Seanad debates
Wednesday, 22 November 2006
Economic Competitiveness: Motion
5:00 pm
Feargal Quinn (Independent)
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I move:
That Seanad Éireann, mindful of the crucial impact of inflation on the nation's competitiveness and the recent figures which show that our inflation rate continues to run well above the EU average, calls on the Minister of Finance to make the containment of inflation during 2007 the top priority in his forthcoming budget.
I welcome the Minister of State at the Department of Finance, Deputy Parlon, to this important debate. I had no problem composing the motion which I worded in a manner that would not invite an amendment. I gave considerable thought to the use of the term "top priority" given that the Government will have other priorities. The reason the motion calls for the containment of inflation to be made the top priority is that our objectives in health, education or on law and order will not otherwise be achieved. For this reason, I was interested to note comments by the Minister for Foreign Affairs, Deputy Dermot Ahern, reported in a newspaper today. He stated:
Prosperity is a prerequisite for all our ambitions — in health, enterprise, welfare and education. To that end, Fianna Fáil in Government will defend prosperity with unequalled determination.
Given that this statement precisely reflects the sentiments expressed in the motion, I assumed the Government parties would not table an amendment to the motion.
It is with some trepidation that I propose the motion to the House two weeks before the Budget Statement by the Minister for Finance. My reluctance arises from the fact that the subject of inflation has become something of a bore. Few Members and practically no one in Government appear to care about it. It is regrettable that this probably reflects the views of members of the public who also appear to be largely indifferent to the danger of inflation. The same factors that give rise to my trepidation also encourage me to persevere with the business of raising this matter in the House again. Notwithstanding the widespread public and political indifference to the dangers of inflation, I strongly believe it is the greatest challenge we face as we prepare the economy to meet the challenges that lie ahead.
The irony of the current position is that the threat of inflation is widely recognised internationally. For example, a recent issue of The Economist gave banner headlines to it and the issue was also a high priority for the G20 group of Finance ministers which met in Melbourne at the weekend. It is also high on the priority list of central bankers around the world, particularly those in Europe. Across the developed world the growing danger of inflation and the need to control it by pre-emptive means is recognised as a major challenge but it is one that many are determined to face.
The irony arises because we face a much greater danger than anywhere else in the world if we allow the current trend in our inflation rate to continue. Throughout the period of the Celtic tiger, domestic inflation has run far ahead of inflation in the outside world. Not once has it fallen below the European average and it has been considerably above average for most of the period. For this reason, the complacency apparent in the amendment tabled by the Fianna Fáil Party is a matter of concern.
In the past week I had the opportunity to visit Brazil and Argentina. I remember my experience of inflation in Brazil during my only other visit to the country, which was in 1976. As one drove around one could see three or four Volkswagen cars in the front gardens of homes. Inflation had reached such a level that using hard currency to buy goods which would hold their value for several months was the only way to protect oneself from the problem.
I visited Argentina in 1991 shortly after the country tied its currency to the dollar. That position continued for ten years until late 2001, when the Argentinian Government lost control of the currency and its value collapsed. Having experienced the danger of inflation in these two countries 30 years and five years ago, respectively, I am worried by the level of complacency evident here.
An article in yesterday's edition of The Irish Times noted: "Exports fell in September, reversing gains made in August, according to trade figures released yesterday by the Central Statistics Office (CSO)". Despite the threat posed by inflation, the Government is complacent, as the amendment illustrates.
The difference between the Irish inflation rate and that of our European partners over several years has had a cumulative effect in that Ireland's starting point vis-À-vis its EU counterparts worsens every year. The result, as everyone is aware, is that Ireland has moved from being a low cost to a high cost country in the past decade. In many respects, this is the most expensive country in Europe. This is not a controversial statement — everyone knows it is true — but, astonishingly, no one appears to care. While there is, as one would expect, some griping about high prices, nowhere is there a full awareness of the implications of creeping inflation for the future of the economy and the economic well-being of every person who lives and works here. Inflation is the elephant in the room, the subject about which no one wants to talk.
Why is this? People are not stupid so our inability to face up to the consequences of inflation is due a national complacency economic success has created. We have fooled ourselves into believing that because things have gone so well in the past decade, they will continue to go well in the future and there will be no end to the prosperity we currently enjoy.
This blind complacency has prevented us from doing the sums on inflation, and the sums involved are simple. For every year that passes when our inflation is higher than the outside world, we lose a corresponding degree of national competitiveness. This impact has a cumulative effect because we do not start afresh each year, we inherit the playing field from the previous year and it is frightening how quickly things can go wrong, even when the figures involved are modest. If our inflation is 2% above the norm internationally, that does not appear much but if we continue like that year on year, as we have done for a decade, it rapidly amounts to a major difference and that is what has happened.
Yesterday I attended the board meeting of an international organisation where we were planning the fees for next year. The chairman, who is not Irish, said that we would increase the fees by 2% because people would readily accept that. Two Japanese colleagues on the board howled that it would be dishonest and that Japan had experienced deflation for a number of years and expected prices to fall. We are so complacent that we assume a 2% increase is acceptable.
Without realising, we have become highly uncompetitive. The goods we produce for export markets have become less competitive than they once were and, more importantly, when we try to attract foreign direct investment, the lifeblood of the economy, we have made ourselves much less attractive than many of the countries competing with us for that investment.
In The Irish Times yesterday, there was an article headed "Moody's stresses importance of foreign investment here" and it reported:
In its 2006 credit analysis, Moody's described the Irish economy as resilient, flexible and characterised by high growth rates. However, despite the State's considerable strengths, foreign direct investment levels declined over the past two years, Moody's noted.
"One point of concern for international cost competitiveness is the Irish inflation differential with the euro zone," Mr. Kockerbeck said.
In the past two years we have seen many businesses close down and leave Ireland for less costly locations in eastern Europe and Asia. Ominously we have lost not only manufacturing concerns but some of the service industries we have started to emphasise.
Those closures have generated publicity but they are not the most serious part of the picture — the greater number of companies that are not choosing to locate in Ireland. They do not even bother to visit IDA Ireland because they know the sums do not add up. There are many other elements in competitiveness than costs but they are the crucial hurdle we must overcome to attract and retain investment. If we cannot compete on costs, we often do not get the chance to compete on other factors where we might not be at such a disadvantage. This is the elephant in the room that is sending out messages we seem determined to ignore.
Can we do anything or must we stand helpless while the realities of a global economy slowly come down to bear on us? We cannot wave a magic wand and make this problem disappear, we can never make Ireland a low cost location again, and we do not want to. We can, however, hold back the tide and that should be a national priority. We should run the economy on the basis that the important task we face is to contain inflation. We should identify inflationary trends and threats in advance and focus on those we can control to some extent. We cannot control the price of oil but we can control our dependence on it. We cannot control euro or dollar exchange rates, although we can act to mitigate the negative impact of currency movements that go against us. In the matters where we have control, it should be a priority to contain inflation.
The way we have handled the impending increases in the prices of electricity and gas is a perfect example of what we should not do. In August, the regulator approved massive increases in gas and electricity prices based on the level of oil prices at the time on the assumption those levels would continue for the year ahead. Circumstances have shown these price increases were based on a totally false assumption. After peaking in August, oil prices have fallen to their lowest level in more than a year. Incredibly, however, the regulator, supported by the Government, has stubbornly refused to revisit the price increases. If this situation is allowed to continue, we will shoot ourselves in the foot and we will deserve everything that happens to us.
The overall situation with inflation is so serious it calls for urgent and dramatic Government action. Measures can be introduced to the forthcoming budget that will alleviate this threat. My purpose in tabling this motion is to encourage the Government to take those measures and to recognise the elephant in the room.
I discovered an example today. The Competition Authority is investigating complaints that some taxi companies have formed cartels and are telling their drivers not to charge the full cost of fares introduced by the taxi regulator in September. Drivers for some companies have been told they will not be allowed to work if they impose the full fares. The new fare structure aims to create one rate for the entire State, including a €2 charge when drivers are called out to collect passengers. Some taxi companies, however, have decided not to charge the call out fee and have told their drivers not to impose it. We are saying that they must charge the extra fee but by doing so we are encouraging cartels, the very thing the Competition Authority acted to prevent when a group of oil suppliers in the west tried to achieve a similar outcome.
We must keep our eye on the ball to ensure nothing we do encourages the growth of inflation.
Joe O'Toole (Independent)
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I thank Senator Quinn for tabling this motion. I agree with him about the importance of dealing with inflation. In 2001 and2002, there were worries that inflation was about to take off again. In the partnership talks, all sides raised the importance of the issue, so much so that we established a group to deal with inflation. Whether we were successful or lucky, it dropped for a period following that but it is now growing again.
I was asked by someone else today if inflation should be the top priority. Economic indicators are crucial to the development of the economy so, yes, it should be. It is one of the crucial first blocks on which we must build as economic indicators and fundamentals are crucial to the development of the economy and in terms of looking after people who are dependent on the economy and the State.
What issues would we have spoken about 15 years ago? They would include unemployment and interest rates, productivity and inflation. It is significant that we have managed, over the past number of years, to deal with many of these other issues. There is always an argument about productivity, but the productivity figures for the Irish economy in the past 15 years show only approximately three years when the rate did not rise faster than any other European country. This is not economic growth but the productive output per worker per hour or day, and we should remember that. We hardly speak about unemployment any more because it is at approximately 4%. Interest rates are definitely coming back on to our radar.
The problem with these issues is we do not see underlying trends. I would not completely agree with some of the nuances of Senator Quinn's arguments, although I agree with the thrust of his points, and crucial among these is that there is no point arguing about the distribution of wealth unless wealth and prosperity is created. I always made this argument when I was a representative in the trade union movement. I agree that inflation is a crucial element in that regard.
As a trade union official at national negotiations I had a simple bottom line of subtracting the inflation rate from the growth rate in the economy, and this was the figure people needed to get. Inflation immediately becomes a bedrock part of negotiation, and it is the same for employers, who consider its cost impact. Everybody considers it fully in all negotiations. Ignoring it, or as Senator Quinn stated, to see it as the elephant in the room to which we would not refer, would be ridiculous. We must deal with it.
We should consider it in a way that people will understand its importance. In the 1970s and 1980s, when inflation was completely out of control, our money was worth nothing, and it did not mean anything to us as time went on. Where are we now on the inflation issue? Both the Government and the Opposition do many people a disservice in this country with the type of discussion taking place on prices. Senator Quinn's point on this is interesting, and that is the type of focus we must have. The regulator made a mistake on fuel and electricity costs. It sounds as if he was listening to the chairman of BP, who is consistently telling us the price of oil will increase year on year.
I hope I am not shot down from any direction after my next comment. I do not subscribe to the general idea of the rip-off republic or that this is the most expensive country in Europe. I travel a lot but I never do so without checking prices. All last weekend I heard people correctly stating that it was disgraceful that CIE was increasing prices. It is good people would object for the reasons we have already stated, but it is ridiculous for people to say we are the most expensive in Europe.
Joe O'Toole (Independent)
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The reality is our train ticket prices are far cheaper than those in the UK or France, just to take our two closest neighbours as an example. I travel by train in those two countries and I always bring the ticket stubs with me.
John Dardis (Progressive Democrats)
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We thought the Senator was going to say he always brings his travel pass with him.
Joe O'Toole (Independent)
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I recently travelled by train from Bristol to Falmouth, and the cost was far more expensive than any cost of train travel in Ireland. It is similar in France. It is interesting that Senator Quinn considered taxis, as people in Ireland always tell us how expensive taxis are. I was delighted to see taxi fares being increased, as Irish taxis are far cheaper than those in London or Paris, again to take our two closest neighbours as examples, with which we are in competition. Everywhere I go to shop I look at the price of a margherita pizza, Mach 3 razor blades and a litre of fuel. Irish prices of such products have stabilised in the past five or six years.
The Government, with the support of all parties, has considered the question of insurance premia and the high cost of insurance in the past ten years. The issue was tackled by Deputy Rabbitte of the Labour Party when he was in Government, Fine Gael's Deputy Bruton, Deputy Harney when she was Minister for Enterprise, Trade and Employment, Deputy Martin, currently in the same job, and the Government as a whole. All of us, including the trade union movement and employers, got together on this issue. I declare an interest as I am deputy chairperson of the Personal Injuries Assessment Board, but we have managed to reduce insurance costs by almost 60%. It shows what can be done if we take the advice of Senator Quinn in looking at issues such as inflation.
I am sure the Minister of State did not bother to read the amendment to be proposed by his colleagues, which is appalling.
Joe O'Toole (Independent)
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I do not know why anybody bothered putting pen to paper to write it down, and I do not know its aim. I will oppose it, although I do not know what it means or if it is worth anything. It is so bad it must be opposed. I second the motion.
Martin Mansergh (Fianna Fail)
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I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
"notes that Irish inflation in EU terms is now not far off 2 per cent per annum and supports the Government's prudent approach to fiscal policy as the best guarantee of continuing to meet such low inflation targets."
For reasons I will explain, I am surprised Senator O'Toole put his name to this motion. I welcome the Minister and his officials. The price of prosperity is of course eternal vigilance, like the price of freedom. There is no complacency whatever in the Government with regard to inflation. As has been already pointed out by Senator O'Toole, when it looked as if inflation was in danger of getting out of hand in 2000 and 2001, the Government and social partners moved firmly and effectively to keep it down. I pay tribute to them for this. In a smaller way that has happened in the past two years.
When I saw the first draft of this motion, I wondered if it was the Independent Senators' tribute to the late Milton Friedman.
Martin Mansergh (Fianna Fail)
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The combating of inflation was the overriding priority for him. In a very interesting article billed on the front page as "Milton versus Keynes", the Financial Times points out that economic policy is actually a synthesis between the two. A sentence of the article, written by Martin Wolf, states: "Over the past two decades, a world of flat money has supplied modest inflation and supported stable growth".
There is an ongoing debate in Europe, and Mr. de Villepin, the French Prime Minister, has quite sharply attacked the European Central Bank for placing too much emphasis on the exclusive combating of inflation at the expense of jobs and investment. We have learned the hard way that those objectives must be balanced. Our Minister for Finance, billed in the Financial Times as the most effective finance minister in the euro zone, is very conscious of his responsibilities in combating inflation, and he does not take the view that if one has it, spend it.
In a sense, the motion is a little like what Germans call a Sonntags Rede, or a Sunday address or sermon. One of the Independent Senators has many opportunities as the business editor of a Sunday newspaper to make Sunday addresses to the populace, rather than saying what he might in the privacy of this House. The Sunday Independent suggests that stamp duty should be abolished, that all taxpayers should be put on a rate of 20%, more or less in one go, and that the top rate should be cut. Is there any inflation-proofing of those policies? I think not.
In an article in the Irish Independent of Thursday, 16 November 2006, Brendan Keenan stated that if the Government were foolish enough to cut stamp duty without a countervailing tax on property itself, another bidding frenzy would be the likely result. I reject the notion that inflation is the elephant in the room. Listening to that sort of rhetoric, one would presume the inflation rate is 15%, 20% or 25%, but we have no such thing. I worked out the average rate of inflation since 1987. I accept the rainbow coalition was also in Government for two and a half years since then. The average rate is 2.9% which, by all historical standards, is a great achievement.
I refer to the Department of Finance statistics on the European comparisons. The comparison is HICP, the standardised rate of inflation. In 2004, Ireland's rate was 2.3% and the euro area average was 2.1%; Ireland's rate in 2005 was 2.2% and the euro area average was 2.2%. The Minister for Finance in his pre-budget outlook admits that the rate this year will be slightly higher, at approximately half a per cent more. The Central Bank suggests that having come in line with the euro area average in the past two years, on the figures I have quoted, Irish inflation will exceed the average this year before coming back broadly in line with the average in 2007. The notion that we are way out of line has no basis.
I will anticipate other contributions by Independent Senators. When Senator Ross is in the House he usually vigorously attacks the public sector, and social partnership and benchmarking in particular. It is healthy to note that in a National Competitiveness Council overview of Ireland's productivity performance in the period 1980 to 2005, it notes there is a good productivity performance in the public sector and international evidence suggests the Irish public sector performs well compared with public sectors in other countries. Senator O'Toole will be familiar with the productivity of teachers in respect of the resources with which they are provided. I am sure this bears any international comparison.
The reason for the Government's amendment to the motion is clear. Key objectives are to maintain employment and investment. One would form the impression from the opening speech that we were ceasing to attract foreign direct investment. In the constituency of Tipperary South, we have had four projects in as many months. I admit one of them was a domestic expansion project.
John Paul Phelan (Fine Gael)
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The overall figures are stagnant at best.
Martin Mansergh (Fianna Fail)
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The announcements about Cisco and Google do not suggest this country is becoming unattractive for investment. We continue to have full employment. I will readily concede we must be vigilant. I am very glad the energy regulator is re-examining the price rises he approved earlier in the summer. I note the Minister for Finance did not raise excise duties in either of the last two budgets. However, attention must be paid and is being paid to what agencies at arm's length from the Government are doing. A simple example of this is the CIE price increases which were screwed down from 9% to 4%.
John Paul Phelan (Fine Gael)
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I support the motion proposed by Senator Quinn and seconded by Senator O'Toole. I welcome the Minister of State, Deputy Parlon, and his officials to the House. The subject of inflation was debated in the House three years ago. I share the sentiments expressed by Senator O'Toole with regard to the Government's amendment. I disagree with Senator Mansergh who tries to paint a rosy picture. At a time when inflation is in or around 4% — it was 3.9% for last month — it is important the House debates the issue.
The Government amendment is lily-livered. It notes that Irish inflation in EU terms is now not far off 2%. I have never seen an amendment or a motion worded quite like it in my four and a half years in Seanad Éireann. The Irish inflation rate for last month, as measured by the consumer price index, was 3.9%, a minor decrease from 4% the previous month and 4.5% the month before that. This debate is therefore timely and important on what is a disproportionately high inflation rate compared to our European neighbours.
For the purposes of its amendment, the Government decided to use the harmonised index of consumer prices and that rate, rather than what is acknowledged by everyone to be the actual true rate of inflation in the country——
Martin Mansergh (Fianna Fail)
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When one compares like with like.
John Paul Phelan (Fine Gael)
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It is not comparing like with like. The true, acknowledged and used rate of inflation in this country is the consumer price index. Despite the efforts and the words of Senator Mansergh when he spoke about the Minister for Finance being conscious of his role in keeping inflation low, why was the rate of inflation more than twice that in most other countries of the European Union for a period this year?
John Paul Phelan (Fine Gael)
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The European average is just over 2%. The rate of inflation was 4.5% in the month of August and has been hovering around the 4% mark for most of this year.
The Government's amendment also fails to acknowledge that the Government has had a distinct role to play in increasing inflation in the past couple of years. This debate was held three years ago when inflation was running at approximately 3% annually and was slightly more for a period of time. This followed on from the Government's decision, in the aftermath of the splurge at the general election of 2002, to increase VAT in the budget that took place immediately following that election. There was also a substantial increase in excise duty on diesel which was enacted by the previous Minister for Finance, Charlie McCreevy, before he left office. The Government has played a significant role in ensuring there are problems with regard to inflation in the economy. It is high time the House heard some explanations. I am interested to hear the Minister of State's response to the debate.
The House should have debates on such subjects more frequently. The rate of inflation is the clearest indication of the overall increase in the cost of living. There have been significant increases in the cost of living in the past few years. I disagree with Senator O'Toole in regard to Ireland not being the most expensive country although he gave some examples of where this is not the case. It is acknowledged by most people that we have become a very expensive country. Studies of prices from across the European Union would indicate that Ireland is——
John Dardis (Progressive Democrats)
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Are they Fine Gael people or most people in the country?
John Paul Phelan (Fine Gael)
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Most people who have objectively studied the cost of goods and services throughout the European Union would acknowledge that we are the most expensive country, or at least in the top two or three most expensive countries, in the European Union, and this has been the case consistently for the past number of years.
It is worth examining last month's figures to determine from where the inflationary pressures are coming. It is also worth pointing out that the inflationary rate in terms of goods has remained flat, around 0%, for a considerable period of time. However, there is significant inflationary pressure in the supply of services; last month's rate was 7.8%. I am anxious to hear what proposals the Minister of State might have to take this in hand. Contrary to the comments of the Minister for Foreign Affairs quoted earlier by Senator Quinn, the Government's actions do not often add up to or equal what they claim.
A 2006 UBS report on prices and earnings stated that Dublin has become the eighth most expensive city in the world, ahead of Paris, Vienna, and the heavily taxed city of Helsinki. There has been significant deterioration in people's purchasing power in the past few years. We have not seen a commensurate level of debate or interest from most quarters. A few Members occasionally raise the issue of inflation increases, but like the public, most Members do not seem to be as interested in this issue as they should be. It has a direct bearing on the euro in everyone's pocket.
I am not convinced by the Government's amendment to the motion, or by its actions. I am not convinced that the Government is interested in bringing the rate of inflation closer to, or even below, the European average. Senator Quinn mentioned that Ireland's inflation has consistently been above the European average for the past five or six years. The Government has patted itself on the back on its financial and fiscal management. As Senator Mansergh said, the Minister for Finance has been awarded an accolade by a newspaper. However, we need to take this issue in hand before it becomes a more burning problem in the future.
John Dardis (Progressive Democrats)
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I welcome my colleague, Deputy Parlon, to the House. I am happy to support the Government amendment.
I cannot understand the level of hysteria that grips the country when inflation increases by 0.2% or 0.3%. Those of us who were unfortunate enough to have to make a living from business in the 1970s and 1980s can remember when it increased by a rate of up to 5% monthly.
John Paul Phelan (Fine Gael)
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It was going up by 4.5% two months ago.
John Dardis (Progressive Democrats)
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It was increasing by five percentage points, not 5% on the level, at a time when we were paying interest of 15%-20% for loans——
John Paul Phelan (Fine Gael)
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It was before I was born. We are talking about the future not the past.
Rory Kiely (Fianna Fail)
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Senator Phelan was not interrupted. He should allow Senator Dardis to continue without interruption.
John Dardis (Progressive Democrats)
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It is worth reminding people who were not born then what it was like and how we are much better off today. The Government intends to keep it that way.
John Paul Phelan (Fine Gael)
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The Government's actions do not reflect the rhetoric.
John Dardis (Progressive Democrats)
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If the Senator gives me a chance I will explain the action to him. The Government cares about inflation. If the Government did not care about inflation it would not have published such a Book of Estimates as it recently did. If we have growth of 5%, inflation of 3% and the Government increases spending by 8%, then that is neutral. The Government does not contribute to inflation through public spending when it does that. This is why the Minister was correct to say that what he did with the Estimates was prudent. It is neutral. Let us talk about facts not anecdote.
The key is competitiveness. Is the economy competitive? I am aware of some of the things that have been said by American companies investing in Ireland. However, we are also a stable democracy with an English speaking and highly educated workforce. Notwithstanding the deficiencies in infrastructure, there are still companies that are prepared to invest here and create jobs. Even if we had a planning system that could give a decision in the morning, a road cannot be built overnight. It takes time.
John Paul Phelan (Fine Gael)
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The Senator does not want roads. He is opposed to them.
John Dardis (Progressive Democrats)
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I would like to know the roads the Opposition built when it was in power.
This is an expensive economy, but it is also an economy with high incomes. That is why people are coming to live and work here. They will have a standard of living here that they could not dream of in countries with high inflation. If I were asked to choose between an economy that is growing at a rate of up to 5.5%, which is the ESRI projection for next year, and inflation of 3%, and a European economy that will grow by 1%-2% but with an inflation rate of 2%, I would prefer to be here. At more than 5%, our growth is higher than the level of inflation and our economy is not standing still or atrophying as is happening in some mainland European countries.
We must appreciate what we have. We seem to be continually whingeing about these matters. That is not to say they are not important. Senator Quinn is correct when he says they are highly important. The Government is conscious of how important they are and that is why we are pursuing our policies. These will ensure that the Government fulfils its responsibilities vis-À-vis the degree to which it can control inflation.
We keep hearing that Ireland has the most open economy in the world. If we have such an open economy, we will be vulnerable to what happens on international markets in energy and other imported goods. I accept much of what has been said about the regulator and the increases that take place. People think that oil is bought on an on-the-spot basis where energy suppliers go out every week and buy another few drums. It is bought months in advance. Therefore, these things take time to feed in. There are swings and roundabouts. If the price goes up the regulator is wrong, but he is also wrong if the price goes down. There must be a benchmark that allows people to plan ahead. No business can plan on the basis of a day-to-day price on the international oil markets. If an agri-company is buying feedstuffs, it will do so on a forward market. It will factor in currencies to ensure it knows the price the product will be and will not be vulnerable to the huge variations that can take place. I am sure Senator Quinn is aware of that from his own business.
What can the Government do? It can make sure that the economy is competitive. I believe the economy is competitive. Senator O'Toole made a point about productivity, but productivity has increased. I met a senior executive from one of the big American technology companies that has an Irish base. I asked him why it did not go to the Far East where the labour is cheaper. He replied that the labour content of the unit produced in Ireland is cheaper than the labour content to produce a unit in the Far East, even though the rates of pay are much less. We produce a better unit.
Some things are imported and we must accept that. Our currency is part of a pan-European one and we are therefore circumscribed to a certain extent. This is where the difficulty arises with European growth being at a lower rate than ours. We must have a sense of proportion about this. I do not see that sense of proportion in the columns of The Irish Times and other eminent newspapers.
I return to the point that economic climate in the 1970s and 1980s was appalling. It was appalling. The best way we can combat poverty is to provide jobs. One should look at the forecasts for job creation next year. If this country were not competitive, if there were inflation, as seems to be suggested by those opposite, and if that were so catastrophic, jobs would not be created and we would go back to the bad old days when there was 14% unemployment, inflation was going through the roof and we paid 20% for our money.
Tom Parlon (Laois-Offaly, Progressive Democrats)
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I thank Senators for their views and the opportunity to speak. I especially welcome the opportunity to outline the Government's achievements in terms of managing the economy and the public finances. I will outline the real story which is quite different from Senator John Paul Phelan's flight of fancy when he described some of our inflation rates. I am not sure from which publication he read but clearly he missed out on——
John Paul Phelan (Fine Gael)
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I got them from the Central Statistics Office.
6:00 pm
Tom Parlon (Laois-Offaly, Progressive Democrats)
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I am also delighted Senator O'Toole is such a good watchdog. He made fair comments on value for money in Ireland. I was going to comment on his jacket but he is not in the House. Clearly, he threw caution to the wind when he purchased it but it is certainly very becoming.
The real story of this Government is lower taxes, more jobs and better public services. This Government has a strong record of economic achievement and we intend to continue to implement the prudent policies that have proven so successful in recent years.
Before turning to the specifics of the motion before the House, I want to set the issues in context. This Government's track record on the public finances is second to none. The performance of the Irish economy over the past decade or so has been excellent in both international and historical terms. Since the mid-1990s, gross domestic product, GDP, growth has averaged 7.5% per annum resulting in a convergence of Irish per capita incomes towards and subsequently beyond the old EU 15.
In addition, the labour market has been transformed beyond all recognition. It is not so long ago that the defining features of the Irish labour market were poor job creation, low participation rates, high unemployment and involuntary emigration. Now the labour market is effectively at full employment with 2 million people in work, more than 500,000 jobs created since 1997 and an unemployment rate which, at 4.5%, is among the lowest in the developed world. Emigration, the curse of Ireland for so long, has been replaced by substantial net immigration.
Thanks to the policies we have pursued in the past decade, we have been able to more than halve our general Government debt burden. As a consequence, debt servicing takes up a much lower share of overall public spending than it used to do. To put this in perspective, debt servicing now accounts for only €1 in every €25 of tax revenues whereas ten years ago, it accounted for €1 in every €5. The combination of our taxation reform and our success in reducing debt servicing has given us more than €40 billion more in resources than we had ten years ago. This has been allocated to priority areas such as investment in infrastructure, education, maintaining the low tax burden and providing for future pension commitments.
While justifiably proud of its achievements to date, the Government cannot and will not become complacent. A firm and disciplined approach to national budgetary policy has been the keystone of our recent economic prosperity. We will continue to maintain our commitment to sound public finances and improving the economy's competitiveness so that our economic and social objectives can be met. Central to this is ensuring that public expenditure grows broadly in line with available resources. Appropriate management of public expenditure reduces the pressure for increased tax levels and keeping tax levels low generates the economic growth that in turn generates the tax revenues to fund public expenditure.
With this in mind, last week the Government published its pre-budget spending plan for 2007. This plan allows for more than €14 billion to be spent on health, almost €8 billion on education services, and almost €14 billion on social welfare. The strong economy we have built since 1997 makes such expenditure possible. These Estimates will lead to improved public services and better infrastructure not only in 2007 but in the years ahead. They are sustainable, targeted and appropriate as we work to build a stronger and fairer Ireland.
I refer to competitiveness which was raised by a number of Senators. Over the short to medium term, the prospects for the economy are favourable, as was recently set out in the Department's pre-budget outlook. Growth rates of 5% per annum are in prospect, more than twice the EU average. However, we recognise that clear challenges remain which must be addressed if living standards are to continue to improve as they have done over the past ten years. As a small and very open economy, many of the main risks facing the economy are external in origin. For example, it is generally accepted that the large current account deficit in the US will have to unwind at some stage. Given our strong trade and investment links with the US, Ireland is potentially more vulnerable than most other EU member states to any correction of this position. In addition, there is growing concern regarding developments in the US housing market and potential spillover effects to the wider US and global economies.
To ensure our economy continues to evolve favourably, a key priority for this Government is enhancing national competitiveness. The Government is keenly aware of the importance of Ireland's exporting sectors to investment and jobs and, in turn, of the importance of competitiveness for these sectors. Inflation is just one of the factors impacting on competitiveness. Competitiveness is also influenced by exchange rates, wage inflation, public spending growth and capital spending on infrastructure. Therefore, the Government has developed a broad approach to deal with the factors it can influence.
The annual rate of consumer price index, CPI, inflation was 3.9% in October, down marginally from the September increase. A better measure of underlying inflation is the EU comparable measure of inflation, that is, the harmonised index of consumer prices, HICP, to which Senator Mansergh referred. The HICP differs from the CPI in terms of coverage. The most notable difference relates to the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland was 2.2% in both September and October. Last year CPI inflation measured 2.5% and HICP inflation was 2.2%, the same rate as for the euro area as a whole.
When discussing inflation, it is first important to point out that the pick-up in inflation in 2006 has been largely due to external developments over which the Government has no control, namely, higher oil prices and increased interest rates by the European Central Bank. The impact of these factors cannot be overstated. For example, when the CPI is calculated excluding mortgage interest payments, it stood at 2% in the year to October. There have been some positive developments recently with oil prices falling and this has reduced the retail price of petrol. I am confident that over the course of next year, inflation will moderate as the impact of higher oil prices falls out of the annual comparison.
As the bulk of the recent increase in inflation has been due to external factors which are outside our control, we must concentrate on areas which can be influenced domestically. It must be recognised that tackling the problem requires a response from all sections of society and not only the Government as many of the domestic driving forces of inflation are outside the control of Government. Annual services sector inflation is running at 7.8%, and this is a cause for concern. This highlights the need for more competition in the economy as well as pay and profit restraint in all sectors to keep down our cost base.
Where it can, the Government is taking action to contain inflation by implementing responsible fiscal policies. For example, excise duties have not been increased in the past two years and the Government has removed the groceries order which should in time lead to greater price competition. I also understand the Minister for the Environment, Heritage and Local Government specifically requested that to support competitiveness in the economy and to protect the interests of communities, local authorities should exercise restraint in setting any increases in commercial rates and local charges in 2006 and he intends reiterating this request to them in the context of their budgets for 2007.
The Government is also investing in public infrastructure which will enhance our ability to produce more goods and services more efficiently and, therefore, help keep down inflation on a continuing basis. To the extent that the prices of Government services reflect increased wage cost factors, the effort must be to make the provision of the services more efficient. This is what we are seeking to do in modernising the public service. Such Government action should assist in keeping down inflation but, as I have already mentioned, Ireland's competitive position is influenced by much more than inflation.
One crucial factor in ensuring our competitiveness is how we respond to the opportunities and challenges posed by globalisation. Ireland has been a substantial beneficiary of globalisation and we are now one of the most globally integrated economies in the world. This integration into the world economy takes a number of forms, including deep trade linkages as well as through flows of capital and labour. The emergence of large, labour-abundant countries such as China, India and Brazil, where labour costs are much lower than those in Ireland and the rest of the EU, means labour-intensive activity will increasingly relocate to these regions. To maintain and enhance competitiveness in the context of a higher-cost economy, a greater focus on productivity across all sectors of the economy is essential because in the long term in a small economy like Ireland, economic prosperity ultimately depends on our ability to sell goods and services abroad. Productivity means the effective use of innovation and resources to increase the value-added content of products and services. It enables both domestically and internationally trading firms to sustain their competitiveness in a relatively high-cost environment by using inputs more efficiently and this in turn supports long-term economic growth and a higher standard of living for all.
Realising that we cannot compete on the same basis as in the past and that we increasingly face competition from emerging economies for mobile foreign direct investment and for export markets, we need to protect our current strengths and develop new bases for competitive advantage. Recognising this challenge, the Government has developed policies which are designed to help Ireland's competitiveness. Important policy issues in the medium term include developing our innovation potential, improving the regulatory environment, enhancing the human capital of our country and developing our economic and technological infrastructure. These should raise living standards, improve the quality of life and lay the foundations for future growth.
In this context, it is expected that the next national development plan for the period 2007 to 2013, due to be launched next January, will further enhance our economic and social infrastructure, notably in the key areas of transport, environmental services, social and affordable housing, health, education, broadband and energy. Investment in support of the strategy for science technology and innovation and in education at all levels, with a particular emphasis on the third and fourth — PhD — levels, in tandem with continued investment in labour force training and lifelong learning will ensure we are well prepared to face the challenges ahead.
The Government is keen to enhance our competitiveness as a location for new, internationally mobile, research related investment. Recognising that research and development is the key to a more knowledge intensive economy aimed at providing a sustainable long-term basis for growth in employment and incomes, the Government introduced a tax credit for research and development. The aim of the tax credit scheme is to encourage existing overseas and indigenous firms to add research functions to their operations in Ireland or to increase their levels of research activity. This, combined with our single 12.5% corporation tax rate on trading profits in all sectors, will continue to support the necessary stable enterprise environment which Ireland has so carefully nurtured through the years and help to underpin our economic and social development.
From a public finances perspective two main challenges face us, an infrastructural deficit and an ageing population. To close our infrastructural deficit we are investing approximately 5% of gross national product, GNP, per annum on improving the public capital stock, roughly twice the EU rate of investment. The already mentioned national development plan, NDP, will go a long way to putting in place a first class infrastructure that will improve the quality of life of ordinary people and create the conditions for the economy to continue to grow. On the ageing population, we are prudently planning for the future. While Ireland enjoys a considerably longer lead-in time than the EU as a whole before shifting demographics begin to impact, we are using our demographic window of opportunity to prepare for this. For example, we are maintaining budgetary discipline and investing 1% of gross national product, GNP, annually in the National Pensions Reserve Fund.
These fiscal policies mean that Ireland remains an attractive place to do business. Keeping taxes on work and business down has been a key factor in helping competitiveness and employment growth. The income tax reductions which have been one of this Government's key policies since 1997 have helped to alleviate the pressures for wage increases. In an international context, OECD data show that Ireland has the lowest tax wedge in the EU and one of the lowest in the OECD. Our low rate of corporation tax has been a strong contributor towards our ongoing economic success. This Government remains strongly committed to continuing this policy.
I am grateful for this opportunity to outline how we are putting in place the framework conditions upon which we will consolidate the significant economic and social gains made since 1997 and upon which future gains can be made. We believe the stable macroeconomic environment we have created through the pursuit of sound public finances and supporting the economy's competitiveness is the basis for achieving further economic and social policy objectives in the long term.
On average we are growing at three times the rate of the eurozone but have more or less the same inflation rate. That is not a bad inflation score for such a dynamic economy. I therefore commend the counter motion to the House:
That Seanad Éireann notes that Irish inflation in EU terms is now not far off 2% per annum and supports the Government's prudent approach to fiscal policy as the best guarantee of continuing to meet such low inflation targets.
Brendan Ryan (Labour)
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While inflation is one of the major concerns we should always have on how the national economy is going, it is difficult to see how one could talk about it alone. I have a dilemma. The Government amendment is one of the worst I have ever seen. It "notes that Irish inflation in EU terms is now not far off 2%". Does the Government not know the inflation rate? Did it not manage to find out the actual inflation rate. In a serious debate about the nature of our economy the best the Government can do is "not far off 2%".
Brendan Ryan (Labour)
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One could say that 3% is not far off 2%, or that 1% or 4% are not far off 2%.
Brendan Ryan (Labour)
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However the combined wisdom of the entire Government could not——
Noel Treacy (Galway East, Fianna Fail)
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It is better than the 19.7% inflation we inherited in 1987.
Brendan Ryan (Labour)
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In 1997 the Government inherited the best economy in Europe and has made a mess of it for the past ten years.
Martin Mansergh (Fianna Fail)
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We have managed to keep it a very good economy.
Brendan Ryan (Labour)
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I am grateful that Senator Mansergh has finally conceded that the Government did not make the economy but kept it. I have made this point for the past five years. The Government inherited the Celtic tiger.
Rory Kiely (Fianna Fail)
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Senator Ryan has only eight minutes. Members should not interrupt him.
Brendan Ryan (Labour)
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I am well able for them. I appreciate the Cathaoirleach's support.
Rory Kiely (Fianna Fail)
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Senator Ryan might be able for them but I do not want to know that. I want to give the Senator all the time he has been allocated.
Brendan Ryan (Labour)
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I apologise. During Deputy Quinn's time as Minister for Finance inflation was lower and growth was higher than during the tenure of the former Deputy and Minister for Finance, Charlie McCreevy. I am concerned about the wording of the motion. While I do not dispute the importance of inflation, one of Ireland's problems is the tendency to confuse inflation with competitiveness. The Minister of State attempted to address it in his speech but did not. Inflation is not the only major concern in competitiveness. The most recent report of the National Competitiveness Council reiterates the point that there is some price inflation. I am not sure how it benefits the public for us to be involved in a confusion of three different definitions of inflation. Every study done by every political party shows that ordinary citizens feel prices are rising unfairly and that they are being ripped off.
For example, when the price of oil rose from $55 to almost $80 a barrel, the price of petrol shot up with it. I would love to see the time lag between price increases on the global market and the increase in petrol prices here, and the time lag when the situation reversed and global oil prices fell. That is not about somebody in the economy but about Government regulation and ensuring that genuine competition takes place. The decreasing number of petrol stations throughout the country will mean that most small towns in rural Ireland will be wide open to local rip offs. Before long many parts of Ireland will have only one petrol station and once people have to travel 15 or 20 miles to fill up the tanks of their cars, there will be an incentive for a small adjustment in the margins. It will not be enormous; it could rise from €1 to €1.01 or from 99 cent to €1.01. I am concerned about the impact of the divestment of investment by multinational oil companies which is resulting in large numbers of petrol stations closing. The Government should be more vigilant on that.
Three matters concern me about competitiveness, which is more important than inflation. That is not to diminish inflation, which is a major concern. I have read three reports recently. One is the national report on competitiveness, showing that we are at the bottom of the heap on a range of indices, including e-Government. In respect of the range of services the citizen can access electronically, Ireland is towards the bottom and is slipping further.
We know the story in respect of broadband access. In spite of much wind from the Government, we are in a poor position. This is due to the inept, bungled transfer of a public monopoly to a private monopoly without proper regulation to ensure the latter was not abused. It has been and continues to be abused. It is not even accountable on the Stock Exchange and we know less about how it uses its resources. That is the Government's fault, not for the principle of privatisation — a matter we can discuss another time — but because of the ineptitude of the regulatory regime. On every major dispute, Eircom wins and the regulator loses. That has made a mess of broadband.
Let us consider transport. The present parties in Government inherited a booming economy in 1997.
Martin Mansergh (Fianna Fail)
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There was zero investment in public transport. The Senator can examine Deputy Quinn's Estimates.
Brendan Ryan (Labour)
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Fianna Fáil is very good when it has someone to keep an eye on it, as it had in 1992, 1994 and the current period. I would hate to see the party on its own. It goes in the direction it is driven.
Noel Treacy (Galway East, Fianna Fail)
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The public goes with whatever decision we make. It is very wise.
Brendan Ryan (Labour)
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We had a good economy in 1997, with a budget surplus, high growth and low inflation.
Brendan Ryan (Labour)
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It was clear the country had under-invested in transport infrastructure during the crises of the 1980s, yet it will be 2010 before decent roads are provided between Dublin, Cork, Limerick, Waterford and Galway. That will be 13 years after this Government came to power.
Noel Treacy (Galway East, Fianna Fail)
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What about the Cork-Limerick road?
Brendan Ryan (Labour)
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We will not have a decent road between Cork and Limerick before 2010.There is no mention of it in the Government's plans.
Martin Mansergh (Fianna Fail)
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The Government has invested €775 million in public transport. Senator Ryan's party invested zero in it in 1997.
Brendan Ryan (Labour)
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The American Chamber of Commerce Ireland is not a body one would expect me to quote. It stated that the Government is under-investing in transport infrastructure. A report today states that we pay more to buy land on which to build roads than any other country in Europe. The Minister of State at the Department of Finance, Deputy Parlon, always smiles when I raise this matter. He knows that the members of his former organisation have been well compensated. I have no problem with this but we are told that agriculture is in terminal decline. Nevertheless, we are paying more for agricultural land to build roads than anywhere else in Europe. I would love to know why. No one will tell me why because it was a cosy deal between the Government and the IFA. Everyone was bought off.
Martin Mansergh (Fianna Fail)
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Most of the cost is in urban areas.
Noel Treacy (Galway East, Fianna Fail)
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We have a limited amount of land, we cannot make any more and it is a scarce commodity. It is a simple matter of supply and demand.
Brendan Ryan (Labour)
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In the country with the lowest population density in Europe, it costs more to acquire land than in the country with the highest population density in Europe. The point is adequately made that we have failed to use prosperity to build the transport infrastructure we need.
The most disturbing quote I have seen in years is in the report of the American Chamber of Commerce Ireland. It states that many companies' US executives do not wish to hold meetings here because it is so difficult to travel around Ireland. They prefer anywhere else in Europe. A significant number of US companies in Ireland claim that Ireland will not be the location of the next phase of investment.
Martin Mansergh (Fianna Fail)
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Consider Cisco's comments on that matter yesterday.
Paddy Burke (Fine Gael)
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Senator Ryan to conclude without interruption.
Brendan Ryan (Labour)
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I will conclude when I can complete a sentence. US investment is critical to this country. It is an illusion that our rate of corporation tax, 12.5%, will keep companies in this country if people get stuck in traffic jams as soon as they leave the airports. The Government's infrastructure plan does not include what the American Chamber of Commerce Ireland considers critical, namely, good roads between Waterford, Cork, Limerick, Galway and Sligo. This is critical to balance investment and draw it from Dublin towards other provinces. If the Senators will not listen to the American Chamber of Commerce in Ireland, they will not listen to me.
Marc MacSharry (Fianna Fail)
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I thank Senator Quinn and the Independent Senators for raising this issue. The amendment could have been penned in a slightly different way. A figure of 2.2% is not far off2%. No matter who wishes to kick the football around or claim credit for the goals, this Administration or the larger party in it has been in Government pretty much since 1987. It took difficult decisions in 1987 when I recall effigies of certain individuals being burned.
With the great success we have experienced over recent years comes new challenges. These are different because we are victims of our success. We see chronic carnage on the roads. We no longer ask if we can get a telephone connection or pay the ESB bill but if we can get reception for Sky Digital for the Celtic and Manchester United game or if we can get a BMW. Ireland is very different.
Senator John Paul Phelan cautioned others that he was not born in a particular period. Those who are young no longer wish to hear how bad things were in the dark days. It is time to plan for the future and keep our competitive position under scrutiny. Since Senator Quinn spoke I have not heard much debate on the motion. It is a plea to the Government to keep the inflationary position under surveillance. That has been done.
Other issues, besides inflation, affect our competitiveness. I was chief executive officer in Sligo Chamber of Commerce and learned much about competitiveness. The decision-making process of those attracted to the country by Mr. Seán Dorgan includes matters of corporate governance, a favourable regulatory system and tolerance of ethnic mixes and sexual or religious persuasions. Tolerance is a significant issue for multinationals or people looking to invest in other countries. In many ways, Ireland is living up to the expectations of many. Senator Mansergh mentioned Cisco Systems, which recently announced plans to create 200 jobs in Galway.
Senator Ryan has great concerns about the American Chamber of Commerce in Ireland report on this country which pointed out something about which this Government is very aware in respect of its level of investment in infrastructure along the Atlantic corridor, which the Senator mentioned and which is prioritised in terms of Transport 21. Much of the work is already completed, although work is continuing on certain parts along the route.
There are two particularly significant developments in respect of the type of competition Ireland faces going forward. One of these which we have not fully grasped and on which we possibly need to focus is the impact of China and India. When China entered the World Trade Organisation, one quarter of the world's population entered the multilateral trading system. This changes its entire structure dramatically, especially in the area of manufactured goods. Inflation for goods has been quite low but we will see substantial competition in the area of services when the services directive comes into play. When this happens, which might be in the not too distant future, it will, in many people's opinion, be as significant for competition in services as the lifting of tariffs. We must be very conscious of this.
A number of comments were made in respect of the report by the National Competitiveness Council. I share the view of the Minister for Enterprise, Trade and Employment on this report. He recently said that in our broadest competitiveness position, he was confident it would remain robust, particularly in those sectors of the economy which drive economic growth and employment. One of the areas where I would like to see us focus heavily is research and development and innovation. Ultimately, the most valuable currency going forward is our intellectual property. If we can breed and attract more intellectual property and plan our strategy for the future in an innovative way, we will have matched many of the challenges of competitiveness as we look to the future.
Developing an innovation strategy is not an exact science but it helps companies to focus on the fundamentals of their business and where improvements can be made. Having a strategy also reduces the haphazard nature of business development. Businesses will have more hits than misses because they will be taking into consideration issues like return on investment and market potential. If we can approach our competitive situation in this way on a cross-departmental level, we will have equipped ourselves well in meeting the challenges as they arise.
Nobody could possibly have envisaged how well we have performed in the past 15 years and how ideally placed we are to take this a step further and push the boat out more. While I obviously support the amendment, I commend Senator Quinn, who, in the context of his other career, is a great example to us in the matter of competitiveness through placing his business in a very competitive position in the marketplace. I thank him and we are grateful to him for putting this issue on the agenda. Much has been done but there is much more to do. We must be vigilant and be prepared to be flexible in the context of our corporate governance and a favourable regulatory system as we plan and prepare for the future.
Paul Bradford (Fine Gael)
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I support the motion moved by Senator Quinn and my political colleagues. This discussion is very worthwhile and if we are all available, we should have a number of economic debates in advance of the budget where broad economic issues can be debated in detail. I hope Ministers would listen and even be willing to learn.
Inflation, which is the topic before us, is not simply some vague economic term. We are all aware of the significant impact of inflation, from which this country has suffered down through the years. We welcome the fact that inflation is at a relatively low level. However, inflation, regardless of whether it is 3%, 4%, 5% or slightly more than 2%, still continues to be an attack on wages, living standards and economic progress. Classical economists will say that some level of inflation is needed, possibly 1% or 1.5% in an economy performing properly. However, once inflation goes beyond these levels, it is an economic problem with which we must deal.
I read the speech of the Minister of State at the Department of Finance, Deputy Parlon, which I understand contains one or two references to 1997. The term "since 1997" appears in almost every Government speech at the moment. We have heard of George Orwell's novel 1984 but a new novel entitled 1997 could be written. The successful attack on inflation did not begin in 1997 or even 1987. Even Senator Mansergh, who was working with the Opposition Leader at the time, will concede that the major economic success story of the second coalition Government of Garret FitzGerald between 1982 and 1987 was dealing very successfully with the horrific inflation of the early 1980s, which was present for various reasons. There was political acceptance that the inflation rates of 20% and 21% could not continue. Notwithstanding the fact that the Minister of State, Deputy Treacy, is shaking his head, he knows that by 1987, there was success in dealing with inflation which laid the foundations that allowed the Government to be able at least to continue with this policy.
We must ask how we ensure that inflation is kept under control and minimised to the highest degree. If one looks at the issues from a layman's perspective, one can see that there are three or four areas where we must battle costs or inflation, whatever one wishes to call it. From both cost and environmental perspectives, there is a serious energy crisis facing the country which needs urgent attention. We had a very interesting discussion in the House with the European Union Ambassador to the United States, John Bruton, two or three weeks ago and this was one of the topics in which he majored. We have frequently spoken about renewable energy and taking charge of our energy costs but have not truly acted upon them. An energy crisis is certainly facing this country and is almost certainly facing the EU. There is a considerable body of evidence to show that we can make significant progress on renewable energy.
I hope the next Government, regardless of its political hue, will at least respond to the energy issue by having a dedicated Minister with responsibility for energy. Notwithstanding the efforts of the Minister for Communications, Marine and Natural Resources, his responsibilities go beyond energy and encompass other fields, including marine affairs and communications. One of the major issues facing the next Government is the energy crisis. I hope a renewable energy solution will be found but it will require a full-time Minister for energy. If we examine and invest in renewable energy, we can at least ensure that energy costs into the future will be contained. If we rely on oil and imported energy, we will be victims of the significant increases that lie ahead. I recollect some of the issues we debated in the House two or three weeks ago. The future energy demands of Asia, including those of China and India, mean that unless we have a European solution to European energy needs which is based on renewable energy, we will be in considerable trouble.
Although I did not hear the entire debate, I am sure a number of speakers referred to insurance costs. Progress has been made in this regard, mainly owing to the establishment of the personal accident insurance scheme by the Minister for Health and Children and former Tánaiste, Deputy Harney. More progress is needed in that area because our insurance costs compared with other European countries are still relatively high. We must not view the battle as being over but rather as having been well fought in recent years with more progress to be made.
We need to examine the level of administration and form filling required because we are becoming something of a red tape republic. A great deal of red tape and bureaucracy is involved in applying for the simplest grant, completing a tax form, submitting an application to a health board or processing a form at local government level. Every form required to be completed involves a cost. Such red tape not only slows down the process, it also creates a momentum for further pay for further waste, and not only in environmental terms. It slows down the processing of every scheme.
Those of us who were members of local authorities will recall assisting people to complete simple forms to apply for a disabled person's grant or a water scheme. The grant awarded under such schemes is a percentage of the cost of the project. By the time the forms under such schemes are processed, so much time has elapsed owing to the bureaucracy involved that costs have increased and additional grant aid must be paid. The high level of administration in Departments and local authorities in particular must be tackled as it is excessive and is causing problems.
From a business and household perspective, the level of telephone charges is far from satisfactory. I welcome that there is competition in this market, notwithstanding the difficulties with the Smart Telecom debacle some weeks ago. We have become too accepting of astronomical telephone charges, in particular mobile phone charges. In comparison with our European neighbours, we are being ripped off. These charges add to the cost of business, to the cost of living for the private householder and to the rate of inflation. As a result of our economic success, people have more money in their pockets than five, ten, 15 or 20 years ago. They pay these high telephone bills, not with great satisfaction but without the level of complaint that should exist. The Minister for Communications, Marine and Natural Resources and the regulator must examine the cost of telephone charges. The cost of people talking to each other by telephone is much too high.
We have welcomed the steady fall in mortgage interest rates in the past ten to 15 years. While there has been a slight reversal in that trend, which is worrying to a degree but one hopes the rates will come under control again, we need to ensure there will be additional competition in the mortgage market. Although competition in the telecoms sector has not worked as successfully as we would have wished, competition is still a good barrier against inflation. Commissioner McCreevy has spoken about mortgage competition and opening up the mortgage market, an area on which we must reflect. In the areas of energy, insurance, administration, telephone charges and mortgages there is room for major improvement which would be beneficial.
I wish to make a comment that strays slightly from the motion. When we discuss issues related to inflation, we speak of the economy, society and the progress we have made, which we welcome. We examine economic figures, GDP, GNP and economic growth, which has been significant and marvellous for the country. However, we may need to have a new debate on redefining what we mean by wealth and the wealth of society. Major problems exist, whether they be in hospital wards or school yards. We have failed to address major quality of life issues, to which we have shut our eyes. While the economy may be booming, and we all welcome that, and while we may be a wealthy country in money terms, there are issues on which we need to reflect if we want to have a wealthy society as opposed to a well-off economy. This may be a matter for another day but it is something we cannot ignore.
I welcome the motion and the opportunity to speak on it. We cannot ignore the inflation warnings and figures because inflation is an attack on our standard of living and economic progress.
David Norris (Independent)
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I did not anticipate being called so soon. I thought I would have another ten minutes. I compliment my colleague, Senator Quinn, on tabling this important motion on inflation. I am glad I have this time to speak on it because it would be a great pity if a subject as significant as this were not supported by the Members representing the University of Dublin and it was left to all our separated brethren from either the Labour Party or from the other great national institute of education.
I notice an amendment was tabled to the motion. I deplore the habit of tabling these rather flatulent amendments. The motion is perfectly clear. It does not seem to be critical of the Government in any significant way. It simply states the fact that we know there is a difficulty in terms of inflation as it affects the competitiveness of the country and the fact, which is established, that we are running above the EU average and we ask the Minister to do something about it. That seems a perfectly rational position to take and it is not one that could be construed as any kind of carping criticism of the Government. Nonetheless, the Government considers it necessary, as usual, to delete all words in the motion after "Seanad Éireann" and replace the wording with words that simply note the situation with regard to inflation and support the Government's prudent approach. I take exception to the word "prudent" in terms of the Government.
Before I get into that and before my good friend and colleague, Senator Mansergh, leaves the House, I must take him up on one point.
David Norris (Independent)
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I thought it would be the gentlemanly thing to do to let him know that I was going to embark on a little slight. I listened to him with some amusement and interest but unfortunately I had to leave because I had a guest with me and I was not able to wait for his full contribution. I noted he took on a certain national newspaper, of which I must say I have rather mixed views, as I have of its proprietor, that well known rugby player, Tony O'Reilly, who now effects a title.
When Senator Mansergh spoke about Senator Ross, I did not think that what he said was quite the highest standards of the public school. I thought rather than being the hero of the fifth, the Senator was in danger of turning into the rotter of the remove because poor Senator Ross was not here to defend himself.
Martin Mansergh (Fianna Fail)
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I assumed that given his was the second name on the motion, he might be here to speak on the subject.
David Norris (Independent)
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Even more cruel moves. The Senator is definitely the rotter of the remove.
I do not always agree with my colleague when he writes in the newspaper, especially when he engages on his union bashing exercises, but on the other hand, he writes with extraordinary clarity and accessibility. For people like me, to whom economics is something of a mystery, in fact a greater mystery——
Terry Leyden (Fianna Fail)
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The Senator is being unfair to Senator Mansergh.
David Norris (Independent)
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——he makes it accessible to me. Senator Mansergh probably said this with a touch of irony and a little soupçon of wit——
Martin Mansergh (Fianna Fail)
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When it is Sunday newspaper coverage, it ought to be inflation-proofed and it clearly is not.
David Norris (Independent)
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That is a fair point but I want to take up the Senator on one phrase. He spoke about Senator Ross's Sunday addresses to the nation from the pulpit of——
Martin Mansergh (Fianna Fail)
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I spoke about the newspaper's Sunday addresses.
David Norris (Independent)
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The Senator should not be such a nitpicker. I am waiting for the Chair to say "Senator Norris without interruption."
David Norris (Independent)
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When the good Senator drew a contrast between the public addresses and the privacy of the Seanad, I thought that was a very interesting thought. I must agree with great reluctance that nothing which happens here at this hour will be reflected and this debate should be taken seriously and reflected in the media.
I support the motion. However, I have concerns about the term "prudent" when used in terms of the stewardship of the Government. I pay tribute to the Taoiseach, Deputy Bertie Ahern, who is a good negotiator. He is able to persuade two apparently irreconcilable sides to find a common meeting ground, not to pursue their aims entirely selfishly and to put a degree of national interest into the equation. However, that prudence is very limited. A series of disastrous situations were entered into by the Government which can only contribute in various ways to the inflationary process.
I will give one example which is close to my heart at present, namely, the situation regarding the Corrib gas field. Our natural resources were handed away by the Government. The Minister of State can shake his head all he likes but they were given away for nothing. We do not even receive a tax yield on it.
Noel Treacy (Galway East, Fianna Fail)
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We receive corporation tax and PRSI.
David Norris (Independent)
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Why did we not have the gumption to exploit these opportunities ourselves?
Affordable housing was vaunted by the Government. It sold out and let property builders and speculators weasel their way around it. It contributes to house inflation which is significant. It is a terrible situation that so few young people are able to buy a house. The Minister of State knows this is true because we know the Government has not lived up to its affordable housing commitments.
Regarding wastage in road contracts, one contractor expended €50,000 on machinery and manpower during the construction of a small section of a road but charged the Government €3 million for it. It had to do with a steamroller. I put it on the record of the House some time ago. Where was the prudent stewardship there? Where do they look after and guard the interest of the taxpayer?
A number of years ago, I raised the issue of the confusion and mess at the West Link toll bridge on the M50. Everybody, even the Minister of State must agree that was a lousy contract.
David Norris (Independent)
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They always state, "It is historical." However, it exists and it is a lousy contract. Now we must buy it out.
In terms of prudent stewardship, the Government is skating on very thin ice. Senator Quinn, as a businessman, isolated an important matter in terms of competitiveness. The strength of our economy depends on maintaining competitive status in the world. We have the advantage of a low corporation tax regime for US companies. I hope we manage to retain that in the face of potential European opposition. Whatever our criticisms of aspects of Government policy, all sides unite in defending this regime because it attracts people, as does the literacy and intellectual skills of our educated workforce.
Martin Mansergh (Fianna Fail)
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Of which Senator Norris is such an ornament.
Paddy Burke (Fine Gael)
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Senator Mansergh should allow Senator Norris to complete.
David Norris (Independent)
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Senator Mansergh is so kind but I am afraid I sense a little touch of irony.
This is an important subject. The House is in debt to Senator Quinn for having raised it because he signals a warning that our present remarkable position may not last if we are not prudent and do not ensure we do not price ourselves out of the market. It is a competitive world. Competition comes not from the United States and Europe but from developing areas such as China and other places where wage levels are tiny compared with what we have here. I thank the Leas-Chathaoirleach for his indulgence and I compliment Senator Quinn on his important motion.
Terry Leyden (Fianna Fail)
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I welcome my colleague the Minister of State at the Department of Foreign Affairs, Deputy Treacy, and officials from the Department of Finance to the House. I commend the Minister for State on his excellent work on Europe. He has worked hard on behalf of the State and covered a large number of meetings.
Regarding the point made by Senator Norris about my colleague, Senator Mansergh, who was reluctant to defend himself——
David Norris (Independent)
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Now he has nurse Leyden tending him so I am sure his wounds will be well treated.
Terry Leyden (Fianna Fail)
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Even Senator Leyden. I was never a nurse. In the words of Senator Norris's friend, Oscar Wilde, what is worse than being talked about is not being talked about. Senator Mansergh carved an important monument to himself. He was evenhanded in his approach to Unionists, Nationalists and republicans. Everyone would commend him on his work on the Good Friday Agreement and the peace initiative. Senator Norris's comments were taken lightheartedly. Senator Mansergh would not rise to it.
When we came to power in 1982 after the disastrous short-term Government under Garret FitzGerald, I was Minister of State at the Department of Posts and Telegraphs and Transport. I represented the Government in negotiations with the Heineken organisation in the Netherlands for the sale of Murphy's Brewery in Cork. Inflation ran at more than 18% and it was very difficult to persuade the Heineken corporation to buy Murphy's. The IDA sold the package and it worked out well. Inflation was the major item on the agenda. We decreased inflation to the 2% or so it is at present and the Government can be very proud of that.
This motion associates the Independent Senators with other parties. The motion would have more sincerity if the Senators were on their own. It does not have much credibility being linked with Fine Gael. As far as I can see, it is not linked with the Labour Party. Senator Quinn and his colleagues would have more credibility in their own right rather than being linked to a party which was responsible for the highest inflation ever in this country. Fine Gael cannot deny that. We had to pick up the pieces in 1982, 1987 and 1997.
David Norris (Independent)
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Senator Leyden's party picked up a lot more than the pieces along the way.
Terry Leyden (Fianna Fail)
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We also had to ensure a steady line was followed. We decreased inflation. A major priority for the Minister for Finance, Deputy Cowen, is to ensure inflation does not rise. Certain factors add to inflation, such as the cost of drink and tobacco. Sales of those items are very difficult. Speaking in the Dáil in October, the Minister welcomed a reduction in inflation and undertook to retain his commitment to restraining it further. Undoubtedly, the promise will be reflected in next month's budget.
Many causes of inflation are outside the remit of Government control, such as high oil prices and the European Central Bank increasing rates. The Commission for Energy Regulation will review the proposed increase of 19% in electricity prices from next January because the cost of oil has dropped dramatically. The 19% increase would greatly add to inflation and a review should be done now.
I agree with the Minister for Finance, Deputy Cowen, that tackling the problem of inflation requires a response from all sectors of society, not only the Government, as many of the domestic driving forces of inflation are outside the direct control of the Government. The Government has responsibility for many actions to contain inflation. For example, excise duties have not been increased in the past two years and, as the Minister for Finance pointed out, the groceries order was removed. I debated that particular issue, as did Senator Quinn. It is alleged that it will lead to greater price competition, but that has not yet been proven. In addition, the major players have not responded to the situation. In responding to the debate, Senator Quinn may indicate, given his experience in that field, what has happened since the groceries order was lifted. Members of the Joint Committee on Enterprise and Small Business argued against that decision. In fairness to the Government, however, it made a decision which it felt was in the best interests of consumers.
The Minister for the Environment, Heritage and Local Government specifically requested that to support competitiveness in the economy and protect the interests of communities, local authorities should exercise restraint in setting any increase in commercial rates and local charges for the following years. There is a certain lack of restraint as regards the increase in rates and the Minister knows the large burden that is placing on small businesses. Councils must raise money but they are now raising planning charges and increasing rates. Individual commercial rate payers not only have to pay rates but must also pay water rates on top of other service charges, which places a major cost burden upon them. The big supermarket chains have enormous rates and service charges, which constitute a burden. They must recoup such costs, so eventually the consumer pays all. That is the reality.
The Government has continually invested in public infrastructure, which will enhance our ability to produce more goods and services more effectively and, therefore, help keep down inflation. The eurozone's annual inflation was 1.6% in October 2006, down from 1.7% in September. A year earlier, the rate was 2.5%. It is noteworthy that alcohol and tobacco were among the items with the highest rates of inflation. Coming up to Christmas, there probably will not be much restraint in that regard.
I welcome the motion but we have had to table an amendment. Senator Norris would like everyone to love each other so that no amendment would be tabled. If the Independents had tabled this motion, we may have been agreeable to some sort of compromise. However, when the motion is linked to a party that has been responsible for more inflation in this country than any other party, we certainly could not be associated with the motion.
Terry Leyden (Fianna Fail)
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I will be delighted to vote down the motion.
Martin Mansergh (Fianna Fail)
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It is quite an ideological motion, too.
Feargal Quinn (Independent)
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I thank all Senators who have contributed to this debate. The reason for tabling the motion was to make inflation a top priority for the Government in the forthcoming budget. I thank Senator Leyden for his kind words, apart from when he referred to inflation as the Government's major priority. If the amendment had said "major priority", rather than "top priority" there would have been no need for it.
Some speakers on the Government side seemed to give the impression that there was a criticism of our economic success, but there is no such criticism.
Terry Leyden (Fianna Fail)
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The Senator knows that we are sensitive souls.
Feargal Quinn (Independent)
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We are very proud of that success but an effort is being made to ensure it continues. Recently, I was fortunate to be involved in a number of international meetings. People from around the world collared me and asked how we did it, how we succeeded, what caused the success and if there were any threats to it. I was happy to talk about that success but I was also willing to say that there was a threat. There is, as I call it, an elephant in the room which we are not discussing in this country. I have a problem when we change figures to suit ourselves. I recently suggested removing tobacco from the consumer price index because it discourages the Government from putting more tax on tobacco. I was, therefore, willing to fiddle with the figures but that is exactly what has happened.
In his speech, the Minister of State, Deputy Parlon, said "The annual rate of consumer price index, CPI, inflation was 3.9% in October". Where did we get the lower figure? It comes from the HICP.
Martin Mansergh (Fianna Fail)
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It is the accepted European figure.
Feargal Quinn (Independent)
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That is the way we fiddle with figures.
Martin Mansergh (Fianna Fail)
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No. It is the European standard.
Paddy Burke (Fine Gael)
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Please allow Senator Quinn to continue without interruption.
7:00 pm
Feargal Quinn (Independent)
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I am concerned about the 3.9% figure because it is what concerns the citizens of this country. It also concerns those who set up businesses here and hope to expand. Earlier, I expressed my concern about complacency. I have heard sounds of complacency coming from the Government side, with Senators saying not to worry because everything was all right. The Government amendment is the funniest one I have seen. It "notes that Irish inflation in EU terms is now not far off 2% per annum". It is comical to hear something being referred to in such terms.
The debate has been interesting and contained much good information. Senator Mansergh referred to a report by the National Competitiveness Council which provided a list of "key business input costs that weaken Ireland's overall cost competitiveness". Later on, the council stated that inflation creates uncertainty for businesses in their investment and operational decisions, thus diminishing prospects for growth in the future. We really must do something about concerns such as those expressed by the National Competitiveness Council.
We cannot control certain factors that influence our inflation, including interest rates and fuel costs. However, we can control the influence we have on people such as the energy regulator, the taxi regulator and others. We allowed the energy regulator to put price increases on gas and electricity but we did not put any limit on that. What will we do when the price of fuel comes down? Will we struggle to get it changed again?
The other issue concerns the taxi regulator. I was stunned by the fact that the Competition Authority is taking action because taxi prices are too low. It is insisting that those people who are competing by lowering prices are breaking the regulations. That seems outrageous and I cannot understand why it has happened.
If we are above the EU's HICP inflation rate every year——
Feargal Quinn (Independent)
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I do not think we have been below them in recent years.
Martin Mansergh (Fianna Fail)
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The year 2005 was exactly the same.
Feargal Quinn (Independent)
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We were the same as them once, but every other year we were above them.
Feargal Quinn (Independent)
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The cumulative effect of that is that we will make ourselves uncompetitive if we are not careful. The purpose of this motion is to ensure that we are careful. It reminds us that there is an elephant in the room and, although we may not wish to acknowledge it, this debate may enable us to acknowledge the challenge to some degree. I hope that will be taken into account.
One or two younger Senators said they did not want to be reminded what it was like back in 1987, that they wanted to consider the future. I want to remind them of what it was like in 1987, however, because it was not good. I was around in the 1950s when it certainly was not good either. Things were not good in the 1980s and I congratulate those who got together in social partnership, which was one of the prime factors in solving this problem. Those who do not remember what it was like and do not give credit for what has happened in the past 20 years, run the risk of becoming not only complacent but also cocky. There is a danger that might happen tous.
The purpose of this debate was to state that we have an inflation problem which we have allowed year after year to be above the European level. It allows our consumer price index to be up at 3.9%, which is way beyond that obtaining elsewhere. Let us ensure we do not allow that to fall from our gaze. It should be a top priority for the Government and I believe this debate will enable Ministers to rate inflation as a higher priority than they might otherwise have done. I have confidence that the Minister for Finance will take that into account and, in that respect, I hope this debate will help in some small way.
The Dail Divided:
For the motion: 26 (Cyprian Brady, Michael Brennan, Brendan Daly, John Dardis, Timmy Dooley, Geraldine Feeney, Liam Fitzgerald, John Gerard Hanafin, Brian Hayes, Brendan Kenneally, Tony Kett, Michael Kitt, Terry Leyden, Don Lydon, Marc MacSharry, Martin Mansergh, John Minihan, Pat Moylan, Labhrás Ó Murchú, Francis O'Brien, Mary O'Rourke, Ann Ormonde, Kieran Phelan, Eamon Scanlon, Jim Walsh, Diarmuid Wilson)
Against the motion: 16 (James Bannon, Paul Bradford, Fergal Browne, Paddy Burke, Ulick Burke, Paul Coghlan, Noel Coonan, Maurice Cummins, Frank Feighan, Joe McHugh, David Norris, Joe O'Toole, John Paul Phelan, Feargal Quinn, Sheila Terry, Joanna Tuffy)
Tellers: Tá, Senators Minihan and Moylan; Níl, Senators O'Toole and Quinn.
Amendment declared carried.