Seanad debates
Friday, 5 December 2008
The Economy: Statements
10:30 am
Pat Moylan (Fianna Fail)
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I welcome the Minister to the House and call on him to speak.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I thank the House for this timely debate on the economy. We are in very difficult times.
The weakness in tax receipts evident throughout the year has continued and the recently published Exchequer returns show the decline escalated during the month of November, reflecting the magnitude of the domestic and international economic slowdown. We had an Exchequer deficit of approximately €7.9 billion at end of November compared to a surplus of €1.6 billion in the same period last year. Overall Government spending is close to what was planned for in the budget but tax receipts in November were about €1 billion lower than was expected which means that tax revenues are now almost €7.4 billion behind target.
A major gap has emerged between spending levels and tax receipts and a current budget deficit of the order of €3.5 billion is now in prospect for this year. Budget 2009 envisaged that the current budget deficit would be in the order of €4.7 billion next year. However, given recent developments, that target will be exceeded.
The first priority remains to bring our finances under control. We must prove to those who have invested here and who are continuing to invest here that we can manage our way out of this severe downturn. That means difficult choices. The recent budget was a first necessary and essential step. As I have said, there is no great scope for tax increase beyond what I introduced in the budget. Therefore, the focus must be on reducing public spending. However, this is a finely balanced judgement. We will be borrowing substantially next year. We will be borrowing €8.2 billion for our public investment programme. That money will be spent on building roads, schools, public transport projects and water treatment projects.
That is our stimulus package, and it is twice the EU average. It creates employment in the short term and increases our productivity and competitiveness in the long term. There has been much talk about the fiscal stimulus which has been proposed at a European level. We welcome this initiative but as I have pointed out, we have already taken our own steps in this regard.
Of course, we will also be borrowing for day-to-day spending and that is not a desirable position. Next year, we will be borrowing at least €1 in every ten for day-to-day services. That means at least 10% of the salary of every teacher, every doctor, every nurse and every social welfare payment must be borrowed. This cannot continue.
The recent budget is a first step in restoring the public finances to sustainability while avoiding depressing economic growth further. The Government must now look at the public sector to reduce our cost base and to go about our business more efficiently. That is why I announced the establishment of a Special Group on Public Service Numbers and Expenditure Programmes.
The group will review the scope for reducing or re-focusing the existing range of expenditure programmes. It will look critically at the numbers of public servants employed across all areas of the public service to assess the scope for transferring staff to priority areas and for reducing numbers overall, and to identify surplus staff. The overall efficiency of the public service will be examined, including any ways of doing business that are out of step with the needs of a modern, responsive public service. The group will make recommendations for further rationalisation of State agencies beyond the measures I announced in the recent budget.
I note that there was criticism of the group in this House because it contained too many public servants. This is part of a general denigration of the public sector that has become a feature of public debate in recent months. Everybody in this room is a public servant. The public service is not some huge bureaucratic machine. It consists of doctors, nurses, paramedics, teachers, gardaí, the Defence Forces and dedicated professionals who support the delivery of essential services, and who work to support the Government and the institutions of the State.
I deplore the kind of demonisation of the public service that has featured in public debate over recent months. It is part of a wider tendency in some quarters, including, unfortunately, some members of some political parties, to traduce whole quarters of our society which have been the cornerstones of the growth and prosperity that we have enjoyed — whether it be the construction sector, the banks or the public service as a whole.
Jerry Buttimer (Fine Gael)
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The Minister should talk to his backbenchers.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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We need to move away from this shallow criticism and knee-jerk reactions, which are not helpful to our economy and are damaging social cohesion. Our public service has been an essential support for economic progress in Ireland over the years. We need to move forward together on the basis of the facts, and on the basis of a thoughtful analysis of where we need to make progress. We need to make progress in this area. That is not in question. I am simply outlining the basis upon which we can make progress. There is no doubt we need root and branch reform of the manner in which public services are delivered to our citizens. We can no longer afford the increases in numbers we have seen over the past decade. In this time of economic difficulty, we must do more with less. Scarce resources must be used wisely to produce better quality public services. Our public servants enjoy very favourable pay and working conditions by international standards. As economic conditions worsen, those enjoying protected status need to contribute in a broader sense to the greater good.
One of the most limiting factors I have found in my short time as Minister is the lack of flexibility in reallocating staff resources to areas of greatest need. This has to change. Where there are clear staff surpluses in certain areas, or where policy priorities change, staff must be correspondingly reduced or reassigned. Taxpayers are entitled to an assurance that the favourable terms and conditions enjoyed by public servants are matched with excellence in the delivery of public services. Public service pay currently accounts for about €18 billion or 32% of total current expenditure, an increase of €5 billion or 39% from 2004. Over that period, the numbers employed in the public service have increased by 31,500, or 11%, to more than 316,000 at the end of 2008. While the increase in numbers has been driven mainly by Government decisions to upgrade public services for a growing population and create new agencies in line with Government priorities, there is now a need for adjustments and economy in this overall area.
It is important to put the current difficulties in perspective. What we are seeing is a global downturn in activity. While I recognise that the scale of the downturn is larger than we have witnessed for a long time, it should be remembered that we retain the majority of the gains in living standards that have been achieved over the past decade and a half. For instance, the level of income per capita has reached high levels by international standards and there is no reason to expect a significant reversal of this. While we are in a very challenging labour market, the number in employment remains greater than 2 million, double the level that pertained in the 1980s. There can be no question that it is very difficult for those losing their jobs, and that is why we are responding in an appropriate and timely way which I shall describe shortly.
We know the economy is contracting. For the year as a whole, we expect gross domestic product to contract, with a further decline in prospect for next year. The main factor weighing on activity is the correction in the new house building sector. This year, completions of new houses will decline by around 40%, and next year by a further 50%. To put this into perspective, levels of home building next year will be close to the levels that obtained in the early to mid-1990s. House building will return to more sustainable levels over time, which levels are estimated to be in the region of 45,000 units per annum. In the short term, however, the correction under way will exert a major negative drag on overall economic activity.
This has spread to other sectors of the economy. Consumer spending, for example, has gone into reverse, with retail sales falling sharply during the third quarter. The housing adjustment is having a major impact in the labour market, where the unemployment rate has picked up sharply. Figures published earlier this week show that the number on the live register reached 277,000 in November, the highest level since 1996. The pace at which the live register has deteriorated is of particular concern.
Compounding domestic problems has been the major deterioration in the global economic environment. The origins of this can be traced to developments in the market for US sub-prime mortgage debt, in which difficulties began to emerge in the summer of last year. What began as a disruption to the operation of a specific credit market has spread to financial markets more generally, intensifying over time and culminating last September in severe global financial problems, with a succession of threatened collapses and rescues of financial institutions across the developed world. A pervasive uncertainty about credit risk emerged, such that the market for interbank lending became very challenging.
Against this background and on the advice of the Central Bank, the Government acted with purpose and determination to guarantee the liabilities of credit institutions so they could access funding in interbank lending markets. The unequivocal advice to the Government was that without such a guarantee, our banks would not be able to access the liquidity that is essential for them to continue their business of providing credit. I thank Senators for the assistance they gave on that occasion.
The impact of financial market turmoil internationally has been to reduce access to credit and to weigh on confidence, pushing many of the world's advanced economies into recession. The euro area, the UK, the US and Japan are all either in or on the verge of a recession. This deterioration in the international climate will weigh on Ireland's ability to achieve a suitable rate of export growth. Exports are the lifeblood of a small, open economy such as ours. The appreciation of the euro against sterling has had a negative impact in this regard. In recent days, the euro has reached its highest level ever against sterling, which is of particular concern for the exporting sector. While our exposure to the UK economy is not the same as it was, it must be recognised that firms exporting to the UK are often fairly labour-intensive and operate off tighter profit margins. The fall-out from negative trade developments vis-À-vis the UK is potentially significant.
On a more positive note, the rate of inflation has eased in recent months. On a harmonised basis, our inflation rate has been below that of the rest of the euro area since the summer. I expect the rate of inflation to continue to ease next year in the face of falling commodity prices and the general easing of economic activity. I also expect the benefits of exchange rate appreciation to be passed on fully to the consumer. Most commentators are of the view that inflation will ease significantly, even turning temporarily negative next year on the basis of the consumer price index, which will help protect real incomes and support consumption. The recent reductions in policy interest rates will provide timely support to the economy, as will the decline in oil prices to under $50 a barrel in recent days from almost $150 a barrel in July. Notwithstanding these positive developments, we are facing a very difficult set of economic circumstances and it is clear we are in for a difficult number of years.
Having dealt with the overall Government response, I will address two crucial issues: support for those losing their jobs and the restoration of competitiveness. The number of people on the live register increased by two thirds in the year to November, an unprecedented rate of increase. For those losing their jobs, the focus must be on helping them gain alternative employment, and the Government has clear arrangements in place for this. Some of the key measures include strengthened capacity for referrals to FÁS under the national employment action plan for advice on available job, training and education opportunities; eased eligibility requirements for the back to education allowance whereby those who are made statutorily redundant may access it immediately; extra short-term training and education courses from FÁS, especially in growing sectors such as energy efficiency and information technology; and the introduction of measures to help apprentices who are made redundant to complete their training as far as possible, for example, by providing simulated work experience opportunities. In the recent budget, despite the changed circumstances in which we find ourselves, further modest improvements were made in welfare payments, thus demonstrating the Government's continued commitment to protecting those less well off. The prospective easing of inflation will help the real incomes of those dependent upon social welfare.
For a small, open economy such as ours, sustainable increases in living standards can only be achieved by supplying goods and services to the wider global economy. Therefore, we must ensure the economy is in a position to take advantage of the global recovery when this emerges. This will require a greater focus on competitiveness, something of which the Government is acutely aware. To support our competitiveness objectives, the Government is committed to maintaining a low burden of taxation on capital and labour and has implemented a range of policies aimed at improving competition in product markets and flexibility in the labour market.
In addition, the Government is maintaining capital investment at 5% of national income, twice the EU average. This policy has both short and long-term benefits, supporting jobs in the short term and improving competitiveness and productivity over the longer term. Already, this level of investment has delivered significant improvements in our roads, public transport network, waste facilities and housing stock. In recognition of the deterioration in tax revenue, the Government has taken the view that while some scaling back of capital investment is unavoidable in the future, we must continue to deliver the core infrastructure that will support our future economic development. With this in mind, the budget provided for Exchequer capital investment in 2009 of some €8.2 billion.
In a time of scarce resources, we must be much more targeted in the way we invest taxpayers' money. We must concentrate investment spending on those areas that generate the greatest economic return. Investment which enhances our productive capacity and delivers the greatest benefit in terms of future improvements in living standards is being prioritised. In terms of physical infrastructure, we continue to invest heavily in transport. The Department of Transport will invest more than €2.8 billion of Exchequer money next year in enhancing our national road network and developing our public transport system.
A key priority for the Government is finishing the motorway network connecting Dublin with the other principal cities in Ireland by 2010. In addition, the Department of the Environment, Heritage and Local Government will spend €2.1 billion of Exchequer money in providing social and affordable housing, enhancing our water services infrastructure and other projects at local and community level. The Department of Education and Science will spend its increased Exchequer capital allocation of €889 million to build schools at both primary and second level and to support the development of higher education. This investment in education skills and the investment in training engaged in by the Department of Enterprise, Trade and Employment will assist in and are part of the Government's strategy to re-position our economy further along the value-added chain. We recognise that it is only by producing goods and services with a high knowledge context that we will be able to sustain high wages in an increasingly globalised economy. These are significant sums of money and they reflect the Government's commitment to fund the infrastructure investment that will help us to benefit from an international economic recovery. They will also assist in dealing with the deteriorating position and will provide a stimulus package in the economy.
In common with virtually all the world's advanced economies, we are facing substantial economic and fiscal challenges in the immediate future. Notwithstanding this slowdown, the level of economic activity remains at a very high level, as does the level of employment and income per capita. It is clear that the underlying health of our economy remains robust but there is no room for complacency and the Government is not complacent. We must all work together and, for its part, the Government is making tough decisions that will help to lay the foundations for recovery. These involve putting the public finances on a more sustainable path, improving competitiveness and maintaining international confidence in Ireland as a place to work and invest. I look forward to hearing the views of Senators.
Liam Twomey (Fine Gael)
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I refer to the Minister's remarks about the public service and the comments he has attributed to other political parties, which he perceives as being negative towards the public service. These remarks may indicate that it is the Minister who needs to think about what he is talking about. Nobody is criticising the public service. Most people on this side of the House are of the view that the 6% pay increase planned for next August will have to be postponed, but it seems the Taoiseach and the Tánaiste do not agree with that view as they seem to be hell bent on paying it. The Minister says that 10% of the public service pay — that is the pay of doctors, nurses and teachers - will be borrowed.
Liam Twomey (Fine Gael)
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A pay increase of 2.5% was paid out just a few weeks before the budget and the Minister is planning on giving a 6% increase next August, making an 8.5% increase when the country's finances are deteriorating rapidly and when he is borrowing €6 billion to pay the wages of public servants. That is not a criticism of public servants. Front line people, such as teachers, doctors, nurses, gardaí and civil servants, fully acknowledge the problem because many of these people have spouses, partners, children and parents who are working in the private sector. They may have lost their jobs or are working a three-day week and the prospects for next year are even worse.
If the Minister wishes to talk to Senator MacSharry, I will sit down and wait for him to finish.
Liam Twomey (Fine Gael)
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We are trying to get this point across. We are not criticising the public service. Public service workers realise that everybody must make sacrifices in these difficult times. The Minister speaks about Ireland being a small, open economy which must be competitive. The difference between jargon and action is when the Minister starts to do something about it.
Liam Twomey (Fine Gael)
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Now it is all jargon. Of course we know we must be competitive, but keeping our prices and costs down is what makes us competitive. We must be realistic and, as a small, open economy, keep down the costs of government.
The trade union leaders suffer from the same shell-shocked attitude as Ministers when they realise the gravy train has come to a halt. However, ordinary trade union members, such as teachers, nurses and gardaí, acknowledge that we may have to forego this 6% increase. It is scandalous that this 2.5% increase was paid last September, even to Oireachtas Members, in light of the circumstances. It is probably not on the same scale as the 14% increase Ministers wanted to award themselves last April but it still shows a disconnect from what is happening in the wider economy. The Minister must face up to that fact and be realistic.
A pay increase of 6% next August must be postponed. The Minister may be the person to say this clearly if the Tánaiste and the Taoiseach are skirting around the issue and not being clear. The reason for the lack of confidence in the Government is that Ministers are not showing leadership. The Government is not speaking with a clear voice and giving a clear message to the people of Ireland.
We are facing an unprecedented crisis in the public finances which most people under the age of 40 have never before experienced. We need to give them that confidence and leadership. Older people and those wishing to retire who have private pensions and people who bought shares to cushion their retirement, have seen those investments decimated. An individual with €200,000 invested in bank shares will have seen those devalued to €10,000 or €15,000. There has been an unbelievable collapse in the value of people's property and in the value of retirement investments.
I ask the Minister in his response to be clear about what is happening to the banks. The Central Bank, the Financial Regulator, the Government and the banks have indicated that everything is fine, that the stress-testing of the banks up to 2010 means there is no problem. If there is no problem with the banks, the focus should be switched to the economy. Small businesses across the country are having increasing problems in accessing funding. Has the Minister any bright ideas for next year to improve short-term financing for small and medium-sized businesses? It is quite clear the banks are not going to do so even though they seem to be safe now. This is the message coming from the Minister, the Financial Regulator and the Central Bank. I ask the Minister for a specific response.
One issue which has annoyed me and which was referred to yesterday in the Lower House is the Lisbon treaty. The Lisbon treaty has not a hope in hell of being passed by the Irish people on rounds two, three or four if the Government continues to treat the Irish people as if they are superfluous to the requirements of the treaty. This House is where the Taoiseach should be making his announcements, not flying around Europe talking to leaders of other countries and discussing——-
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Senator is starting off on a wrong note again.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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He is damaging this country.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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No, this is where the problem starts.
Liam Twomey (Fine Gael)
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The idea that Senators think that Sarkozy and Brown are more important to how we deal with the Lisbon treaty is ridiculous. If the Government wants to take ideas to Europe it should discuss them here first with the representatives of the people. This is where it should start. I have strong views on that matter. The Government should talk to the Irish people first before it goes to talk to our colleagues in Europe. It is dismissing the concerns of the Irish people.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Senator is damaging the country.
Pat Moylan (Fianna Fail)
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Senator Twomey, without interruption.
Liam Twomey (Fine Gael)
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The Government failed with the first Lisbon treaty because it took the Irish people for granted and it was dismissive of the whole campaign the first time around. The Government is making the same mistake the second time around——-
Liam Twomey (Fine Gael)
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The Senator should not throw those insults at us.
Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Senator should give the people some hope.
11:00 am
Liam Twomey (Fine Gael)
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That is ridiculous talk. The Minister has given people no hope. His budget was ridiculous to begin with. It did nothing to deal with the problems. The Government is U-turning so much that the budget has lost credibility. The Minister's budget does not deal with the circumstances to be faced in 2009. He even acknowledges that the problems are bigger. I will give him credit for the fact that he acknowledges in his opening contribution that there are domestic as well as global problems. The Minister's budget for 2009 does not deal with the extent of those problems. We are not knocking the economy when we say matters will be far more difficult next year. That is the reality of which everyone is aware. There are people who are telling us that they will be put on a three-day week after Christmas. Small businesses are telling us they have no work for next year. Instead of their order books being full, they are almost empty.
These are the concerns in the economy and I believe the position will be worse next year. The Minister has seen it in his tax returns. Not only has tax revenue gone down, those who have prepaid their taxes for next year expect business returns to be much lower. This year the Revenue Commissioners are paying taxes back to people because their preliminary tax returns from last year were higher than what they would have expected to pay this year due to the reduction in the economy. It is expected to get worse next year.
We are not knocking the economy, criticising the public service or against the Lisbon treaty and the European agenda, but when Ministers, who think they are regal rulers of the country, blandly talk down to us about what is happening with the treaty, it raises our ire.
We are willing to have an open and good discussion about what is happening to the economy. The Minister should let us know what he feels about the national pay agreement. Should it be postponed indefinitely until the economy turns around? He should be informing us of what he can do for small and medium-sized businesses now that the banks are safe. The banks will not lend to small and medium-sized businesses so the focus must be more on business. Should we introduce some scheme to directly finance business? Should the Minister for Finance pay their commercial rates, for example?
Dramatic action needs to be taken to help small and medium-sized businesses to keep people working. There is no point in giving extra funding to FÁS to train apprentices when they are being laid off and there is no work even for those who are qualified. It must be treated as the crisis it is. That is all this side of the House is asking. When the Minister replies, we want him to discuss the national pay agreement, private sector pensions, which have been decimated, moving the focus from the banks to private enterprise and the Lisbon treaty.
Much of the budget was focused on issues such as the medical card scheme, the cervical vaccine programme and substitute teachers. All these issues have been waylaid. There is no need for me to go back over them. The economy will face substantial issues until 2011. Unless we are realistic in how we speak about them, we will have a bigger problem next year. Those are the issues I want the Minister for Finance to address in his reply.
Marc MacSharry (Fianna Fail)
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I join others in welcoming the Minister for Finance to the House. As is traditional with Senator Twomey and me, I will start with a little rebuttal. This carry-on with the Lisbon treaty must stop. We all have a responsibility in this regard. Senator Donohoe, who chaired the sub-committee on Ireland's future in the EU, which did some fine work, would hardly agree with Senator Twomey's comments. We all have a responsibility to be mature about this matter. Ireland must remain at the heart of Europe. A statement such as the Lisbon treaty has not a snowball's chance in hell of being passed is ridiculous in the extreme, unhelpful and juvenile.
Frances Fitzgerald (Fine Gael)
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The point being made is the lack of proper engagement with the people.
Marc MacSharry (Fianna Fail)
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I do not interrupt other speakers in this House.
Liam Twomey (Fine Gael)
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Who interrupted me? I apologise, it was the Minister who interrupted me.
Marc MacSharry (Fianna Fail)
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The foundations of the successes of this State since 1987 have been based on social partnership and pay agreements such as the recently concluded one. As the Taoiseach said the other day, Deputy Bruton in the Lower House criticised him and the Government for not concluding the social partnership talks quickly enough. He welcomed it when they were concluded and now he wants them reversed. Fine Gael has to make up its mind.
There will be no pay increases in the public service until next August. It is the Government's intention to ensure those increases are paid. The agreement stands as announced in social partnership. That is how we have had successes in the past and how we will plan for the future. If there are any changes to that——-
Marc MacSharry (Fianna Fail)
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——-they will be done through social partnership, with the important partners. I am sure Fine Gael's coalition partners, the Labour Party, would not be happy to hear the views on the unions as articulated by Senator Twomey.
As the Minister stated, we are living in unprecedented difficult economic times, probably the most difficult in the history of the modern world. The decline in tax revenue to 2005 levels means that as a nation we are living beyond our means. Income streams are at 2005 levels but expenditure demands are at 2008 levels. This is not sustainable and steps need to be taken to change it.
Some savings have been made so far with some budgetary adjustments. They were difficult for all to take. I welcome more recent adjustments, such as in the medical card scheme and on substitution teachers, which have eased the severity. More savings will be required and must be made. They will be made in the context of partnership and doing what is best in looking after the most vulnerable to the fullest extent possible while still trying to stimulate the economy.
I welcome the initiative in public service reform and the appointment of the four gentlemen, "An Bord Snip", as it is being called. I look forward to the improvements they will make. I am mildly frustrated at the pace we are proceeding in this regard considering the OECD report was published and a task force was established some months ago. I look forward to the tangible on-the-ground changes that will be made. We all know our public service, as the Minister stated, has served us excellently in recent years. There can be no doubt about that.
Marc MacSharry (Fianna Fail)
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However, changes need to be made. We must always seek to improve efficiencies where possible and ensure the public service acts as a coherent unit. It is important we get numbers where they are most needed as quickly as possible. We need to introduce a level of agility in the public service that is more consistent with the private sector. That will be achieved through partnership.
In these difficult times, it is important we look after the most vulnerable in society. I am glad we are able to sustain an 8.4% increase in social welfare spending and there are some increases in health care spending despite the drop in tax revenue. It is also important we maintain our commitment to the national development plan. I am delighted the Minister alluded to that in his speech. We must prioritise those capital investments which would best position us to maximise the benefits and returns we can realise from the economic upturn when it comes. I am pleased the Government is seeking to do that.
We must do all we can to protect jobs. While one acknowledges new jobs are being created — there were welcome announcements in Cork yesterday — the level of losses are somewhat greater. This presents a major challenge to all of us. The Minister has outlined some of the measures being introduced such as enhancing the role of FÁS, making it easier for retraining and the completion of apprenticeships. We must continue to be innovative in job creation and be prepared to introduce further measures if necessary. We must do all we can to ensure the competitiveness of our goods and services, particularly with the challenges of the sterling exchange rate and the strength of the euro.
Small and medium-sized enterprises must be supported in every way possible. These are the backbone of the economy which helped to produce many of the successes in the past. It is important that our banking sector supports them in a greater way than it has done in recent months. I accept the sector has had its recent difficulties and its focus has been on survival. However, what has the cost been to the economy? Through the guarantee scheme, the Government has continued to try to change that. The nominees to the banks were announced this week and I welcome that. There is a good cross-section of experience and all have a proven track record of admirable public service. ISME issued a press release this morning criticising the fact that none had an SME background. I can testify, especially for one of the nominees, because his tradition came from the SME background. I have no doubt he and his colleagues will do all they can to ensure the public interest is best represented.
I welcome the initiative that some banks have announced. AIB announced the lending of €1 billion to the SME sector in the coming month. I ask that the banks be innovative to ensure that the businesses that could ordinarily survive and flourish in normal international trading conditions receive the fullest level of support and the lines of credit that are appropriate and needed by the business. I acknowledge the Government action of the guarantee scheme, the board appointees and the stated intention to examine the part-nationalisation or the encouragement of rationalisation of the banking sector in Ireland.
There have been some recent positive elements, such as the oil price reductions from $146 a barrel to below $50 this week. That puts an extra few euro into people's pockets in these difficult times. I welcome the interest rate cuts. It is good that the ECB is pursuing a line consistent with our economic situation. A potential flaw of a single currency is that we do not have absolute control over fiscal policy to bring down interest rates, as we could in the 1980s. That was difficult during some of the summer months. I call on institutions that have not yet passed the cut to consumers to do so without delay.
I express regret at the VHI increases. If anything can be done in that regard I ask the Minister to consider it because it is a significant increase for a married couple with two children on Plan B, for example.
I have a number of suggestions. It is well known in this House that I have views on the HSE. I most respectfully suggest that, with responsibility for 28% of the expenditure of the State, I would be more comfortable if that was under departmental control. An example relates to cancer services in the regional hospital in the north west, in Sligo. Costings have been made available to me showing that if that service, which was Government established and supported since 2001, was maintained it would save the Exchequer between €1 million and €1.2 million per year. In the overall scheme of things, that is very small, but if the executive was under departmental control I would be more confident that we could have enhanced savings throughout the health service, which costs €16 billion. We could come up with hundreds of millions of euro. That is a small suggestion.
We should maximise incentives, through taxation or otherwise, for research and development. Many exist but I ask the Minister and his colleagues to enhance that further. That can help to make Ireland the leading centre for research and development. With a foundation like that, our economy will have a better chance of recovery and at a faster pace.
As Members know, some weeks ago I suggested the establishment of a forum or commission on a fairer Ireland. All societal pillars and the social partners could be invited to this. It could be beneficial to have these people come together to discuss the challenges we face and plan the approach that should be best determined for the future. That is how it was done in 1987. Social partnership has served us exceptionally well and continues to do so. If we engage with them and the other society pillars it would be beneficial in determining our attitudes to pay, efficiency, pensions and a wide variety of issues. It could be independently chaired by Senator O'Toole or someone with similar experience.
Liam Twomey (Fine Gael)
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He will be on the bank board; he will not be available.
Marc MacSharry (Fianna Fail)
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Despite the difficulties, we must look forward with confidence, enthusiasm and determination to meeting the challenges before us. Ireland has dealt with unprecedented economic uncertainty in the past and, with unity, determination and innovation, we have always come out on top. I have every confidence that the Minister for Finance, the Taoiseach and the Government, with the support of the Oireachtas and the people, will ensure that we emerge from these difficult days on top.
Joe O'Toole (Independent)
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I welcome the Minister. My colleague, Deputy Twomey, is driving me into the arms of Fianna Fáil with his comments on the public service.
Mark DalyJoe O'Toole (Independent)
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In terms of the issue raised by Senator MacSharry, now that I have got off the gravy train, I would be able to give some time to chairing such a committee.
One of the things we need to do is to look very closely at matters. The last time we discussed this we were in the middle of the crisis. That night, I stated that I was sick and tired of everyone in the House, on all sides, telling me that the banks were under-capitalised and that they were going to go under. I said that I had spoken to the only person who has looked at all the books and audits and he told me that they are okay. I spoke to the governor, with whom I had done business for 30 years while wearing other hats and who had never told me a lie, and he confirmed it. I said on 30 September that until someone proves otherwise, the banks were adequately capitalised for the moment, and that has proven to be the case. The Minister should make more of the fact that the Department of Finance and the regulator were correct and the politicians, the commentators and "Prime Time" were wrong. The next time the Minister and the regulator say something, people might be more inclined to listen.
I compliment the Government on not recapitalising the banks. It has been done twice in different ways in the US and it has been a disaster. It has been done twice in the UK and Alistair Darling is tearing his hair out wondering why he cannot control the banks. All he needs to do is to read company law and he will find out quickly.
In dealing with this issue I have asked every public servant I have met how we could save and become more efficient in his or her area. I asked them not to give me broad matters but to be specific. This morning, I tried to remember some of them and one ties into the Minister's comments on FÁS.
The Department of Education and Science builds schools sometimes, but not enough. Every Member of the House has raised this issue, as has the Minister and the Minister of State. Why is the Department of Education and Science building schools? Why do local authorities not build schools? I could not find one county development plan to which the so-called planning section in the Department of Education and Science made a contribution. Consequently, the Minister for Finance woke up one morning to find large numbers of houses and people in Dublin 15, in the middle of his constituency, but there were no schools. If the local authority, which deals with planning, also dealt with building schools, it would know the population and the drift. The local authority is the guardian of the county plan and money would be saved. This is a whole section that is unnecessary.
The Minister referred to FÁS. I met some teachers in further education and asked how we could save money. They said that in further education they were prepared to do their bit. I have an interesting point for those commenting on the public sector. They said that they could operate cheaper in the public sector. I asked them how and they promised to contact me when they had it calculated, which they did. They worked out the per capita costs of the privately contracted FÁS courses and outlined to me that a similar course being run in the further education section of the vocational education committees can do it cheaper and, one would have to accept, equally effectively. That is the type of issue we must examine. The positive aspect of that, and it is something I know the Minister of State will pick up on, is that it was the teachers in further education who offered to do that. That is important to what I will come to later.
I want to put three specific points to the Minister of State. First, in the Minister's own area of the arts, I will make a suggestion to him that will save €50 million with the stroke of a pen and one telephone call. In parts of the Minster's constituency people have satellite dishes to receive RTE. The only way someone can receive RTE with a satellite dish is if they are a Sky subscriber. There are people in the Minister's constituency who cannot get broadband. The most effective way of delivering broadband currently is through satellite. There are people in the Minister's constituency, and throughout the country, who subscribe to one of the satellite based broadband providers. The service is delivered directly into their living rooms but RTE use the same line. They can connect it to their televisions and get BBC 1, BBC 2, BBC 3 and BBC 4, ITV 1, ITV 2, ITV 3 and ITV 4 and a variety of other stations at no cost — they are free to air stations — except RTE. That is the arts issue dealt with.
Second, because people must subscribe to Sky to get RTE, they must have a contract with Sky for which they pay anything up to €70 a month. Hundreds of thousands of people are subscribing to Sky in this country. Because all of that money is paid to Sky, the Minister's Department has no involvement in regulating it in terms of its quality, content or whatever.
The third point, and I am glad the Minister of State is seated, is that hundreds of thousands of Sky customers are paying millions of euro per year to Sky. They pay VAT on those payments, up to €100 million a year, which is being paid to the United Kingdom treasury. Much of that is happening because RTE has a contract with Sky to provide only satellite content.
If the Minister raises this issue I can tell him what the response will be, and it has to do with copyright. The examples I gave concern people receiving broadband and other services on the line into an Irish address. It is not coming from outside the island. There are issues in that regard that need to be examined. Money could be saved by having Sky regulated in Ireland and making RTE more widely available. Also, groups like Ice Broadband and so on that provide WiFi services could supply RTE currently. That is another area on which we are losing out badly.
On the cost of tribunals, has the Committee of Public Accounts not proven that politicians can question and find out where the bodies are buried, so to speak, as cheaply as tribunals? Surely that would save hundreds of millions of euro. I could suggest ten different actions the Minister could take. I do not know about the people who will be involved in public sector reform but I can tell the Minister that when he goes back to his Department, and if he mentions the first suggestion I made before he came into the Chamber about getting rid of a building section, the walls will go up. There is no way he will get it done. We need somebody to make decisions but what happens in every case is that the first people to be considered are the front line workers — nurses, teachers, gardaí etc. That is easier because it is away from Departments.
I want to make a modest proposal. If all the schools and hospitals were closed down for a year, all gardaí put on a career break for a year and let crime, education and health go its own course, many people would get injured or killed and nurses and teachers would have no money but we would solve the economic problem. We have to start somewhere and recognise that there are some ludicrous proposals being made also.
On the medical cards issue, the Government created a wave of opposition to that proposal. In terms of all the areas the Government considered, simplicity has a factor in this respect. The scheme was costing the Government €640 per year per person. Why not offer some people the option of buying their way back into the scheme if that is what they want? Some people might decide it would be worth doing that. It is an option that might be considered rather than cutting back the scheme.
Senator MacSharry was absolutely right about the social and partnership model and, of all people, I have no doubt the Minister of State would recognise that. What is it all about? It is unfortunate that much of the discussion on social partnership in the other House in particular revolves around salary. The most threatening thing that can happen to anybody in leadership is when they answer the telephone and somebody tells them they want to share something with them. It is never money; it is always pain. It is always a problem. I recognised long ago that a problem shared is a problem doubled. I do not believe in the old wives' tale that a problem shared is a problem halved. A problem shared is usually a problem doubled because more people get involved in dealing with the problem and they each take ownership of it. That is the value of social partnership. The gain is shared in the good times but the pain is shared in the bad times. That is the way it must be.
The next time the Minister of State is asked about paying the salary increase he should tell a little story. The Government sat down with the public sector unions six months ago and told them it did not have the money and that something must be done about it. They finished up with an 11 month gain. If, at the end of that period, problems remain, the Government has a moral duty and an ethical responsibility to go back to the same people and say, "This is where we are now". It is not about making mad decisions about not paying something now. It must be honest with people, outline the position and deal with it.
A month ago I read about the irresponsible socialist commies in Aer Lingus who were going to close down the company and so on. We got pages of it stating there would be no flights at Christmas and so on. They put out to ballot the extraordinary proposal of redundancies, sackings, demotions, added responsibility and more productivity. I never thought it had a chance of being accepted but it was accepted. If this country is to find its saviour -I said this in another forum in the past few days — and the choice was between bankers or trade unions, we would have a much better chance of survival and saving the economy with the trade unions.
I do not have time to make all the points I wanted to make but I say to the officials in the Department of Finance that there is no rush in terms of recapitalising the banks until one question can be answered. I have this question for this country and the neighbouring one. If somebody can tell me how capitalisation leads to money being loaned to the corner shops, the small builder, the carpenter or whomever, I will support it. It is not a question of what the banks would like to do. It is what they are required to do under legislation. Their shareholders want capitalisation to be increased from what was 4% or 5% to 7%, 8% or 9%. That will take billions of euro and it is of no value to the country but what it will do, if we make the mistake of doing it, is benefit the share price, at least for a while. The share price makes no difference to the Minister or to me. Those of us who held shares have lost money but that is not what we are trying to achieve.
We should recognise that it is sentiment, confidence and optimism that drive the economy, not science, mathematics or academia. The Government should shape up, look straight into the camera now and again and tell us we can get through this. That will create a wave of optimism.
Dan Boyle (Green Party)
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Given the amount of briefing material they have to work through from the Department of Finance, I am not too sure whether the Minister for Finance or the Minister of State have had an opportunity to read The Economist world review of 2009.
Dan Boyle (Green Party)
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It is a publication that has a particular political bend but it is also one that is recognised as getting the fundamentals of economic indicators right. It is framed in a number of sections, part of which is an overview of the global economy. It is a fairly gloomy assessment. It states that for the next few years, the elements that have brought about the worst economic global shock in 80 years will persist but that there is light at the end of the tunnel. Another section details from where part of that recovery will come. There is an extensive section on green technology and promoting a green economy as one of the weapons that will be used to bring about economic recovery. I am fairly confident this is a message the Government has already taken to heart and that future policy announcements will reflect this. If one thing is sure in terms of both a national and international global recovery, business as usual and the old approach to economics is not what will be successful. We need to do things differently and we need to do different things.
The Economist world review, which is contained in each of their annual publications, is an overview of the world economies on a paragraph by paragraph basis. If one reads the European and American sections, it indicates the scale of the problem we have to overcome as an open economy that exports the vast bulk of its goods and services. It also points out that the majority of the economies of Europe, the countries that collectively make up the euro zone, are now in recession, as was confirmed yesterday and was one of the reasons the European Central Bank brought about its largest ever cut in its lending rate of three quarters of a base point. This is a point Opposition parties need to ponder in particular. It is an issue that affects all other countries, particularly our trading partners. The policies we need to have in place, which I believe the Government is putting in place, need to reflect this reality.
If one considers our largest trading partners such as the UK and the United States, they are listed among those countries that will have either zero or negative growth in the coming year. It is a similar story with other large economies in Europe such as France, Germany and Italy, as well as countries such as Estonia, the Baltic nation which was described as one of the success stories of the modern economy. Ironically, one of the few countries that will be experiencing economic growth in the next year is Hungary, a country that has just had to be rescued by the International Monetary Fund. I suspect it is because of that infusion of funds that it will experience some level of growth.
The question we need to ask ourselves in general terms is what are the strengths we can build on. Unlike the 1980s, we are a stronger and more diverse economy in terms of the goods and services we provide and those with which we trade. We have gained in terms of potential and levels of confidence. I agree with Senator O'Toole that one of the biggest factors towards maintaining economic strength and building on economic potential is to use the confidence we built, which we never really had in the national economy until the last ten years but which was one of the biggest successes of the Celtic tiger. There is a danger that in talking down the economy, we are bringing about a degree of wish fulfilment, which could be the biggest loss of all. It is not the indicators of economic growth such as inflation, interest rates or unemployment that will be the key factors. It will be the loss of confidence, either individually or collectively, that will slow down and stunt our ability to bring about economic recovery.
There is a responsibility on all of us in political life to make sure the path ahead is built on that confidence in particular. I would be a glass half full person and I would be confident we can get through this. On the other hand, there is a need for a degree of honesty as regards where we are economically in both national and international terms. This is a situation that has not been experienced for 80 years and it is one that has come suddenly in terms of the severity of the shock. As a result, the policy initiatives that have had to be put in place have been severe in their action as well as in terms of their hopeful ramifications. From here on, once the difficult decisions are made, we can recover. However, we must be honest that there are more difficult decisions ahead , particularly in regard to the public sector. I agree with other speakers, particularly Senator MacSharry, that that way ahead must be based on what has been successful in the past during periods of economic prosperity, particularly in regard to the use of the social partnership model.
The most honest we can be with the people and those who are in charge of operating within the Irish economy is by explaining that this is a process that will be prolonged, particularly in terms of what was experienced in the past number of years. We are talking about a two to three year period of adjustment both nationally and internationally. This will require patience, policies that are predicated on social justice to ensure those who have least in our society are most protected and, on the other side of the social justice coin, that those who have achieved most in an era of economic prosperity are those who contribute most in terms of maintaining public services, which is all we are discussing at present.
This is the most important point we must get across in the public debate on our immediate future. Every additional cent we spend in terms of trying to add on and improve public services in the coming years will be borrowed money. The scale of borrowing we have put in place for the next three years is €35 billion, most of which will go on necessary capital and infrastructure spending, but quite a large proportion of which — necessarily large due to the situation in which we find ourselves — will go to fund current expenditure and public services. Until we get the balance right in terms of taxes and control of public expenditure, it is an imbalance that could lead us down a road that many of us wanted to leave behind 20 to 25 years ago. It is important we are aware of that danger and that we try to avert it as far as possible.
The calls that have been made with regard to patriotism may have been misunderstood and perhaps overplayed but the reality is we are in a situation that requires a collective effort in terms of pointing a way ahead to bring about recovery in the soonest possible time. It requires the willingness to take a level of economic pain among those who have the ability to do so. I am confident the Government can frame policies that will allow those who have least in our societies not to feel that effect but there is also a responsibility that we have ongoing debate to make sure those promises are lived up to and that the potential that exists in this economy can once again be realised in the short term.
Alex White (Labour)
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I welcome the Minister of State, Deputy Mansergh, to the House. In doing so, I recognise it is a pity the Minister for Finance has other commitments, which we all understand. I presume he had a commitment at 11.30 a.m., which may be the real reason we started this debate at 10.30 a.m. rather than 11.30 a.m. Perhaps if we had been told this earlier in the week by the Leader, everybody would have understood and accepted that commitment rather than having that ridiculous skirmish the other day in regard to the Order of Business this morning.
Alex White (Labour)
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An element of honesty might be forthcoming from the Leader in future in regard to the arrangements in this House as well as a little more courtesy to the Opposition leaders and all leaders in the House. In this important debate, it is a pity the Minister for Finance, while I do not criticise him personally, has not had the opportunity to hear the contributions of all of the party leaders in the House. I do not for a moment diminish the importance and contribution of the Minister of State who is present.
Senator Boyle said there should be a degree of honesty in the debate, and he is absolutely right. One of the things we need to do in order to understand where we are at present and where we are going is to understand what has actually happened. Senator Boyle and others used the word "sudden" with regard to this year's downturn. I do not accept the Government and its advisers could not see some changes occurring in the Irish economy in the months, even years, prior to those so-called sudden changes actually occurring. I simply do not believe it. The current Taoiseach and previous Minister for Finance, Deputy Cowen, when he made his Indecon speech only a year ago in November last, stated, "It is wonderful to realise that there is a new generation in Ireland which has never faced the hardship of high levels of unemployment, or the horrors of weekly riots and bombs in Northern Ireland, or the bleak depression of forced emigration." When he made this general introductory remark to this speech, either the Government knew or ought to have known that dramatic changes were coming to the economy, especially in respect of what occurred in the construction sector which even the Government accepts is at least partly responsible for the so-called sudden downturn this year.
Will the Minister of State assist me on this? Does the Government still maintain the position that at the end of 2007 it knew nothing of these impending problems or of the prospects which were to face us in 2008? I do not believe it. I have a high level of trust and confidence in senior civil servants and the senior economic advisers to the Government and the Minister for Finance. The people need a little more candour from the Government as to, in the words of the old movie about President Nixon, "what did the President know and when did he know it". It is not credible to suggest that this suddenly happened in June last and I do not believe it. If we are to have the type of debate that Senator Boyle wants with regard to honesty, we need an answer to this question.
This is a political question because anything to do with the economy is a political question. I have stated in this House previously that there must come a political day of reckoning for all those in the Government, particularly those in Fianna Fáil and the Progressive Democrats, who, from what one can see in terms of their ideas and economic planning and sense of where the economy was going over the past five, six or seven years, thought that all they had to do was simply ensure the property pumps were primed. Practically every tax concession sought from the property sector was granted. It complained about legitimate social measures included in the planning Acts with regard to affordable housing and quickly received concessions. The Government's idea of economic planning was reduced to what it could do for the property sector. Now we are bearing the fruits of this.
If I may say so, Mr. McCreevy is often described as a great genius and one of the architects of our economic success. Apparently he recently stood over stating that when he has money he spends it and when he does not he cannot, or something along these lines. Surely, this is a deeply economically illiterate observation. Part of the role of Government is not only to maintain the economy and keep the books straight but to look to the future of those people to whom the Taoiseach was able to refer to last year as being part of a generation which has never faced the hardships of high rates of unemployment or the bleak depression of forced emigration.
What is in store for a generation of people in their 20s, 30s and beyond who are perhaps the first in many generations to be educated here with the prospect of being able to stay, work and live here? It is not acceptable for this Government to suggest as it does that what happened in the past year was brought into the country by some type of international airborne disease which we have caught as if no agency is associated with Government action and that the Government is simply there to do the books. We have outstanding civil servants who can do the books.
What are politicians for? Where is Mr. Lemass and his legacy in Fianna Fáil? At least in his generation people were urged to look with vision to the future as to how the economy and the country would be in generations to come. We are not getting any of this. The Minister's speech is lamentably lacking any vision for the future of the country. He describes the problem paragraph after paragraph and page after page. We can all describe the problem. Any of us can sit down and write an essay on how bad things are. The reason we sought this debate every day for the past three weeks is that we hoped the Minister would come to the House and set out elements of a vision for the future and elements of a plan. This is not what happened.
What is the point of politics, politicians and Governments elected by the people? It is to bring forward solutions. They may not always be acceptable to the people but suggestions, ideas and a vision should be brought forward. I am not saying that addressing the public finances is not a critical concern. Of course it is. I cannot state it goes without saying but of course it is vital. However, it is only one element of the picture. Even the way the Minister characterises this in his speech is telling:
The first priority remains to bring our finances under control. We must prove to those who have invested here and who are continuing to invest here that we can manage our way out of this severe downturn.
This type of language, that our priority must be to prove to others, portrays this country as if it has no self-confidence. I am sure prospective investors in Ireland look to see how the public finances are managed. I take this for granted and of course it is important. However, it betrays an attitude with a complete lack of a positive approach to why and how we might pull our economy up and plan for the future. It simply characterises it as that we need to behave and to be seen to behave.
A member of my party has recently repeated and canvassed again the proposal we set out in considerable detail. Let no one state the Labour Party has not set out a proposal in detail. By all means scrutinise and criticise it and let us have it as part of the debate. I heard Senator Boyle state that it was Keynesian. When every other country in the world is turning back to Keynesian economics, Senator Boyle spoke in a pejorative sense about us engaging in Keynesian economics because we dare to speak about the necessity of having a stimulus programme in the economy. I understand the Minister of State, Deputy Mansergh, stated on the television that he disagreed with this, and he can clarify this.
This week, the new line from the Government is that we have a stimulus. Last week, we were told we did not need it and that it was wrong, imprudent, not the way forward and that the Labour Party was talking through its hat. This week, we are told we need a stimulus and already have one. Which is it? It is not credible or sustainable for the Government to point to actions it has taken such as the national development plan and the important and welcome investment in public infrastructure in which the Government has been able to engage in recent years and describe it is a stimulus programme. If one looks anywhere else in the world, one sees the point of a stimulus programme as being to add value to what one is doing and ensure one does something new and additional to stimulate and kick-start the economy. To rely on something being done and to try to characterise it as the answer to the question on stimulus is not sustainable.
Senator MacSharry made a point about the Labour Party and the public sector. I agree there is an element of demonisation of the public service in some of the debate in recent weeks. I would be as critical of the Government in this regard because a great deal of double-talk and double-speak comes from the Government. It makes the rhetorical point that it is wrong to attack the public service and that the public service is an important part of our economy. However, in his speech, the Minister spoke about public servants having a protected status and I understand what he means by this. He also stated that changes are required to be made. I have no problem with changes being required or the need to have a responsive public service. Presumably any changes advocated or canvassed by the Minister are changes that ought to have been made prior to this.
Although I am critical of the Government on many issues, I see little evidence that it appointed whole rafts of staff in the public service in recent years who had no job to do, were not required for the delivery of legitimate services and were prepared to stand over waste and overstaffing. Is it a new decision on the part of the Government that change is required in this regard? I would have thought that many of the changes that are now apparently required are ones that should have been made before now. If there is wastage, it should never have occurred, in good times or bad. To invoke the downturn as a reason for such changes is questionable.
I reiterate, as pointed out by many Members, that the OECD report, while not giving the public service what could be described as a clean bill of health, pointed out that despite our economic advances in recent years, we have one of the smallest public services as a proportion of our economy of any of the OECD countries. Therefore, we can conclude that the public service performs relatively well in the context of other challenges facing the economy. I am tempted to say that the one element of the public service that has not performed to par is the Government itself, not the people who serve it so loyally throughout the public sector.
It is not clear what, if any, plan the Government has in regard to the banks. There is much toing and froing. The managers of the banks told us in the summer that there was no problem in regard to their liquidity or capitalisation levels. In the autumn, however, the Tánaiste commented, perhaps in an unguarded moment, that a State guarantee was necessary to save the banks from collapse. I am sure she used words to that effect. I understood that the principal objective of the guarantee was to ensure the continued viability of the banks as a vital motor of the economy, providing loans and credit to customers. However, the dramatic decline in lending has not been arrested.
It is not helpful for Senator O'Toole to say that the banks should not be recapitalised because they will not lend to customers and that we should rely on the guarantee. The guarantee has not achieved the objective of encouraging the banks to resume lending to customers. A commentator in one of today's newspapers makes an interesting point when he queries the recent report which again suggests that there is no difficulty in regard to liquidity or capitalisation in the banks. The Minister for Finance continues to meet management in the banks, which suggests that he is of the view that there is a problem. Are we to believe the report which claims there is no difficulty of liquidity or capitalisation? Other claims have been made in recent months which turned out to be manifestly false. What is the position of the banks and has the Government any plan in this regard?
Ann Ormonde (Fianna Fail)
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I welcome the Minister of State, Deputy Mansergh, to the House for this interesting discussion. I came into the Chamber for the start of the debate so that I could listen to all the contributions and gauge the differing views of Members on all sides of the House.
I accept that the Lisbon treaty has nothing to do with this debate. However, I take this opportunity to wish the Taoiseach well in his meetings with other European leaders to discuss the report of the Sub-Committee on Ireland's Future in the European Union. I compliment the Chairman of that sub-committee, Senator Donohoe, on his oversight of this worthwhile exercise.
Ann Ormonde (Fianna Fail)
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The report is excellent. It was an absolute disgrace to hear the negative contribution in the Chamber today at a time when we should all be singing the same tune as we consider how best to move forward in the aftermath of the referendum on the Lisbon treaty.
There is no doubt that the economic challenges we face are great. However, I have no doubt that we will, in time, weather those challenges competently. However, we must remember that there are no absolutes — I wish there were. I would be delighted to be able to come into this Chamber and set out, in four or five points, how the downturn may be reversed in the coming months. However, that will not happen in the short term. We have seen the major shortfall in tax receipts, with a deficit of €3.5 billion for 2008. We know there will be a budgetary deficit of €4.5 billion in 2009. The question is how we can overcome this shortfall in Exchequer receipts. We are all aware of the major downturn in the construction industry, a major source of employment in the economy. We are all wondering how we will cope with the increased employment arising from that downturn. These are the realities.
We must identify where we can introduce further management rationalisation across the board. I have read some sections of the report on reform of the public service. As a former teacher, I have no difficulty in saying that teachers are the best in the world. They are superb in terms of their subject expertise and in their dealing with children. However, we must revisit the issue of how schools are managed. There is no proper training in this regard. I am in total agreement with Senator O'Toole on the need for greater co-ordination between local government and the Department of Education and Science in regard to the schools building programme. I have been pontificating on the merits of such an approach since my days as a county councillor. In that role, I always argued that every development plan should be co-ordinated with an action plan for the future provision of educational needs. It is a pity that this was often not done. We had golden opportunities to avail of sites for free, on which shell structures could have been constructed, ready to be completed in due course. I do not intend to be critical in this regard but merely to point out that there was insufficient forward-planning. We have no choice now but to take that approach and to consider how best to introduce other measures to economise.
We must consider how best we can support apprentices who have been made redundant. Perhaps some of those young people who left school at 15 years of age to pursue an apprenticeship do not want to return to that role and may instead wish to return to education. There is an opportunity to consider some degree of rationalisation of the courses provided by FÁS to fit new requirements. That is my vision. The model of 9 a.m. to 5 p.m. working is changing. There must be greater flexibility. Research and development and a continuing major investment in new technologies represent the way forward. We must have a knowledge based economy that fits with the thinking of the future. We want to fit into the globalised market, as we have done before, and we will do so again but with a new model and vision.
I believe we can achieve savings by examining the infrastructure of how Departments have worked in the past and how they will work in the future. That is how to reform the public service. There are great people in the public service. They brought us out of the problems in the past and they will do it again. However, we must work together. We must not dictate from outside but work together from the inside to get this economy back working.
I wish the Government well. I believe we can do what is required. That is the reason I attended the debate this morning. It has been worthwhile because there are many variations in opinions. All I ask, however, is that we stop the negativity.
12:00 pm
Paschal Donohoe (Fine Gael)
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I welcome the Minister of State, Deputy Mansergh, and look forward to his contribution at the conclusion of the debate. I agree with Senator Ormonde that we are having a very important discussion this morning. It offers us an opportunity to give our analysis of what is happening with the economy at present and to offer solutions in terms of what should be done.
I am deeply troubled, however, by the analysis of what is happening in the economy. There are two truths that so far appear to have received little recognition or emphasis from speakers, particularly on the Government side of the House. The first truth is that the only way we will sustainably get ourselves out of the current economic mess is by trading our way out of it. Look at how our economy got on to a sound, stable footing in the late 1980s and during the 1990s. That happened because we recognised that as a small, open economy the foundations of our prosperity lay in being able to export competitive goods and services of high value at the right price. By doing that we could ensure we had the right products and services to sell at home.
While issues regarding economies of scale within the HSE, which was mentioned by Senator MacSharry, and the way money is spent in FÁS and so forth are important, the problem we are encountering in our public finances is not the cause of our current difficulties, but a symptom. Most of the discussion this morning has been about the problem in our public finances, which I accept is crucial, but we will not move the economy forward or deliver the standard of living our people aspire to in the future unless we ensure we are growing our national income, not squabbling about the size of State funding as a percentage of that national income.
Growing the pie or the overall national income is the issue. That is the truth that predecessors in my party and in Fianna Fáil recognised over many generations. How we grow our total income is how our economy will move forward, and how our economy moves forward is how our society will prosper. I nearly despair to hear how little emphasis that crucial point has been given in the contributions to the debate so far. It is telling that in the contribution of the Minister for Finance, competitiveness is the last thing he discussed. The first issue we must deal with is how to get our goods and services competitive and what role the Government can play in this.
The second truth relates to what is happening with our borrowing at present. Last night I attended a public meeting about flooding in Cabra in my constituency. The meeting was very instructive for the debate here this morning. It was an extremely angry meeting attended by residents and officials from Dublin City Council. The first part of the meeting was taken up with much appropriate and justified anger regarding why homes were flooded in August this year. Half way through the meeting somebody said: "The problem is the flooding in August but the bigger problem is the fact that our homes have been flooded regularly since the 1940s." While the homes were flooded this summer, those homes and the roads in the area have been flooded regularly over the past 50 years. It is an appropriate analogy for this morning's discussion.
We are spending a great deal of time now focusing on the fiscal deficit and borrowing requirement, but there is a wider problem that requires greater scrutiny and focus. That problem is that we have generated a structural fiscal deficit of approximately 5% of our national income, which will be between €6 billion and €7 billion per year. I agree with Senator Alex White that these spending programmes, when measured as a share of our national income, are among the lowest in the world, but they were based on a way of raising taxation and Government revenue that was completely and inherently flawed. This point is constantly raised in the House but its repetition is necessary because it is so important.
To find ourselves in a situation where so much of our taxation revenue was dependent on the banking and construction sectors was a flaw and problem whose consequences are only becoming apparent now. My views differ from those of my colleague, Senator Ormonde, who said that there are no absolutes. I am aware of what she means in terms of absolutes for the future, but there are absolutes in terms of how one manages an economy. It is absolutely wrong to be in a position where €2 to €3 of every €10 in our economy is being created by the building sector and where our taxes, the money we need to build our public services and ensure they prosper in the future, are so bafflingly reliant on that money. I use the word "bafflingly" very carefully. When I briefly studied economics in secondary school, I was taught by the text books that if an economy is going very well, one should hold some money back for a rainy day. If the engine is accelerating and the car is speeding down the road, one does not put one's foot on the accelerator pedal, keep on that journey and increase speed. That is what we did.
The way money was being raised by our Government was unsustainable. The most worrying item is not the state of the national finances, because I believe we can work our way out of that if we focus on competitiveness and on the fact that we have a small, open economy, but the speed at which the deterioration took place and the velocity at which relatively stable public finances at the end of last year have deteriorated to the current level. I am not being negative or unpatriotic in saying this. By describing such analysis and views as damaging to the economy, we reduce our ability to learn from this. If this debate is about nothing else, it must surely be about reflecting on how we got to the current position and ensuring it does not happen again.
Yesterday, Davy economists announced that over the next two years they believe an additional 140,000 jobs will be lost, which will probably bring the unemployment rate up to 12%. For this to happen so soon into a global downturn is a sign of the difficulties we face. However, what is even more worrying is where that unemployment will occur. Davy economists said yesterday that approximately half of the total unemployment will occur in the services sector. This sector is the one on which we are banking our future prosperity.
The Government has said, appropriately, that the services sector is where our future lies in terms of how to move the economy forward. That sector is about value adding and ensuring the intellectual capital and brilliance of our young people and the people who are already working are translated into economic profit and into margin. To find that approximately half of the total amount of additional unemployment will be in that sector must give us food for thought.
I believe this will cause pressing social problems in future. Members of the Oireachtas must explain this to people in their 20s and early 30s who have attained brilliance in the software, accountancy services and engineering sectors and who worked and attained levels of academic achievement beyond anything I could achieve. Despite such achievements, these people might find their jobs under threat in coming years. The way in which we and the Government must respond is twofold. It necessitates confidence. There has been two much flakiness from the Government in recent weeks. It has been too inconsistent on matters of national wage agreements and the scale of the economic difficulty we face.
I recall the debate on the budget earlier in the year, during which I told the Minister for Finance that the economic assumptions upon which the budget was based were wrong. The budget assumed a certain rate of recovery for the economy. I asked the Minister to find one economist in Ireland or Europe who would agree with those assumptions. If I, as someone with only a passing interest in economics, could spot that fault, I cannot believe that the Minister and the Department of Finance were not aware of it also, given that they introduced the budget. This yields two implications. It implies a level of incompetence which, I hope, is not present. If we are reliant on such expertise to emerge from the economic situation, the prognosis is even more gloomy. A second explanation is that it was known, understood, but not shared with the people. This raises even greater concerns about the confidence we should have in the Government to find a way out of the situation.
I refer to the discussions on the Lisbon treaty. I thank my colleague, Senator Ormonde, for her kind words on my work related to this issue. It is vital for the prospects of the Lisbon treaty that we root it in today's discussion. When we revert to the people in a way and at a time of the Government's choosing, if we fail to explain that passing the Lisbon treaty and ensuring we are at the heart of Europe in future is essential to our economic prospects, we will omit one of the most potent and important arguments that we can possibly deploy. It is essential for our economic progress that Ireland is at the heart of Europe. It would represent a missed opportunity to fail to make that point, especially in such a debate as this. I have no doubt Ireland's return to the heart of Europe is an essential ingredient for a prosperous economy in the long term.
John Gerard Hanafin (Fianna Fail)
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Economists predicted many more recessions than have materialised. There were three recessions in the last decade. That period witnessed the crash following the tragedy of 11 September 2001, the bursting of the dot com bubble and the results from criminal misselling of mortgages, called sub-prime loans, in the amount of €1 trillion in the USA, which put the whole financial system in jeopardy and created a debt bubble the effects of which have reverberated throughout the world. We should measure how we are coping against how others are coping and consider how we positioned ourselves. We have saved €19 billion in national reserves. There is a very low tax base and national debt in Ireland. No one can say the Government did not act prudently during the good times. There is no doubt in the good times people forget the bad times and in the bad times people forget the good times. We are in a recession, but the question is how long will that recession last.
There is a housing decline in Ireland. Output is falling in manufacturing, unemployment is rising and the budget deficit is increasing. However, in the past 12 years, the Government has produced 11 budget surpluses. I have no difficulty taking a Keynesian, pragmatic or practical approach in dealing with the problems and doing what we must do. I do not care if this involves the application of "Reganomics" or Roosevelt new deal policies as long as it helps the economy.
We should consider the positive aspects. The price of oil fell to €42 per barrel today, but the effects are not immediately translated into the economy. It is only last month that the first decrease of 0.5% in interest rates worked its way through to the mortgage market. There was a second decrease and a third decrease of 0.75% yesterday. Inflation is low, which is a positive aspect, and people hold reasonable expectations. We have a good basis on which to start to rebuild, but we should do this with new criteria.
In the 1930s, the then president of the USA, Mr. Franklin D. Roosevelt, was correct to say that he would abandon the merchant banks if he could, but the memory of financial history is short. They created the debt bubble in 1929 and we are now dealing with the repercussions of a debt bubble. The financial services sector needs to be regulated. We have seen many examples of irresponsibility. Sub-prime lending is not the only instance; there were the cases involving Mr. John Rusnak, Mr. Nick Leeson and the case of Société Générale. Billions of euro belonging to the banks were lost. In the case of Société Générale, the amount was €55 billion, but no one there knew about it. The accounting procedure was such that the confirmation of the purchases was the responsibility of the purchaser. It was incredible that this was allowed to happen. People who were in debt and were unable to pay were offered more loans at a higher rate and were given as much as they wished for, with no income, no job and no assets. We are paying the price for that.
The biggest difficulty we face, looking to the future and the good times again, is fear. People are fearful because of what we hear, the uncertainty that exists and the reality of the shakiness of banks. The Government has performed extraordinarily well in providing security to the banks. The Bank of Ireland recently proceeded with a €2 billion bond issue, for which it received an AAA rating because of the Government guarantee, and it was considerably over-subscribed, . No Irish banks collapsed or were taken over. The Government has done a good job.
I accept the proposition that we must have an export-led recovery. This will be the source of the recovery. As the Irish economy is open, we are undoubtedly dependent on trading partners. However, when reducing oil prices and interest rates manifest themselves and people begin to see the end of the recession, there will be a turn-around. When that occurs we should place ourselves in a position to grow and to be flexible.
We should seriously consider introducing workers' co-operatives. The notion that only a few people have the capability to undertake certain tasks has been long dispelled. If a person is in a job, he or she is more than capable of doing it better than another person. Workers' co-operatives can make very good and positive contributions. For example, if a company moved to Morocco from its original location because of cheaper labour costs, I see no reason not to support a workers' co-operative in its place. While the company which moved will make mistakes related to initial production, the existing workers' co-operative could improve production techniques. Germany has long been a high wage economy, but it is constantly improving its techniques and the way it does business and its companies are becoming increasingly specialised.
Let us consider the foundation of the State. It was founded by young men with no experience of national government. The Cosgraves and even de Valera had no full experience of government, yet they brought this country an extraordinarily long way. I wish to get away from the notion of masters of the universe. We saw what the masters of the universe did in Lehman Brothers and we are all paying the price for it.
I see very positive possibilities with high-end manufacturing. There is a thesis that we are finished with manufacturing. We are no longer competitive at a certain level of manufacturing but we could specialise in high-end manufacturing. I strongly recommend to the Minister that we look to ethical developments. I am thinking of biotechnology, nanotechnology, the new, growth areas. In the 1930s electronics and automotive were major growth areas and there will be new growth areas if we can take the opportunity. The world economy will grow this year. When people can see that fear and uncertainty prevent them from making decisions they would normally take without undue worry, and when we see this will end and that the low oil price, inflation and interest rates will filter through, then this economy will again be in a proper position.
I urge the Minister to take on board very seriously the opportunity for worker co-operatives. It is an ideal opportunity as we lose jobs to Third World countries that can manufacture cheaper, to allow our people to take up the cudgel and manufacture for themselves in their own businesses. High-end manufacturing and ethical development are areas for the future. We came through three recessions in this decade alone. I hope this is a very short, two-year recession and that we can power ahead and come out of the gate like a lion when this recession ends.
Jerry Buttimer (Fine Gael)
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Cuirim fáilte roimh an Aire Stáit, an Teachta Mansergh. Senator Hanafin opened his remarks very eloquently. To borrow Bill Clinton and James Carville's famous line, "It's the economy, stupid." How right they were. It is the economy, the pounds, shillings and pence in the pocket of ordinary citizens. It is the capital and liquidity that small enterprises, farmers and businesses need. This Government forgot that line. It failed to keep vigil on behalf of the Irish people. To paraphrase the psalm, it did not stay awake all night and did not protect us from the roaring lion. It did nothing until the ship of State hit the rocks.
This debate takes place when unemployment figures for my county, Cork, show a 57.5% increase on this time last year. This represents 4,285 people on the live register. This comes in the wake of an announcement by Heineken Ireland that it will close Beamish & Crawford brewery with a loss of 120 jobs in my city, Cork. These jobs are lost because of the amalgamation of two breweries. This is a devastating blow to the workers and their families, the city of Cork and the brewing industry in Ireland. We are losing a brand name and sacrificing manufacturing, which Senator Hanafin mentioned, for amalgamation and profit. What has this Government to say to the people of Cork this morning? What hope does it offer? Where were the words of optimism in the Minister's speech? There was none and there is none for the people of Cork, where we have witnessed devastating unemployment in technology and other industries in the past 12 months.
Like Senator Donohoe, I am concerned about where we are going. We have seen no master plan or strategic plan from Government. There must be an acceptance that we must trade our way out of this difficulty. Senators Hanafin and Donohoe spoke about exporting goods and services. We are a small, open economy and we have not addressed the issue of the decline in our manufacturing. We have watched it sink to the bottom. Let us address the issue of the growing of our national income. Let us look at the Governments of the period before 1997, which had a competitive economy, when our goods and services were of excellent standard and where we had accountability, a plan and vision.
If we were to carry out an assessment of this Government, whether an ongoing assessment or an end-of-term examination, under the heading of the economy, public finances, budget forecasting and management of the public services, it would receive a resounding failure mark. It would not pass. The Government moved on the banking industry, but it was nearly too late. This side of the House supported it. What has happened since with our credit institutions? We have heard little or nothing from the Minister. There is speculation about capitalisation and so on, but we have heard nothing concrete. Where is the plan?
This Government must answer one fundamental question and be held to account for it. The Minister referred to it in his opening paragraph. How did the Government squander that surplus? How did it happen? The Government has not explained it to the Irish people. Never before has a set of people sitting at a Cabinet table, who inherited a surplus from the outgoing Government of 1997, squandered such a boom. Where did it all go? What have we to see for it? It is time we had action and leadership on the cost of doing business, our competitiveness, our manufacturing industry, farming and the management of our public services. I fully subscribe to the viewpoint that we need to revitalise our manufacturing industry, but we need to do so with a Government that is on the job, smaller and flexible in dealing with this issue.
Who is in charge of financial forecasting in the Department? They have consistently got it wrong on Exchequer funding and tax receipts in the past ten years. We cannot blame the global downturn for all our woes. It is a factor that has impinged on us, but why were we one of the first countries, if not the first, of the euro zone countries to go into recession?
Social partnership has served this country well and I support the model. However, in the past week we have had conflicting views from the Government. Is the pay deal going ahead? Different Cabinet Ministers have said different things, including the Taoiseach. The great knight from the south, Senator Boyle went on "Morning Ireland" and made a different comment as the Green Party spokesperson on finance. Can we get a definitive answer on that? Is it not better to protect and preserve jobs than to cut jobs and have more job losses? That is why my party unashamedly called for a pay freeze in 2009, with a saving of €500 million, which will ensure we will not have cutbacks and will allow us to invest in infrastructure and school buildings, along with retraining and upskilling.
I spent almost 18 years working in the public services as a school teacher. Fine Gael is not anti-public service. We support the public service workers because they do an excellent job. They defend this Government and protect and shield the Irish people from worse. I thank the teachers, gardaí, nurses and all who work in the public service, including those in the HSE who are being maligned. They are not the reason we are in this trouble. They do an excellent job but lack leadership from the mandarins in the Departments, the Government and the people in charge of the HSE. Those are the facts.
The Minister correctly stated in his speech that we all must work together. That is why we on this side of the House have put forward many proposals and supported the banks when the need was greatest. However, it works both ways. It means there must be co-operation in the bad times and the good. Where was the clarion call from Government when it was on a spending splurge? It did not ask us for support on different issues or what we wanted. The Government splurged all the money on its pet projects and pet people, and now when the ship comes in to the rocks and the Government has shown it has no vision, the flag comes up for national government and for a Tallaght strategy. Let us not demonise the public service and let us not demonise the Opposition.
We need leadership, not botched decentralisation. Rather than botched plans, we need vision. Predominantly, it is the party of the Minister of State, Deputy Mansergh, in Government which has been the cause of the lack of value for money, the lack of support for front-line services and the lack of support for small and medium enterprises.
I have not heard a Minister in this House, or elsewhere, speak of supporting the woman in Cork I met last week who is losing her business. She cannot afford to keep it open because of the cost of trading and doing business. Do we say to her we will increase the VAT she is charged?
At this time of the year, budgets are being set in local authorities and, owing to a lack of support, they are struggling with the idea of raising the commercial rate. At the same time we get a bland comment about patriotism and that we should not increase the commercial rate. Where is the support for local government?
Let us have a real debate about what Government has not done in the past ten years. Let us have a debate about the fact that today my city and county of Cork again has been mired in unemployment, with no plan and no vision to deal with it. That is why we are having this debate today. I thank the Minister for Finance, Deputy Brian Lenihan, for coming to the House two months after the budget. That shows patriotism.
Larry Butler (Fianna Fail)
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I am here to speak a little about the economy and what we can do to stimulate it, which is the most important matter. We have seen the downturn. The first thing that affected the economy was a downturn in housing construction, which was a major employer. Now we see there is a significant downturn in that sector of approximately 40%. This reflects 4% of gross domestic product. That, in itself, without global problems, would have caused major problems to any economy, not to speak of our small, open economy. This has affected other sectors of the economy, small businesses in particular. Most small businesses and allied trades relating to the construction industry account for approximately 170,000 workers. This a substantial employment sector.
Now that there has been a reduction in interest rates, it is important these are reflected in the economy. I agree with Senator Hanafin that it takes time for such actions to manifest themselves in the economy, but it is important the banks realise that small businesses need this interest rate cut of 0.75% passed on to them. I am reliably informed that there are still some institutions in the banking sector which have not passed on some of the previous reductions amounting to 1%. Given that we supported the banks and ensured none of them went out of business, which was important for this small economy, we have an obligation to the public to ensure this mortgage interest rate reduction is passed on.
I want to speak briefly about how we will stimulate the economy. Stimulation of an economy must be productive. One cannot stimulate economies without ensuring that there is a payback and saving to the economy. That is vital.
Every house in Ireland must meet an energy rating on 1 January next. There are one million houses that do not meet the energy rating. Considering we could create anything from 25,000 to 30,000 jobs in this sector, it is a growth area in the economy which will save us considerable money in the long term. This is the sector we should examine. It would reflate the economy. That retrofitting sector is worth €9 billion. That would be a €9 billion investment in the economy in terms of goods and services, 80% of which would be manufactured or supplied in this country. Not only would it save jobs, it would create them as well. The sector which will test the housing will create in the region of 1,300 jobs. Imagine announcing 1,300 jobs from a company coming in from abroad. We would say it was marvellous. This is something we can do for a small investment. The investment would have to be in the region of €250 million. We could introduce tax breaks for people who invest in their homes, which is another option. That should continue over the next three years. That certainly would give a significant boost and improve spending power.
It is important to pick up on a few points made by other speakers. The Government has been very responsible in how it has approached this. First, we took action in terms of the banks. We had a vast liquidity problem and our banks could have gone out of business. I pay tribute to Fine Gael, but I take issue with the Labour Party which now speaks of recapitalisation of banks but could not see its way to support an important measure we took in this House.
Larry Butler (Fianna Fail)
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I do not want to be negative because we need the Labour Party and Fine Gael on board. We need all the Members in both Houses on board. That is very important.
What I am suggesting is a self-financing programme. With the VAT, PRSI and taxation coming from the job creation, the initiative I have described would be self-financing. If in the interests of small businesses and people on the live register we provide the retraining programmes we have in mind as part of the greener homes scheme, it would create a considerable opportunity in the green sector. Senator Hanafin's idea for co-operatives was an excellent one. We could go even further. We once had co-operative societies throughout the country from which small farmers benefitted considerably. They still could benefit from the green energy production of small mills which might be financed by local organisations and which would supply small villages and towns and make them self-sufficient in energy. That would be an important project and grants should be provided for that. Solar energy provision has been improved on considerably in the past 12 months. Carey Glass has now produced a system that will supply all the energy needed for electricity, heating and hot water systems in a household. Companies such as this must be admired in how they produce such projects. We should support that.
We have been calling for a debate on the economy and it is disappointing to see so few people here. Senators make their contributions and then they walk out. I will remind them of this when they ask for another debate on the economy. I would have expected to see the House full on both sides. I am not criticising only Senator Fitzgerald's side; I am talking about my own side as well. We walk out after making our contributions, and I do not think it is good enough.
Frances Fitzgerald (Fine Gael)
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I welcome the debate on the economy today and I welcome the number of speakers from all parties who are contributing to this ongoing debate. It is critical that we speak about the economy in this House, as we were promised a rolling debate on the economy. It is important that we all get an opportunity to have our input on the current circumstances, which are changing very dramatically, including the reduction in interest rates, the falling price of oil and the decreasing rate of inflation. As Brendan Keenan writes in today's Irish Independent:
Many people will gain unambiguously from these effects. For someone with a large mortgage, or other borrowings, and a secure job, it is all good news. For many others, the threat of unemployment will outweigh any gains.
He goes on to state, "Yesterday, Davy Research predicted that private sector employment will fall by more than 140,000 over the next two years, pushing the jobless rate close to 12pc." That is his prediction. Obviously, construction will be a key area in this regard, but now the crisis is spreading into other areas. He talks about people going to Newry to shop and says it is likely to continue, and he talks about the fallout for the services sector and the very serious implications for so many people in our country. He states, "It is . . . a time for . . . hard thinking, and even harder decisions."
The Minister in his speech referred to the demonisation of the public sector. That is an inappropriate comment from the Minister, because I do not think anybody has been demonising the public sector. In Fine Gael we have been calling for the protection of front-line services, and that is about the public sector.
The recent budget was not people-proofed. It was not politically proofed either, as we have seen so many changes, the latest yesterday on education. We saw that it was not people-proofed when the elderly marched to protest against the removal of the automatic entitlement to a medical card, in the response of teachers, students and parents when they realised what was going to happen in schools, and when the Minister for Education changed his mind yesterday on the matter of substitute cover, having realised there would be chaos in our schools in January when secondary school pupils were sent home. We saw it in a range of decisions. In the Minister's speech today he mentioned changing the back to education allowance. I welcome this, because such changes are necessary and will give people some hope. There is no doubt that hope and confidence are extremely important in any economy, and they are very important at this time. The public were ready for hard decisions and would have accepted tougher decisions than the Government made in the budget, but they must be the right kind of decisions and not decisions that affect the elderly, who need their medical cards, or young children who may lose their book grants.
How can a Government with the kind of money that has been around this country, even in changed financial circumstances, withdraw the book grant from needy children? This grant is given out to the neediest of children in our schools. I received an e-mail from a teacher in one of the schools in Clondalkin in which she asked how she could approach the children who were not going to get their book grants or their uniforms this year. That is the kind of front-line cut that we were saying should not be made. That is why the Fine Gael economic policy has focused on other areas. That is also why the Minister is wrong to say we are demonising the public sector. There is a strong argument to be made that in fact the public sector has been more undermined by actions of the Fianna Fáil-Progressive Democrats Government than anything we could say. I could point to a number of actions, including decentralisation and the instability this has created for our Civil Service. It has created major instability, concern and uncertainty and has had a major impact on governance in this country. The kind of division in governance that this unplanned-for decentralisation caused could be argued to have done more to undermine the public sector than any other development in recent times. One could argue the same about benchmarking and the way it was handled, without being linked, as we said it should be, to productivity targets. One could also say — this is a key point — that the lack of public sector reform has done more to undermine the public sector than anything else.
I wish to consider two reports. The first is the report on public sector reform which was brought out on Friday and which I read with interest. The first question that arises——-
Frances Fitzgerald (Fine Gael)
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My goodness. The time goes very quickly.
Why is the report only coming out now? Can the Minister answer that? If one reads the chapter on managing agencies and having better relationships, accountability and transparency, one can only conclude this should have been Government policy for the past ten years. I would like to ask the Minister of State in particular about the Special Group on Public Service Numbers and Expenditure Programmes, "An Bord Snip Nua", which is to be chaired by Colm McCarthy. Can the Minister of State confirm in the House today that the terms of reference of that group are for current spending programmes only and not capital programmes? Will its reports be published? Will it review numbers and programmes Department by Department? If so, in what order will it proceed? Again, I must ask why the Ministers are not doing this. This group is not elected. I read with alarm that the Minister for Finance, Deputy Brian Lenihan, said he was asking this group to tell us where savings can be made. In other words, we are delegating cutbacks to front-line services to an unelected group when we have a Cabinet that should be making such decisions.
The Minister said he had taken decisions on cutbacks across Departments since June and had asked Ministers to find savings. Will the Minister of State clarify what work has already been done or is ongoing by Ministers in this task, with which they were charged in June? It seems as though budgetary policy is being made up on a month-by-month basis. This has a destabilising effect on the country. It is not giving people confidence. The lack of an overall strategic plan for Government is damaging confidence and damaging the job market in this country.
Terry Leyden (Fianna Fail)
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I welcome the Minister of State to the House. I was delighted with the speech this morning by the Minister, Deputy Brian Lenihan, which is worthwhile reading, although very worrying. I commend Senator Butler on the proposals he has put forward, which he introduced at a meeting of the Fianna Fáil Parliamentary Party last Tuesday night. They were well received and they are being studied at the moment. That is what I call a positive contribution. The Seanad should be a think-tank. We should have regular discussions about ideas we can put forward about the current crisis that can be considered by Ministers in the Cabinet. All sides of the House have a contribution to make. If a good idea comes out, we should grab it with open arms. That is the advice I would give.
The Exchequer deficit of €7.9 billion is a frightening figure. I have a suggestion to make to the Minister today. Many of us benefited from the special savings account scheme initiated by former Minister for Finance, Charlie McCreevy. I suggest the State should issue a reconstruction bond to the value of at least €10 billion. The Department has a list of the people who benefited from the SSIA scheme. Many of them spent the money but many did not. Many people have quite sizeable funds available to them and we should not put on the poor mouth all the time. The Minister could institute a pension scheme for repayments so that it would not involve interest alone. If a person had no pension scheme at his or her disposal, this national reconstruction bond could be used as both funding for infrastructure and as a pension fund for those who would wish to contribute. That would be repaid on a weekly basis at age 65. It would remove the immediate burden and by that time the economy should have improved dramatically. That is one of my recommendations to the Minister.
I suggest the Government conduct a sale of the century of local authority houses. We should sell them at the lowest possible price to raise as much money as possible and to reinvest it in further house purchase. We have a golden opportunity to use those empty houses, bought at rock bottom prices by the State, and so resolve the housing issue once and for all. This is an opportunity that will not come again.
In counties such as Roscommon there are literally hundreds of houses built and finished that can be bought for in the region of €100,000 to €150,000. This opportunity will not arise again. I speak from my former experience of working in the architectural side of the building industry. If those houses are not occupied quickly, harsh winters will cause them to deteriorate. Even when our own homes are well heated, they deteriorate in time. Many houses will be demolished unless something is done. Many have windows and doors boarded up. My advice to those who have not plastered those houses is to plaster them at least and make them secure. The Cathaoirleach will also have knowledge of this field. During a time of crisis in the 1980s local authority houses were sold. Tenants were given the option of buying their houses and given credit for the rent they had paid. This would bring in a considerable sum of money and give people great support and loyalty to and a sense of pride in their own homes.
I welcome the appointment of the overseers who are very wise and experienced people from all sides of the political field. The calibre of the appointees should be recognised. I refer to our former colleague and Minister, Mr. Ray MacSharry. Irish Permanent TSB has not dropped its interest rate today even though the European Central Bank dropped the rate by 0.75% yesterday.
I met a Dublin retailer last night who informed me that she is paying the highest rate possible and that there is no concession from Irish Permanent TSB. I wish to declare an interest in Irish Permanent TSB, but that is not the point in this particular case. I ask Ray MacSharry to find out the situation. I have asked the lady to send me the details. She does not want to be identified because she is afraid of repercussions. She is paying way above the rate, with no reduction, in spite of the recent reductions, even though she has a variable mortgage. She told me she has a retail business in Dame Street and the business is going badly at the moment as the retail trade is in a very difficult situation.
To add to what Senator Butler said, there are 3,300 national schools in the country and only 18% of those schools have hot water. I made a proposal that solar heating should be installed. This would show the young people what can be done with solar energy and it would provide hot water for staff and pupils. Only about 40% of secondary schools have hot water. This is a clear opportunity for those trade skills. Small rivers may have old turbines which are disused. I call on Deputy Eamon Ryan, Minister for Communications, Marine and Natural Resources, to do something about that as he is a Green Party Minister. I would like to see solar panels and the use of wind energy. We can manufacture turbines in this country. Denmark is nearly fully reliant on wind power. We have more wind power in Ireland than anywhere else in the world but we are not using it. I suggest the establishment of a Cabinet action group comprising three or four Ministers with economic portfolios who will do something. The Government might not get it right all the time but it should not stand aside. There is nothing to fear but fear itself.
1:00 pm
Paddy Burke (Fine Gael)
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I welcome the Minister of State at the Department of Finance, a former Member of this House. This is a very important debate and one we should have more often. I agree with a number of previous speakers who asked how the situation arose so quickly and how it has come to this stage. I do not think any Minister or Minister of State, or the Taoiseach, who was Minister for Finance for a number of years, has given any explanation to the Irish people as to how there has been such a turn-around in the past 12 months. The Irish people are owed an explanation as to why things have gone so wrong. Why have we become an inefficient nation? Why have we no manufacturing industry? Why have our finances gone from a surplus of €4 billion more than 12 months ago to a deficit of €6 billion or €7 billion and we have added €14 billion to the national debt? These are huge figures and it is a huge turn-around in an economy that was going so well.
The Government is not telling the people what has happened because in doing so it would highlight how it has performed over the past seven or eight years. It took over an economy that was in a great state, with 1,000 jobs a week being created and, for the first time in many years, there was a surplus.
This Government has squandered money at an unbelievable rate. I refer to the Bertie bowl, PPARs, e-voting machines and a whole host of other areas where money was squandered. We need only look at where things started to go wrong with regard to the housing boom. Mortgages of 100% and 120% were granted, which is unbelievable. People borrowed more than the price of the house. They borrowed, on the back of the house, for the car and for the fit-out of the house. That was not right and the bankers and the Government that allowed them to do that should pay a price. Everybody on the street knew that mortgages of 120% were unsustainable. Credit cards were topped up. Bankers sent out application forms for people to sign up for credit of €8,000, €10,000 or €20,000 on a credit card. People bought cars on credit cards. It was ridiculous.
More than ten years ago I said in this House that we should not lose our manufacturing industries. We out-priced ourselves and we became uncompetitive. Some people who are still Members of this House said at the time that we did not need manufacturing jobs but rather high class, added value jobs. If there is a manufacturing sector, there will be a certain number of high value and added value jobs. However, Ireland has no oil. It has gas that it is not being paid for, no manufacturing industry and outsourced cottage industries. Ireland is at a crossroads and the Government must put the cards on the table. The people need to know what action the Government will take.
Fine Gael's position on postponing the public service pay increases has been rubbished by the Government. It has turned this around by claiming we are against the public service, which we are not. There are great people working in the public service, many of them the brightest, but in many cases they are not motivated. One only has to look at the Health Service Executive or a local authority to see the majority working in those services are not motivated. Benchmarking should have been the tool to motivate them. However, it was used to drive a wedge between top management and the ordinary workers in the HSE, local authorities and the Civil Service. The top people got everything while those at the bottom were left behind. Intelligent people were left unmotivated and will not be motivated for the foreseeable future. The Minister for Education and Science, Deputy Batt O'Keeffe, claimed 12,500 teachers are not at work every Monday and Friday. This is simply not true. I do not know where he is coming from on this. He had to withdraw his remarks but he should apologise for them too.
It is no wonder that what has happened over recent years has brought us to the current position. Compare Ireland's economic position to that of Spain and Portugal. Some years ago their economies were worse than Ireland's. Now, they have passed us out. Their economies are better-off and better able to take on the world economic downturn. They have tourism to offer, for example, with wine and other products produced in their own countries which they can sell much more cheaply. Can the Minister name anything in this country that one can get value for money in? Even the water in this country is expensive, probably the most expensive in the world.
One does not have to be an economist to know that our economy is not good. An ordinary Joe Soap like me can see the larger picture — no manufacturing industry, inefficiencies, no oil but gas for which we are not getting paid. County Mayo has not benefitted from the Celtic tiger. Only ten jobs were created in the past ten years by the IDA. The county received little in the improvements to the roads and rail infrastructure. Many other counties benefitted from extra rail services when Mayo did not.
When the Green Party joined forces with Fianna Fáil, I believed there was a window of opportunity for green issues to come to the fore. Some Fianna Fáil Senators said they were delighted to join forces with the Green Party because they felt it would pull them in a certain direction. Bicycles and bulbs seem to be the only initiatives from the Green Party when many hoped that new, green technologies could be initiated. Ireland could be a world leader in some areas of green technology if we applied ourselves to it. There should be some incentives for such projects but they are not forthcoming from the Government.
Denis O'Donovan (Fianna Fail)
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I do not claim to be an expert on the economy but I noted one of the headlines in today's business section of The Irish Times stated: "Banks to reveal details of bonuses." I find it difficult to accept, after what has happened in the past three years in the banking sector, that any bank would be considering giving any bonuses to any of its directors or chief executives. Some of them should be facing charges of mismanagement and falsely massaging the economy, domestically and internationally.
The knock-on effect from the sub-prime crisis in America has had a serious impact. Any lending institution that knowingly loaned money, especially to young people, to buy property on which those people now face negative equity is bordering on being criminal. In the 29th Dáil I chaired the All-Party Committee on the Constitution which examined and reported on property rights. Some of the conclusions the committee came to in its 2004 report were, however, ignored. People laughed at the findings of the 1970s Kenny report. The committee's conclusions were allied to many of his. Regrettably, not even some of them were taken on board. Some day we may revisit his report and say Kenny was not too far off the mark.
Many economic experts told the committee that property prices would eventually find their equilibrium. The word "equilibrium" seems to have vanished into thin air. There is now a serious problem in the property market where up to 30% of home owners are in negative equity. I accept many of these problems are not of our own making.
Coming from a coastal area, I see much potential in the development of mariculture and aquaculture to create jobs. Fifteen years ago when we began to nourish the infant mariculture and aquaculture industries, it was proposed to produce 25,000 tonnes of rope mussels. It peaked at 10,000 tonnes and never went further. At the same time, the Chileans began to farm salmon, an industry not native to the area, taking ideas from Ireland and Scandinavia. Now Chile is the leading global exporter of farmed salmon. In Puerto Montt, a remote town 500 miles south of Santiago, up to 40,000 jobs have been created by the industry. While the Spanish and the French are following suit, Ireland seems to have stalled. Up to 80% of fish landed in Ireland is exported blast frozen, mainly to Spain.
We must examine how we can add value to this export market. It is an argument I have put forward. I do not want to confuse the Minister of State about coastal issues but, thanks to negotiation by our Minister for Agriculture, Fisheries and Food, we are getting an additional 16,000 tonnes of mackerel. I argue that the polyvalent section and smaller boats from Rossaveel to Dingle should get 50% of that. The reason is that we had 13 factories processing primarily mackerel but also herring onshore and there are now four left in Rossaveel, Dingle, Union Hall and Castletownbere. If this sector gets the extra 8,000 tonnes of mackerel quota, it will promote jobs in rural areas. This might be a simplistic answer but we must examine it. At the height of the Celtic tiger economy we forgot about niche markets.
I have referred to rustic areas but the area in which we have made substantial developments is the country market and cottage style industries. In west Cork, there are 12 or 14 enterprises making cheese and yogurts that are known nationally and internationally. These cost very little to the State to set up and can be promoted and supported with very little capital input. This is where jobs can be maintained. Many of these have made their markets themselves. The Fuchsia brand is wonderful and I hope it will be extended and developed further. The promotion and support of such indigenous industry should be undertaken.
Another area that is a hobby horse of mine is energy. At the minute the price of oil has dropped substantially but we must look to the future, not just next year and the year after. We do not know when the price will go up or down. It is outside our control. We have significant potential in alternative energy, such as wave energy. The project in Galway should be developed. We are surrounded by water and there is great potential. We also have major potential in wind and solar energy. The plan of successive Governments was to provide 30% of our energy by alternative means. If we do not, the price of oil will affect us badly again. It will affect industry and the economy. At the moment its price suits us fine but if it were to exceed $150 a barrel, the impact on our struggling economy would be severe.
I accept we are going through difficult recessionary times. I emigrated in the late 1970s because there was no work available for me. The biggest fear facing us is job losses. We had the success of creating 1 million jobs in the past ten years or so. If the number of people on the live register rises to 8% or 9% of the workforce and our jobless figure rises to in excess of 300,000, it is a frightening vista.
Eugene Regan (Fine Gael)
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I am disappointed with the Minister's speech. There was a build-up to this debate, which had been called for by Senators for quite some time. I thought we would get clarity on some key issues of concern in the economy. How do we restore balance to the public finances? What is the Minister's position on pay in the public service and the national wage agreement? What is his plan in respect of the banks? What is his plan in respect of waste? There is no plan for balancing the public finances, outlining how expenditure will be dealt with and forecasting the budget balances for the end of the following year. The Minister dodges these issues.
We had debates on the economy some months ago. The reaction has always been that we should wait for something else, such as the November figures that will tell us more about the public finances. In the other House, the Minister indicated that we should wait for the December figures and that perhaps we would have a clearer idea then. This procrastination and the establishment of a new committee, "an bord snip nua", is outsourcing decision making. The Minister is avoiding making decisions. There is also an avoidance of clarity on the Government's plan for these critical issues.
The Minister's presentation indicated that our stimulus package is twice the EU average. We have a European-wide stimulus package to kick-start the European economy and the respective economies of member states into activity and out of recession. What the Minister is saying is that the huge gap that has emerged in the public finances, with revenue running some €7.4 billion behind target, is our contribution to a stimulus package. Running a deficit is portrayed as a virtue, not a problem that must be resolved. The Minister admits we are back to the bad old days of the former Taoiseach, Charlie Haughey, when we borrowed for day-to-day spending.
Donie Cassidy (Fianna Fail)
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He was the one who got us out of this.
Eugene Regan (Fine Gael)
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It has occurred under this regime. It was not the responsibility of the Minister, Deputy Lenihan, but of his predecessor, the current Taoiseach, Deputy Brian Cowen, who presided over the deterioration in the public finances despite the warnings on the unsustainable position of the public finances by the IMF, the OECD and the European Commission. All this advice went unheeded because there were general elections to be won at any price. We are paying the price for that now.
The Minister referred to the demonisation of the public service, which is a distraction from the key issue. People in the public service bring to the attention of the Opposition and other public representatives the waste that exists in different services. That is how the waste in FÁS came to light. It required constant probing from the Opposition and it is one example, of many, where the Minister for Finance and his predecessors in Government did not have their eyes on the ball and did not have control of public finances. What is pitiful is that much of this is due to waste, inefficiency and expenditure for which there was inadequate financial control. The Minister highlights that public pay accounts for €18 billion, 32%, of total current expenditure. It has risen by 39% from 2004. The Minister points out that, over that period, the number employed in the public service increased by 31,500 or 11%. Here is an admission by the Minister of the contribution by this Government to the problems we are in. Where is the justification in such an increase in numbers at a time when the Government was warned that it could not afford this type of increase in public expenditure?
In terms of a stimulus for the economy, Richard Bruton, the Fine Gael spokesperson on finance, proposed a 1% reduction in VAT, designed to stimulate and arrest the decline in consumer demand. That proposal was laughed out of court and it got critical reviews in the media, but the merit of that proposal is now being seen because, rather than reduce the VAT rate the Government increased it by 0.5%. We now see a gulf opening up between VAT rates in the United Kingdom and Northern Ireland following the decisions of the Chancellor of the Exchequer. The chickens have come home to roost. People are travelling to the North in droves to get value for money for their purchases, but they are being blamed for doing that and accused of being unpatriotic when the Government could have prevented it.
In opposition we tried to be as helpful as possible. Most of the proposals Deputy Richard Bruton came up with earlier this year were adopted by the Minister. The Minister is edging his way towards acceptance of most of the proposals made in the autumn, but the problem is that the Government has not presented a clear plan on how we will restore balance to the public finances, stimulate the economy and avoid a depression as distinct from the current deepening recession.
The cost of that inaction is that the level of borrowing that is now inevitable to cover the huge deficit that is arising is increasing due to the Government's inaction and it is persisting with a pay deal it has an inability to pay in circumstances where it is incapable of taking decisions that are seen by the international markets as holding out the potential for good management of this economy. Where that good management of the economy is not evident, international markets become very concerned. Leadership is absent and we will pay a price for it.
Donie Cassidy (Fianna Fail)
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I will not go over all the good proposals, suggestions and views of Senators that were expressed to the Minister and the Minister of State. I thank the Minister of State, Deputy Mansergh, for attending. He is an eminent person who has made a huge contribution to our country in my lifetime. I thank him for remaining for the debate as many Senators want to express their opinions.
Those of us who were here in the 1980s remember the difficulties we experienced then. We saw bad government in the mid-1980s in particular. I remember one budget in 1987, when Fianna Fáil took office——
Eugene Regan (Fine Gael)
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It laid the basis for the Celtic tiger.
Donie Cassidy (Fianna Fail)
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——-in a minority Government. I was here and I know what happened——-
Donie Cassidy (Fianna Fail)
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——-and what that Government had to do to stimulate the economy. It did a wonderful job. It was because of the decisions taken by the late Charles Haughey and his Government of that time that we experienced the era of the Celtic tiger. The Minister of State, Deputy Mansergh, was centre stage in assisting Taoisigh of the day at that time.
When the former Minister for Finance, Charles McCreevy, proposed reducing capital gains tax from 40% to 20% he was laughed at by our colleagues in Fine Gael, yet he trebled the income the following year. That shows who had the vision to implement the right policies at the time.
To compare the mid-1980s to the advantages we enjoy today, in the mid-1980s we had interest rates of 17% and 18%. I recall the day after New Year's Day 1980 when the rate was 19.5%, and if one had to get a bridging loan the rate was 3%.
Donie Cassidy (Fianna Fail)
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I am aware of that from personal experience. We also have examples from the Government that was in power from 1973 to 1977. As a party we always had to come in and get the economy moving again. That is the reason the people of Ireland returned us to Government three times in a row. They knew we would continue the positive policies we implemented. We experienced difficulty in 2001 and 2002 but it was the great policies of the Fianna Fáil-led Government that put us where we are today.
At certain times interest rates were 17% and 18% but today we see rates of 2.5%. Who would have thought we would see that day? With a margin of an additional 2% or 2.5%, the rate would be still only 5%. The money for projects is very manageable in terms of increasing confidence, particularly for those people paying mortgages. Someone paying a mortgage of €1,600 per month will have an extra €400 per month in their pocket compared to the position three months ago.
Inflation figures in 1987 were in double digits. Inflation today is down to approximately 4% and may reduce to 3% or even 2.5%. Income tax was paid at 65% on the high rate and 35% on the low rate, and there was a 2% levy. If one was lucky, one would take home 33% or 40% of their salary. Compared to the bands today, it was a very high rate in terms of encouraging people to continue to work and invest. At the time 1.1 million people were working whereas today 2.2 million people are working, which is a major advantage.
We have many advantages, and corrective measures must be taken, but I want to refer briefly to the small and medium-sized businesses, including family businesses, that employ more than 800,000 people. When such companies were in difficulty in the 1970s and the 1980s, they could go to the Government agency banks such as ICC Bank or ACC Bank, where they got assistance and understanding. That opportunity does not exist for a company struggling today.
I am concerned about the small Irish-owned businesses because they are the ones that will stay with us. They and their families may not make any money for the next two years but they are resilient and they will survive. Those are the people who should be a priority. The Minister called on the banks last week to come back to him within ten days to see what could be done to make funds available for those people who had a track record of three, five or ten years, regardless of whether they employed 30, 40 or 100 people, to allow them to continue that good work and ensure priority is given to jobs. The priority of the Government in the coming years must be to retain existing jobs, support the people providing employment and ensure that continues because the alternative is unthinkable.
This is a difficult time. The nation, the Taoiseach and Cabinet Ministers are facing a serious challenge, but I hope some of the suggestions made in the debate will bear fruit. It is important we hear the views of the membership of this House. I thank the leaders and all those who are of enormous help to me in the running of the House for their understanding in waiting for this very important debate and for the debate on the Finance Bill, which will take place this day two weeks. I thank the Minister of State for attending and giving us the opportunity to contribute. As I said, the Government should give priority to small and medium-sized businesses in tackling the problem we currently face.
Ned O'Sullivan (Fianna Fail)
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I welcome the Minister of State, Deputy Mansergh, to the House. He is a very popular Minister in my part of the country. He was always very supportive of our literary festival in Listowel, long before he ever set foot on the greasy pole, which he appears to be climbing with dexterity.
I listened closely to the contribution of the Minister, Deputy Brian Lenihan, both in the House and on the monitor, but I must have been listening to a different speech from the one Senator Regan heard. I was impressed by the speech, which was sincere, straightforward and self-explanatory.
I do not want to lecture the Opposition, but I welcome the news that a man in the Fine Gael Party, whom I have always held in the highest esteem, Alan Dukes, has been brought back into play, with Ray MacSharry and my neighbour, Dick Spring. I know they will play an important role. Alan Dukes devised the Tallaght strategy at a time when the economic crisis was not as bad as the current one. Even though he did not become Taoiseach, he certainly played a positive role in securing the economy of the State at that time. I would invite Opposition speakers and leaders to take a leaf out of his book. I was horrified at the response the Minister, Deputy Brian Lenihan, received when he asked the people of Ireland to show some patriotism at this time.
Ned O'Sullivan (Fianna Fail)
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He was lambasted in the media and by all the smart commentators. That was a sad day because patriotism is something to which we should all aspire. I respect and like to see a senior politician calling for patriotism. It is not a dirty word. It might have been sullied at one time by people who thought it meant blowing people up, but, to me, patriotism is trying to reach out to help one's fellow citizens, whether it is at community level, in a local football club or, in this case, in trying to sort out the ship of state.
Harold Macmillan once famously said to the people of England: "You've never had it so good." Our problem is that for the past ten years we have never had it so good and there is a young generation who, to a certain extent, have had it soft compared to my generation and certainly the generations that preceded mine. In every problem, there is hope, and in every difficulty, something good can emerge. Whether it is in the spiritual sense or in looking for value for money and realising the value of a euro, which perhaps many of us did not do for the past ten years, all of these changes are positive. If times are tough now, let us not be looking back at what happened in the past ten years.
Ned O'Sullivan (Fianna Fail)
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The Opposition have a habit of saying there was much squandermania in the past ten years. I did not hear the Opposition leaders at any stage saying we should not have the Nenagh bypass, the new rail infrastructure to the west, the huge investment in ports like Shannon-Foynes, Waterford and Cork, or state-of-the-art social housing.
Ned O'Sullivan (Fianna Fail)
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I did not hear any of that for the past ten years. All of a sudden, however, it is supposed to be squandermania. That is one good thing the Government did for the past ten years, namely——-
Eugene Regan (Fine Gael)
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Or €1 billion in waste on infrastructure projects.
Ned O'Sullivan (Fianna Fail)
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——-it put in place infrastructure and institutions which will help us to weather the storm we are now facing.
The former Taoiseach, Charlie Haughey, said economics is the dismal science. There is no doubt it is a dismal science at present. I studied economics in UCD at one time and I believe practical common sense goes a long way in dealing with financial problems. I am a small businessman and employ a staff of three or four people. Naturally, I am worried about the future. The retail trade is going through a very difficult time at present and it is a business that gets very little sympathy. Nobody ever tells shopkeepers or publicans they are due a deontas or a handout like the agri-sector or other sectors, but we must live as well. Nonetheless, we will get through it. Confidence is important. I have tremendous confidence in the Minster, the Taoiseach, the Government and the institutions of the State. I know that we will rally.
I compliment Senator Larry Butler, who did his homework and came up with some ideas, which he presented to our parliamentary party and which he enunciated in the House again today. They will be boiled down and analysed and, while they might not all find favour, I like that someone is proactive in that way. As Senator Leyden said, the Seanad could be used as a workshop and a think-tank to tease out ideas that the Lower House is too busy and has too much work to consider.
I welcome the decision by the Minister for Education and Science, Deputy Batt O'Keeffe, to modify the position in regard to substitution. As a former teacher, I know it was creating a great deal of difficulty. I am glad the Minister was able to do this in a way that did not impact upon the Exchequer and he was able to find ways to pay for it. That is the way of the future. If one does not like what is happening and has a better idea, that is great, once it is self-financing.
Martin Mansergh (Tipperary South, Fianna Fail)
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I begin by completing Senator Ned O'Sullivan's quotation from Charlie Haughey, who said that if economics is the dismal science, then politics must be the profession of hope. I thank all Senators for a very good and overwhelmingly constructive debate, which contained some very good suggestions in many areas that deserve to be examined more closely. I will begin by making general remarks and I will then respond to specific points that have been made by Senators.
The Minister in his opening contribution emphasised the financial difficulties but also pointed out that we retained the vast majority of the gains in employment and living standards achieved over the past decade. He pointed out some of the difficulties caused by sterling appreciation, but also that inflation was easing, and he emphasised the need to help those losing jobs in terms of training and education.
It is clear we are facing a very difficult period. The adjustment in the new house building sector, the sharp deterioration in the international climate, ongoing strains in the global financial system and, more recently, the strengthening of the euro against sterling are all adding to our economic difficulties. The economic data that have been published in recent weeks have been weak, confirming that all of these factors are taking their toll. Indeed, one of the most disturbing aspects of the slowdown is the pace at which the turnaround has occurred — GDP will decline this year after recording growth of 6% last year.
The tax revenue data that have recently been published are equally poor. The weakness in tax receipts evident throughout the year continued into November, a key month for tax receipts. We now have an Exchequer deficit of almost €7.9 billion at end-November compared to a surplus of almost €1.6 billion in the same period last year. It is important to stress that overall Government spending is close to what was planned for in the budget but tax receipts in November were approximately €1 billion lower than was expected, which means that tax revenues are now almost €7.4 billion behind target. A major gap has emerged between spending levels and tax receipts, and a current budget deficit of the order of €3.5 billion is now in prospect for this year. Borrowing to fund day-to-day spending is, as most Senators understand, simply not sustainable and this is why the Government is determined to reduce spending.
In the face of these mounting economic and fiscal difficulties, there may be a temptation to follow an inappropriate course of action. The Government is not going to do that. Instead, the Government has taken decisive and appropriate steps designed to put the public finances on a more sustainable path and to position the economy to be able to exploit the global recovery when this emerges. The Government is maintaining capital investment at high levels relative to national income, which will help eliminate bottlenecks, reduce costs and boost productivity over the longer term.
One area in which the Government has a direct role in this regard is the public sector. Notwithstanding the positive role the public service has played in Ireland's economic progress down the years, it is clear that in current financial circumstances we need a root and branch reform of the manner in which public services are delivered to citizens. That is what Government is and will be doing.
We also recognise that a significant global recovery is increasingly unlikely any time soon. This, combined with a further reduction in house building, means that our economy will remain in recession next year, with a resultant rise in unemployment. The Government is addressing this by ensuring that those who lose their jobs have access to various training and upskilling facilities to enable them find alternative employment.
While the challenges are significant, they are not insurmountable. We must not lose sight of the fact the underlying health of our economy is strong, which is the product of policies and reforms undertaken over the past number of years. Our economy is resilient and flexible. We have fostered a pro-enterprise environment, one in which work and effort is suitably rewarded. Substantial improvements in living standards have been achieved since the mid-1990s and the economy now is very different from what it was back then. Income per capita in Ireland is now well above the European average, a transformation of the position that pertained in the early 1990s.
I would now like to turn to some of the specific points made during the debate. As Senators Boyle and Butler in particular mentioned, there is scope for green technology providing and generating activity. When houses come to be energy rated from next January, it will act as a jolt and stimulus which will be helpful to the economy.
Senator Alex White argued that the Government did not foresee what was happening. No Government in the world foresaw the ferocity of the downturn that has taken place compounded by the financial crisis we saw this autumn. Downside risks were identified by the then Minister for Finance in his speech in December 2007 on the budget for 2008. At that time, the economic forecasts underpinning the budget were in line with those being produced by the independent ESRI and the Central Bank.
Senator White also referred to a statement, of which I have been critical, by the former Minister for Finance, Charlie McCreevy, that when we have it we spend it. This statement, which was more of a soundbite, did not reflect fully Government policy at the time. The good financial situation was used to drive down the national debt to an extremely low level, a percentage in the low 20s in gross terms and approximately 14% in net terms. A large amount was put aside in the National Pensions Reserve Fund. We did not simply spend it when we had it. I recall a year when we had a surplus of approximately €5 billion, the Minister asked how large a surplus were we expected to have.
The issue of a stimulus was raised. It is important to recognise that rapidly rising unemployment will mean higher social welfare payments so the Government is putting more money into the economy. The social welfare budget for next year is approximately 14.5% higher than it will be this year and may be higher still. This is what is called in technical terms an "automatic stabiliser". The main plank of the Government's economic policy is to fulfil as much as possible of the national development plan which is running at approximately 5% of gross national product, which is considerably greater than in most other countries.
I agree with the point made by Senator Paschal Donohoe that the primary way to get out of our difficulties is to trade out of them. I also agree with his reference to the importance of exporting high value products at the right price. He appeared to criticise the Minister for leaving——-
Paschal Donohoe (Fine Gael)
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The Minister of State must have misheard me.
Martin Mansergh (Tipperary South, Fianna Fail)
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The Minister had a passage on competitiveness and dealt with precisely the same points as Senator Donohoe.
I join tributes from this side of the House on the work Senator Donohoe's sub-committee did on the European treaty.
Martin Mansergh (Tipperary South, Fianna Fail)
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I watched on the monitor some of the hearings over recent weeks and followed them in the newspapers. He was a good Chairman of the all-party sub-committee. I agree with his point that the question of the Lisbon treaty needs to be integrated into most of our debates. It is the case that if we do not resolve the matter satisfactorily, it will make our economic and financial problems a great deal worse.
The capitalisation of banks was raised and various views were expressed. When I came into the House, I heard Senator O'Toole congratulating the Minister for not having done anything much on this subject. Others urged that it should have been done before now. One can see from observing what other countries have been doing that it is important, if and when the Government takes action on this front, that it does it right and with proper effect.
A couple of days ago the Minister asked the banks to put forward a plan within ten days as to how, if action were taken, it would flow to the needs in particular of the small enterprises which are the lifeblood of the economy and to which the Leader of the House and others referred in their contributions. The Minister indicated that in some circumstances it would be appropriate for the State, whether through the National Pensions Reserve Fund or otherwise, to consider supplementing private investment with State participation.
I want to return to the matter of stimulus because I want to respond more to Senator White. The Labour Party suggested that the Government should be deliberately borrowing more to provide stimulus along the lines that the Government of Gordon Brown is doing across the water, aiming at a borrowing requirement of approximately 8% of gross national product. Equally, other governments in Europe with substantial socialist or social democratic participation are not willing to go down this route, and I am thinking in particular of the German Government where the finance Minister, Peer Steinbrück, is from the SPD.
As the Minister expressed in his opening statement and as I have explained, we are providing a stimulus to the economy. However, it would be dangerous for us to start going down the same route we first took in the mid-1970s and again in the early 1980s. Of course, with greatly increased borrowing one can provide a short-term stimulus to the economy. However, one is then left with the headache of closing a gap that has widened even further. That type of approach was largely responsible for the depression of the mid-1980s.
Alex White (Labour)
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The Fianna Fáil election manifesto of 1977 was the problem. The Minister of State is rewriting history.
Martin Mansergh (Tipperary South, Fianna Fail)
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As a small, open economy, there is considerable leakage to the benefit of other economies. Our public finances are at full stretch.
The Fine Gael Party argues that our borrowing level is too high and should be lowered. Some of the criticism vis-À-vis attitudes to the public sector is that it has appeared that the entire weight of that further reduction in borrowing is to be borne by even more drastic public service reform. There are different voices on the subject of social partnership. For example, Senator Buttimer stated in this House, in ways with which I can fully identify, that he supports social partnership. However, I took part in a programme with Deputy Varadkar who said on air that social partnership should be scrapped.
Paschal Donohoe (Fine Gael)
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There are different views within the Government also. Senator Boyle and the Minister for Finance are not in agreement.
Liam Twomey (Fine Gael)
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Fianna Fáil's coalition partners do not seem to agree with them in this regard.
Martin Mansergh (Tipperary South, Fianna Fail)
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There is no difference of opinion on the subject of social partnership.
Liam Twomey (Fine Gael)
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Yes, there is. The Minister of State should talk to his coalition partners.
Paddy Burke (Fine Gael)
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Senators should allow the Minister of State to continue without interruption.
Martin Mansergh (Tipperary South, Fianna Fail)
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There is total commitment throughout the Government to social partnership.
Liam Twomey (Fine Gael)
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The Minister of State is making it up as he goes along. He is talking utter nonsense.
Martin Mansergh (Tipperary South, Fianna Fail)
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I am unaware of any Government Member who is opposed to it.
Fine Gael has called for a public service pay freeze, but an 11-month freeze is already in place. The Fine Gael proposal is that it should be extended by one month. That would not lead to a significant saving.
Alex White (Labour)
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Senator Boyle wants the pay freeze extended. Is he not a supporter of the Government?
Liam Twomey (Fine Gael)
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What is the Minister of State's own view?
Paddy Burke (Fine Gael)
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The Minister of State should be allowed to continue without interruption.
Martin Mansergh (Tipperary South, Fianna Fail)
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All Deputies and Senators are entitled to put forward creative views.
Donie Cassidy (Fianna Fail)
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Members are not allowed to interrupt a Minister. What is happening today is unprecedented. It is unbecoming.
Liam Twomey (Fine Gael)
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The Minister of State is confusing us.
Paschal Donohoe (Fine Gael)
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We will not take lectures from the Leader.
Paddy Burke (Fine Gael)
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The Minister of State must be allowed to conclude.
Martin Mansergh (Tipperary South, Fianna Fail)
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Senator Fitzgerald asked about the evaluation of public expenditure. That exercise is focused on current expenditure. She also asked about progress on public procurement reform. I remind Senators that savings were achieved during the course of this year and that projected savings are integrated into the Estimates for 2009. However, more work is to be done in this regard, as in every area of public service reform.
A new operations unit in the Office of Public Works designed to improve the performance of public procurement should be operational by mid-2009. Its immediate focus will be to improve value for money in public procurement, to reduce the cost of procurement to the Exchequer and to seek to establish a better procurement capacity. It will also seek to encourage appropriate cross-Border co-operation and in this regard, I thank the Northern Ireland Minister of Finance for making available to us one of his experts. It is intended that significant benefits will accrue from the enhanced use of best practice procurement techniques, including electronic procurement, employing e-auctions where appropriate. This approach is already in existence to some degree.
Martin Mansergh (Tipperary South, Fianna Fail)
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Senator Fitzgerald made some very derogatory comments on the subject of decentralisation, which is what one tends to hear from Deputies and Senators representing areas in south Dublin. It is important to note that within two years' time, incorporating the recent budget decisions, 6,000 of the originally envisaged 10,000 staff will be in place in different parts of the State.
Liam Twomey (Fine Gael)
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That is not true. The figure is 2,500.
Martin Mansergh (Tipperary South, Fianna Fail)
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As anybody from outside Dublin knows, the decentralisation programme has been of major benefit to the areas concerned. Moreover, Fine Gael Deputies and Senators in these areas are fully in support of decentralisation unlike some of their Dublin colleagues.
Liam Twomey (Fine Gael)
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Absolutely. The Minister of State should provide the correct facts.
Martin Mansergh (Tipperary South, Fianna Fail)
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Comparisons are sometimes made with the situation in 1997. It is my recollection that we already had three or four good economic years, prior to the instatement of the rainbow Government, during the Fianna Fáil-Labour Government of 1993 to 1994.
Eugene Regan (Fine Gael)
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The rainbow Government delivered the first budget surplus in the history of the State.
Liam Twomey (Fine Gael)
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The Tallaght strategy was the genesis of the economic revival.
Martin Mansergh (Tipperary South, Fianna Fail)
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The term "Celtic tiger" was first used in August or September 1994.
Liam Twomey (Fine Gael)
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The Minister of State is good at rewriting history.
Martin Mansergh (Tipperary South, Fianna Fail)
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The amazing thing is how long a run we had. We have had the most fantastic economic run in our history. However, it was never going to be eternal.
Martin Mansergh (Tipperary South, Fianna Fail)
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We did not succeed in abolishing the economic cycle.
Next Monday, I will attend the opening of the Cullahill-Cashel motorway, only six or seven months after I opened the Cahir-Mitchelstown motorway. These additional 40 miles of motorway will be of benefit not only to people in Tipperary but also in Cork and elsewhere.
Liam Twomey (Fine Gael)
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We were a long time waiting for those improvements.
Martin Mansergh (Tipperary South, Fianna Fail)
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The reality is that Fine Gael has offered little other than tired clichés. As a former leader of that party once said to me, "You do not win everything that you try; and if you do not try anything, you will never succeed." This Government has had one or two failures and they are trotted out on every occasion.
Paschal Donohoe (Fine Gael)
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The Minister of State is on dangerous territory.
Paddy Burke (Fine Gael)
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Senators must allow the Minister of State to conclude without interruption.
Martin Mansergh (Tipperary South, Fianna Fail)
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However, there has been vast investment in schools, hospitals and other infrastructure. We have made good use of the resources available to us. I am not worried about the precedents.
Liam Twomey (Fine Gael)
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A budgetary turnaround of €12 billion is no small failure.
Martin Mansergh (Tipperary South, Fianna Fail)
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There has been much criticism of the former Taoiseach when he was Minister for Finance. I apologise, I refer to the current Taoiseach.
Eugene Regan (Fine Gael)
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He will shortly be the former Taoiseach.
Martin Mansergh (Tipperary South, Fianna Fail)
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In 2006, when I was a Member of this House, I referred in the Chamber to the fact that the Financial Times had voted him the best Minister for Finance in Europe.
Eugene Regan (Fine Gael)
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Has the Minister of State read the more recent views expressed in that newspaper regarding the state of the Irish economy?
Martin Mansergh (Tipperary South, Fianna Fail)
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Therefore, the notion that everybody could see that we were heading for the rocks is false. International experts did not predict anything of the sort. There is no basis for such claims. The achievements of the Irish economy were admired for years. One cannot expect, any more than on the hurling field, to be at the top forever. From time to time, there will be setbacks. The economic cycle has finally hit us.
Martin Mansergh (Tipperary South, Fianna Fail)
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It has hit us quite hard. However, we should not lose perspective on the fantastic 20 years we have had——-
Martin Mansergh (Tipperary South, Fianna Fail)
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——-which have transformed this country. It is deeply appreciated by most people in this country.
Paschal Donohoe (Fine Gael)
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Remember what happened the last time Members clapped.
Paddy Burke (Fine Gael)
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That concludes the statements. When is it proposed to sit again?