤31 billion. During that period of time, as Senator Barrett rightly pointed out, we have not seen a significant reduction in expenditure. We have seen a slight reduction, but the amounts have not radically reduced. We face an enormous challenge where the entire economy fell off a cliff and tax receipts, one third of which were predicated on a hyped up property boom, collapsed. We have to repair that tax system by broadening the tax base, which is the Government's policy.

Senator Quinn spoke about reducing the cost to employers and I very much agree with him. It makes no sense to increase taxes on employers in circumstances where we are trying to ensure they create the jobs of tomorrow. I also agree we need to do much more on reducing red tape and bureaucracy and make it easier for people to employ within our economy. We have done some very positive things in this regard. In the jobs budget we reduced PRSI where employers hire new employees. This made a difference and I very much reject what Senator Byrne stated. The advantage of the jobs strategy pursued by the pension levy was that we saw substantial growth in the numbers employed in the hospitality and tourism sectors. This happened as a result of the measures we introduced, particularly reducing VAT from 13.5% to 9%.

We are examining how to utilise the pension savings in the economy. The Minister for Finance made very clear in his Budget Statement last year that this year he would engage in consultations with the Irish pensions industry to examine ways in which the upcoming budget could get the pensions industry to invest in Ireland were traditionally it has not. This is under active consideration by the Minister. Consultation has been concluded and I expect that in the upcoming budget, or through other measures, the Minister will reflect these discussions.

I thank Senator Gilroy for his remarks, particularly with regard to the fiscal deficit. I agree with him that the issue of 120% of GDP is a very difficult challenge facing the country and our task is to make this more sustainable. The way this can be obtained is through a much better deal on our national debt through the promissory notes and opportunities provided by the ESM and recapitalisation. Senator Gilroy asked whether we need to be more publicly engaged in explaining our strategy. This is a challenge and a dilemma. People need to understand the Government is working on this, which we are, but many of these discussions take place behind closed doors because once a position on the objective of talks is made public and known, it becomes the only position and one cannot row back from it. We must get the balance right between continually explaining to the public our objectives while also doing much of the work behind the scenes and winning friends internationally, as the Taoiseach and Tánaiste have done in such an exemplary way through their work in trying to rebuild the country after the collapse.

It is worth stating that in 2012 one fifth, or 20%, of all taxes we take in will pay interest on our national debt, whereas four years ago the figure was 3.5%. This is a very difficult position. As Senator Barrett knows, in the 1980s one third of all taxes taken in paid interest on the national debt. If we can achieve sustained and substantial economic growth there is no reason this figure cannot decrease. I am confident this will happen over a period of years.

The role played by the president of the ECB, Mr. Draghi, in giving three year money to the banks at 1% and introducing bond buying on the sovereign markets has been hugely significant in creating incremental progress. The Senator also asked about the inflows and outflows of money to Irish banks and I will get the exact figures later. From my knowledge I understand the flow out of the Irish banking sector has stopped and it is now going in the right direction. As we get more confident and progress is made we will see more deposits. The news today that Bank of Ireland has returned to the capital markets is very encouraging because no interbank lending has taken place for at least two and a half or three years since the crisis began. The only source from which the banks could obtain funding was through the emergency liquidity fund. We are watching the news from Bank of Ireland today very closely.

When we came into government, the cost of buying nine year or ten year Irish debt was 15.5%. Last night it was 4.6%, which is lower than Greece, Portugal, Spain and Italy. We are moving in the right direction. We will soon be in a position where the cost of buying nine year or ten year money on the international markets will be close to the blended rate we are charged from the EU-IMF programme, which is approximately 2.5% or 3%. I put it to colleagues in a fair and objective way this is a measure of progress with regard to re-entering the market. Already this year ¤5.5 billion has been raised by the NTMA - in short-term money admittedly - and I know more will happen in this regard. This is the type of incremental progress we need to see happen in a considered way.

I thank Senator Mooney for his very constructive remarks. He asked why the 12.5% rate decreased to 6%. This is largely due to companies investing in research and development who can write off a proportion of their expenditure for this purpose. This is very important. If Irish multinational businesses invest in research and development, not only does it reduce their tax bill but it also provides another opportunity for Irish people to grow their ideas and export potential. I agree with the Senator's assessment that in times of crisis one does not change this but rather one sends out a positive signal. It is important to state also the tax credit on the research and development side is one reason people can reduce their 12.5% liability to 5%, 6% or 7%.

Senator Healy Eames spoke about mortgage debt. I do not disagree with her, but I must state that at the highest levels of Government the Taoiseach, the Tánaiste, the Minister for Finance and the Minister for Public Expenditure and Reform deal with this on a weekly and monthly basis. We need to see the banks get on with the job they have been asked to do. They have been given the funds to write down this debt where appropriate on a case-by-case basis. I know the engagement they have with the Central Bank and there is some frustration in this regard. We have all seen comments on this. The banks need to get on this task and the sooner they can do so the better.