Tuesday, 27 January 2009
Economic Situation: Statements
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I welcome this opportunity to address the Seanad on the state of our economic prospects. We have witnessed their dramatic deterioration over the past year, which we must face up to. In the days of our prosperity, perhaps we should have heeded the words of the psalm, "though wealth increase, set not your heart upon it". Certainly, any belief here or elsewhere that the economic cycle could be abolished or softened represented the triumph of hope over experience. It will be a long time before any country makes such an assumption again or mistakes the dangers of indulging runaway growth.
An almost unprecedented set of circumstances has now emerged. The relatively new globalised economy is facing a most uncertain outlook. From an Irish perspective, the fall-out from these developments means we are confronting major challenges on all budgetary, banking and economic fronts. It is understandable that people are afraid or angry or both. Our duty in the Government and in the Oireachtas is to give back a sense of responsibility and direction to support the basic level of confidence needed for any society to function effectively.
The origins of the global financial market crisis are well known in outline. Nevertheless, the causes of the problems and the solutions to them are complex, as indicated by the broad range of policy responses so far employed by the relevant authorities in other countries to address them. Global financial market conditions remain extremely difficult, negatively impacting upon almost all of the world's economies. Access to credit has been restricted in most of our export markets, weighing on household expenditure and on normal business investment and activity. The European Commission recently revised downwards its projections for growth in all our major export trading partners for this year. It is projected the eurozone, the United Kingdom and the United States will all experience a recession this year, with at best a modest improvement in the next year. Combined, these economies represent the destination markets for about 80% of our exports which will limit our ability to export. Yesterday, in one day, 72,500 jobs were reported to have been lost worldwide.
Factors outside our control such as recent exchange rate movements have also contributed to the declining competitiveness of our exports on global markets. Particularly vulnerable are many of our small and medium-sized enterprises which export to the sterling area. Many of these firms are small and labour-intensive. The recent fluctuating appreciation of the euro against sterling has eroded the competitive position of these firms.
While we cannot influence exchange rate or other external developments, we must focus on those aspects of competitiveness over which we can exert influence. These include pay and non-pay costs, infrastructure, the skills level of the population and the regulatory environment. Our objective must be to position the economy to take advantage of global recovery when it emerges.
Difficulties on the international front are being compounded by sharp contraction in the construction sector. The level of house building this year will be around one quarter of that which prevailed in 2006. The slowdown in the house building sector has spilled over to other sectors of the economy, with results in recent months being especially poor. Employment is declining, unemployment is at its highest level in over a decade, consumer confidence is poor and tax receipts have declined drastically.
The Department of Finance expects the economy to contract by 4%, following a decline of nearly 1.5% last year. A further contraction, although at a slower pace, is projected next year. If so, this will represent the first time in the State's history when there were three consecutive years of declining economic activity.
The sharp deterioration in economic growth has had a huge effect on the public finances. Tax receipts last year were almost 14% below their levels in 2007, with those tax heads most closely aligned with the housing and the international financial markets worst affected. Ireland complies fully with its international obligations in respect of taxation. The world is becoming ever less tolerant of unco-operative tax havens which maintain absolute bank secrecy to facilitate illegal tax evasion by high worth individuals or companies.
Reduced levels of tax revenue mean that not enough is being collected to finance the increases in public expenditure over recent years. Ireland is once again borrowing significantly to fund day-to-day spending, while totally funding all capital expenditure from borrowings at a level which simply is not sustainable.
In the absence of further policy action, a general Government deficit in the range at least of 11% to 12% of gross domestic product would be in prospect for each of the years to 2013. This situation is untenable and as a result, the Government has submitted a plan to the European Commission which prioritises the elimination of the current budget deficit and the restoration of a general Government deficit below 3% of gross domestic product by 2013.
The plan will restore balance to the public finances by prioritising current expenditure and adjusting both expenditure and taxation levels to reflect changed realities. At the same time, capital investment has been retained at a high level to provide, in addition to automatic stabilisers, a significant fiscal stimulus while boosting the longer term productive capacity of the economy. In this context, the Commission on Taxation and the special group on public service numbers and expenditure programmes will have a key advisory role to play. However, substantive immediate action is also required. With that in mind, the Government agreed expenditure savings of €2 billion have to be made in 2009. We must demonstrate clearly, both nationally and internationally, that in response to the exceptionally difficult environment that we face, our public finances will be managed in a stable and sustainable manner and brought back on track.
We are tackling these challenges starting from a position of relative strength. The period of extraordinary economic growth which Ireland experienced allowed the significant reduction of the general Government debt. At the end of 2008, it stood at 41% of gross domestic product, still well below the 60% which is the benchmark level for the eurozone. In addition, the general Government debt does not measure the significant value of the National Pensions Reserve Fund or the substantial cash balances the National Treasury Management Agency holds. When account is taken of these, Ireland's net debt is closer to 20% of gross domestic product. This low initial level of public debt provides some leeway to target a restoration of balance to the public finances over several years. Doing it over a shorter timeframe would inflict unacceptable extra costs and job losses on the economy.
Vital discussions are taking place at present with the social partners on all aspects of the public finances, including the public service pay bill. Decisions need to be taken by the Government in the near future. I do not wish to say anything to prejudice the outcome of these deliberations given the critical sensitivity of this process. However, it is clear all elements of public expenditure need to contribute to the package that will be implemented by the Government to begin restoring balance to Exchequer finances.
The position of the banking sector is fluid and the Government continues to monitor developments closely, both nationally and internationally. The Government is committed to providing a platform for a regulated and profitable banking industry of high repute that operates in a national and international financial services environment. The bank guarantee scheme, recapitalisation and linked credit package, and the nationalisation of Anglo Irish Bank are intended to meet these objectives. Requirements for the banking sector are that the banks will serve borrowers, small and medium-sized enterprises and all stakeholders in an honest and straightforward way to ensure customers and consumers are treated in a reputable and respectable way. Those ci-devant movers and shakers who by their manipulations have betrayed public and stakeholder trust and thereby greatly exacerbated an already difficult situation will be brought to account.
Significant falls in the share prices of Irish banks pointed to the capital market's belief they were undercapitalised. The Government's plan to recapitalise is intended to stabilise the Irish financial system and secure its funding base. Discussions are ongoing with Allied Irish Banks and the Bank of Ireland on recapitalisation. Discussions are also continuing on the capital requirements of our other financial institutions.
The nature and thrust of Ireland's regulatory regime needs to adjust to the new realities. Lessons will be learned from mistakes made and from the international experience of the recent period of worldwide financial disruption. Work is under way on forging a new model to govern the conduct and behaviour of the financial sector, both domestically and internationally.
I wish to say a few words about the current role of the Office of Public Works in regard to expenditure reduction and investment. The OPW's expenditure has been reduced by roughly €200 million, or 30% in real terms, since I took office last May and further savings are likely. Minimal constituency staff, comprising one unestablished civil servant in each of Dublin and Tipperary, are employed by my office. Further substantial works to Leinster House have been postponed. A national procurement operations unit to rationalize and economise on procurement policy across most of the public sector was approved in principle by the Government last July. As manager of much of the State's property portfolio, our job is to bring down and keep down the cost of rents. The decentralisation programme has been rationalised and concentrated on the more immediately viable projects and a review of others will take place in 2011, when much of the programme will have already been fulfilled.
Heritage management is a vital area of activity, with direct relevance to our domestic and foreign tourism industry. The OPW manages a large number of the most important tourist attractions in the country. Our objective is to maintain and develop these sites and properties and open public access to them at a level that can be economically justified in broad terms.
I have given absolute priority to flood relief schemes because of the serious incidence of flooding in recent years and the need to increase the strength of our defences ahead of the threat of further climate change. All the evidence indicates that there can be a substantial return on investment in such schemes in built up areas and that small works in villages and parts of the countryside, whether carried out by the relevant local authority or the OPW, or both, can often make a big difference. I visited the works under way in Clonmel and Mallow last week and on the River Dodder last December. A scheme to protect properties in Mornington, County Meath, will commence next April. Tenders on the first phase of a scheme to reduce the flooding in Fermoy were issued last Friday and work should commence in May. Flood risk assessments for all the river catchment areas in the State will be commissioned over the next five years. Improved levels of flood protection will help to minimize risk to life and serious damage to property, as well as reverse the decline of urban areas regularly prone to flooding. They are a good example of infrastructural investments related to the environment that improve both quality of life and the scope for viable urban renewal. They are, therefore, being prioritised in the current economic conditions.
Like all other open trading nations, we are in an acutely difficult international and domestic economic environment. The Government has been pro-active and difficult decisions are being made which will help build the path to future recovery. We must not lose sight of the fact that we have strengths, including our very low level of public debt which gives us some leeway over the short-term by allowing the public finances adjust, and our level of employment which is still high at some 2 million in work, or over 600,000 more than was the case a decade ago. We are still a high income country by international standards and our underlying growth potential remains strong. Many important and worthwhile projects and public improvements are still in the pipeline. Without underestimating the issues currently facing us, the challenges we face must be overcome in order to maintain maximum employment and to set up a position that is conducive to renewed employment growth in the future. I look forward to a constructive and informed debate.
Over the weekend I read The Builders, a book about Fianna Fáil's movers and shakers. Written by Frank McDonald and Kathy Sheridan, it describes how a small group of property developers fuelled the building boom and transformed Ireland. Senator Ross and I are like-minded in our reading material.
Some of the book's findings are interesting. For example, of the €413 million that was spent on the Ringsend glass factory, almost €300 million came from Anglo Irish Bank. Last week, Davy Stockbrokers wrote down the value of that site by 60%. If similar valuations are applied across the commercial and residential property sector, we can expect significant write-offs. I was also interested to read that Mr. Seán Dunne, one of the movers and shakers who were responsible for this boom and bust, was a VIP guest of none other than Deputy Bertie Ahern when he attended Westminster and the US Congress.
A programme about the property crash, "Future Shock", was condemned by Government politicians when it was broadcast in April 2007. It was claimed that the predictions made in the programme would never transpire even though, in November 2007, builders and developers meeting in the Radisson SAS made it clear to the then Minister for Finance that the construction sector was in trouble. Afterwards, however, they each donated €5,000 to the Fianna Fáil Party. In October 2007, Deputy Bertie Ahern, who was surely being advised by the same builders and developers, accused those who talked down the economy of being prophets of doom and claimed to be confident that the economy had good times ahead. In the meantime, Irish people were taking out huge mortgages to purchase property. One must ask how much the Government knew about these matters.
What are we to do now? The Government is spending €60 billion despite earning a mere €40 billion. This situation is unlikely to change over the next few years. Even if the Government lasts a full term in office, it will need at least €50 billion to keep the public finances in order. The value of the assets owned by Irish people have decreased by between €50 billion and €100 billion. Many are now described by banks as "distressed" but we do not know the exact number of such assets. If the total value is only €50 billion we will have some hope but if it stands at €100 billion, the Government will need €50 billion to sort itself out and the taxpayer could be made liable for a further €50 billion. When the Taoiseach mentioned a figure of €15 billion to his backbenchers last night, he was way off the mark in regard to the figures which are troubling this country.
This House is being treated with contempt on this issue because the Government has retreated to Dublin Castle to discuss matters that have a major impact on Irish people. Ministers should present more accurate figures to the Houses.
The Government has focused its attack on the public sector, but no action we take in that regard is likely to resolve the mess we currently face. The debate needs to be broadened rapidly.
The aforementioned devaluation by Davy Stockbrokers of the Ringsend site will be repeated during the course of the year. Any movers and shakers who are still making money will be able to write off their losses against their tax bills, which will mean even smaller revenues for the Exchequer next year. We may find that our tax shortfall will be dramatically greater than the 2008 figures. However, Ministers are not taking account of this prospect.
The Minister of State stated that he is not making his decisions quickly because he is afraid of what may happen. However, the Government is in effect selling the family silver. It intends to protect the public finances and meet our commitments to the banking sector by giving away the gains we have made over the past decade in terms of repaying the debts we incurred. Government debt will now be ratcheted up to an unbelievable level for the next couple of years.
I do not know what interest rate the Government will borrow this €50 billion or €60 billion at but it will be significant, so this interest will have to be paid back as well as the principal. That sort of talk is sending us back to where we came from in the 1980s. That is profligate and out-of-control Government spending. When acting in such a way, the Government cannot argue it will do so in conjunction with the social partners in Dublin Castle. These sorts of discussions should be open and far more information should be given to the people of Ireland on what is being done.
It is an unbelievable position and it is only now dawning on many people because, to some degree, they were being misled for a long time. The people expect direction from the Government. In this House just before Christmas, the Minister for Finance stated that he still expected the 6% pay increase for the public service to be paid next September. In the new year he is not just talking about getting rid of the 6% pay increase but making cutbacks. The Government is not being honest with the people. If it believes there is a crisis, it should speak as if the people need to realise how serious this issue is.
The Minister of State's own speech acknowledges this to some degree but one would have to look for the information. Ministers misled the people all through 2007 and 2008 with regard to the crisis in the country. Government backbenchers are expecting the Taoiseach to make a state of the nation address to the people of Ireland but all he must do is tell the truth. They should stop talking as if there is leadership in this country and concentrate on what is going on instead. The situation is very serious, if one considers the sort of figures currently being mentioned.
The national debt could return to 100% of GDP before 2011 if we do not get to grips with what is going on, which would be a terrible failure by the Government. We are returning to being the basket case of Europe. This comes from not only fawning over the movers and shakers that were spoken about but a lack of realism in dealing with the problems when they arose.
Over the weekend I read about the Swedish crisis in the early 1990s which the Minister, Deputy Brian Lenihan, has touched on in his speeches. Some economists have argued that a devaluation of the Swedish currency was effective in getting the country out of its problems. We cannot devalue the euro. The cutbacks being spoken about may bring in €2 billion, which is pretty miserable considering the Government will be liable for at least €20 billion extra in Government spending and we do not know how much the bank bail outs will cost the taxpayer.
Is there a solution being discussed at a broader level that could be debated in this country? Has the Government gone to Europe to consider some way of discussing what was done in Sweden, if devaluing the currency and making radical changes is the only way to solve the mess we are in? As a small open economy we have a very strong currency, yet we are trying to export into a market with a very weak currency. We do not have a hope in hell of sustaining this in the long term and something will go seriously wrong.
Nothing is coming from the Government to suggest it has any plan. I am not talking about pulling out of the euro, and the Minister of State would not even mention this in his response. Surely there must be some way of the European Union looking at introducing a regional package for those three or four countries like Ireland at the periphery of the currency which seem to be seriously distressed. There should be a way to deal with the strong currency and how it is affecting our economy.
It is amazing that in 18 months we have doubled our national debt and unemployment levels in this country. One economist, Mr. Jim Power, predicted that unemployment could reach 420,000 by the end of this year but most people feel it will easily reach 400,000. Some think we could easily reach 450,000. Fine Gael will table a motion on this issue tomorrow in this House and I am sure Senator John Paul Phelan will have more to say on the matter.
We must begin hearing solutions from the Government on how it will deal with the significant number of people who will be unemployed by this time next year. If 450,000 people are unemployed, it will have an incredible effect on Government finances. We must also have a frank discussion with Ministers in both Houses on the advantages of pay cuts for the Irish economy over an increase in the higher rate of tax. Some, including those in the unions, feel that increasing the higher rate of tax might be more equitable rather than just singling out public and civil servants for a significant reduction in their pay packets. That may not take into account the overall gross income coming into each person's household.
People's salaries cannot be considered in a vacuum, as they may well be paying for very expensive mortgages, child care costs or loans taken for other reasons. In some cases, both people in a partnership may be working, with one in the public service and another in the private sector. Perhaps both may be in the public sector. All these factors must be taken into account before there can be a blanket decrease in public sector incomes. We have a good idea of what can happen when we do not give pay increases or if taxes are increased. There should be more input from the Government on why it is taking a particular line in the discussions so far.
When making cuts, one factor that must be considered is the effect on services to people provided by Government. We are already getting correspondence from the Minister for Education and Science and the Minister for Health and Children telling us that because of difficult financial circumstances, special supports for children with disabilities and intellectual needs and elderly people that have been expected over the last number of years will end. There is a need to clarify what will be taken from people.
Access to home help for elderly people in our communities is already coming under severe pressure and this will only get worse over time. Local authorities have clearly lost out with regard to development levies and income from Government. They are responsible for grants to elderly people to refurbish houses by putting in showers, stair lifts or extensions which make it easier for them to stay at home if they have some mobility problems or other disabilities. That keeps such people out of nursing homes, which are far more expensive. We will see a significant reduction in those grants, and county councils and local authorities will run out of money much sooner than expected. We must hear from the Government about what action it intends to take in this regard.
Unfortunately there is much we can talk about but I do not have the time. There is talk of reducing salaries paid to Members of the Oireachtas. I have previously indicated to the Minister, Deputy Brian Lenihan, that he is cushioned from many of the effects that other people in the country will suffer. He has a ministerial driver so he does not have to worry about benefit-in-kind or the cost of petrol. He has a significant salary and would get an allowance for living arrangements if he lived outside Dublin. If members of the Government do not want to see themselves as different from the rest of the country and the hardship the people will have to endure over the next number of years, these perks should also be taken into account.
I welcome the Minister of State. I also welcome the opportunity to discuss the economy. I further welcome the frequency with which we are engaging in debates of this nature. We are seeking the knowledge and experience of eminent and qualified individuals such as Senator Ross who is an economist of some renown and a journalist and someone who has had a long career in business. It is important that we obtain a diverse range of opinions on this matter. Innovation and differences of opinion will be required if we are to discover optimum solutions to the challenges we face. It is vital that there be differences of opinion because otherwise we will merely engage in an exercise of public administration, of which there has been far too much. Innovation is what will be required as we face into the challenges that lie ahead.
The Government operates in real time and does not have the benefit of hindsight. No administration has ever enjoyed or ever will enjoy the latter. Senator Twomey referred to Frank McDonald's book. All I can say in reply is that if the points to which the Senator refers are contained in that book, they must be true. However, I am not sure that this offers much, either in the context of the debate or solving the problems we face. In recent months the Senator has been all too quick to carry out his post-match analysis of the past and how certain problems arose. He has done precious little in the context of indicating what might now be done.
I wish to analyse some of the suggestions made in recent times in order that people might know that Fine Gael does not have the benefit of 20-20 vision either. In its most recent election manifesto, it predicted that there would be a growth rate of 4% and, like everyone else, on that basis proposed expenditure in a wide variety of areas. Since the election, circumstances have changed and the Government has changed its mind. Fine Gael has also changed its mind. In fairness, Deputy Bruton has been reasonably consistent in seeking pay cuts. However, the leader of Fine Gael recently indicated that he was seeking a pay freeze. Last night Deputy Shatter appeared on television and informed us that in the past government had involved nothing other than failed predictions. Fine Gael claims to have a monopoly of predicting everything accurately but that is not, in fact, the case. Deputy Shatter is also seeking a pay freeze. Fine Gael is indicating that there should be no decreases in pay and that all the problems should be solved. However, it has not suggested any method, other than an increase in taxation, we might use to bring in the money required to allow us to solve our problems.
Senator Twomey also referred to the property market and, again, displayed 20-20 vision. I accept that certain individuals indicated that the property market was overcooked. The Minister of State and I concur on the contention that a stopped clock is right twice a day. There were those who said the market was being overcooked and that we should perhaps row back on urban and rural renewal schemes at a particular time. However, we did not have, for example, absolute control of our monitoring policy in respect of interest rates. During the period to which I refer interest rates in the eurozone were unprecedentedly low. Those rates focus on inflation, not the Irish economy. It is not, despite what Senator Twomey suggested, our responsibility to devalue the euro but that of the European Central Bank, ECB, of which the Central Bank and Financial Services Authority of Ireland, CBFSAI, is a small but intricate part. If the Governor of the CBFSAI, Mr. John Hurley, were to telephone Mr. Jean-Claude Trichet at the ECB to ask him to devalue the euro, I do not know if he would be as cognisant of this if we had absolute control. We do not have such control, particularly since this country is a member of the eurozone.
In addition to the low interest rates to which I refer, there were unprecedented high levels of growth. Everyone in the country, including Members of both Houses of the Oireachtas — some of whom may own second, third or fourth properties, have various investments in equities, commodities, etc. — got on the gravy train and stated it was time to invest and create a little additional wealth for themselves because money was cheap. One of the welcome developments as a result of the current doom and gloom is the realisation that cultural change is required. It must be acknowledged that individuals in every walk of life were involved in overcooking the economy in the areas of property, equities and commodities. However, it is ridiculous in the extreme and completely uninformed to suggest this was happening only in Ireland and nowhere else.
I do not have a background or possess a qualification in economics. However, I would like to believe I possess a modicum of common sense. In that context, it is fair to acknowledge that there have been property booms-busts in Spain and, to a lesser extent, the United Kingdom and the United States in recent years. Recently, the asset values of property, equities and commodities across the globe have been inflated. During the past 12 months they have decreased significantly. However, this phenomenon is not unique to Ireland; it is global in nature. No one knew this would happen. I accept, however, that certain individuals, based on particular criteria, predicted aspects of what came to pass. That is fine and they can claim credit for being correct on some of the issues some of the time. However, it is ridiculous to suggest someone was entirely correct in predicting what happened.
As the Minister of State correctly stated, our situation has changed to a substantial degree. There is a great deal less coming in than we had planned to invest. It is simple mathematics: if one has only three bananas, one cannot give one each to four people. If one has €40 coming in and outgoings of €54, one must make adjustments. The Government will make such adjustments.
I do not agree with Fine Gael's accusation that the Government is dithering in this matter. The social partnership process is envied by many countries which do not possess such a model. It was one of the largest contributory factors to the stability and relative success enjoyed in the late 1980s and early 1990s and the growth experienced in more recent times. It is the platform that will — in conjunction with the policies over which we have control such as those relating to the public finances, pay, pensions, public service numbers, etc. — allow us to extricate ourselves from the difficulties we face.
I wish the Government and the social partners well in their important work. If ever there was a time for Ireland to make a statement on its international standing and credibility, it is now. It is important that we make a statement of confidence and indicate that we are in control of our destiny to the greatest extent possible. There could be no more powerful message than the social partners and the Government emerging either from Government Buildings or Dublin Castle and stating a deal has been reached and indicating how the required €2 billion will be saved. I do not want to prejudice the outcome of the ongoing negotiations, nor do I wish to suggest or demand any particular outcome. However, success in those negotiations will send the strongest and best possible message that the country is in control of its own destiny, that it acknowledges the problems it faces and that it is prepared to take the appropriate actions. I wish the social partners and the Government well and I am extremely hopeful with regard to the outcome of the talks. It was stated last week that there would be posturing on the part of the various parties — the employers, on the one hand, and the trade unions, on the other — in respect of pay, etc. I hope, however, that there were no absolute prerequisites once the negotiations began. Whether it is innovations in respect of pay or adjustments to pension arrangements, I will welcome whatever deal is forthcoming. I am glad the parties involved are prepared to negotiate. I must pay tribute to the suggestions made by the trade unions. The concept of a pensions levy is a good one and has merit. In addition, the suggestion with regard to a recovery bond is innovative. Such a bond could work and I hope the Government will give it consideration.
In these more difficult times one of the greatest challenges we face is retaining as many in employment as possible. In that context, I would prefer to ensure I had a job — be it for three days each week, if it were not possible to have it for five. I ask those with an interest in this area to recognise that placing people on a three-day or two-day week is much better than making them redundant. Last week I spoke to some involved in a manufacturing business in County Meath who had retained their entire staff on a week on-week off basis. This solution is innovative, shows the commitment of the company to the staff involved and acknowledges the difficult times in which we now live.
With regard to other actions the Government might take — not least in the context of the public finances — the State's bills should be paid. Arms of the State and State agencies are the slowest payers of bills in business at present. It is completely unacceptable. The State does not live up to the standards that legislation effectively dictates. One example of that is tax rebates. Many small businesses and individuals are waiting for tax rebates. While they may have been due as far back as November in some cases, Revenue has told them it might get around to them in March. A €5,000 rebate to a business at present is worth €100,000 in terms of what it could do. I ask the Minister of State to look at that issue.
Senator Twomey mentioned borrowing and what the State may need to borrow in future years. It is worth noting that in 1985, debt service accounted for 35.2% while this year, the share of tax revenue taken up by Government debt service will be between 12% and 15% rising to 17% to 20% between now and, say, 2011. We are in a completely different situation and we are facing into it from a position of relative strength compared with many years ago.
It is also worth noting the International Monetary Fund is forecasting that 2009 will be the first year of negative growth in advanced economies in the post-war era. To suggest what this country is experiencing, whether in terms of the banking crisis, the property situation or the other difficulties, is unique to Ireland or as a result of specific actions by governments in this country alone is ridiculous in the extreme.
Deputy Enda Kenny, leader of Fine Gael, said 20% of the problem in Ireland is as a result of international factors and 80% is as a result of our own actions. I completely disagree with that, although we might have placed ourselves a little better if we had had the benefit of hindsight and of adjusting interest rates at a particular time to cool the property market. What could we have done? Could we have put stamp duty up to 50% or 100%? If we had done so, there would have been a revolution in the country. Some 80% of this problem is international while 20% is national.
As we look to the future, key elements of the Government's plan include the stabilisation of public finances, improving competitiveness, which can be done potentially through pay, supporting those who become unemployed and supporting Irish business and multinational companies. We must invest heavily in research and development and in incentivising multinational companies to locate more research and development aspects of their businesses in Ireland.
As we plan for the future, I would like to see us introduce an aspect to the primary school syllabus which can help to extract and nurture the natural entrepreneurial flair among young people, and I will bring proposals to the Minister in this regard. Today a lobby came to Leinster House seeking the vote for people of 16 years. While that is a debate for another day, it is welcome and it shows the level of maturity among our young people. We need to tap into that a bit more.
Implementing a new green deal and moving us away from fossil fuel-based energy production through investment in renewables is an area we need to grow. Some 10,000 people are employed in this area in Denmark, which is a good example. It is part of the programme of the new US President, Barack Obama, as he sets out to deal with the crisis in the United States. As he said, the world is facing an unprecedented economic crisis.
We can control an aspect of our own destiny through the management of public finances. This needs to be done quickly and it important to send a message nationally to our people and internationally to our contemporaries that it is done best through partnership. It is important we maintain our capital budget to the greatest extent possible. I am glad more than €8.4 billion is scheduled to be spent in the year ahead. I ask that this be kept under review and that we continually prioritise those capital projects which will best assist us in improving our competitiveness in the years ahead. I look forward to future debates on this issue.
I reflect what has been said by the previous speakers. It is important we are having this debate and that Members put what they have to say on the record. I agree with much of what Senator Marc MacSharry said. However, in fairness to Fine Gael, I must say two things. It is not fair to say Fine Gael forecast 4% growth this year. It was very clear in its election manifesto that on the basis of 4% growth, it would do certain things. It was very clear about that at all times. Deputies Richard Bruton and Joan Burton have been extraordinarily responsible in their participation in the debate. I believe strongly, and I say this in a disinterested fashion, that they should be included more closely in Government cogitation and discussion.
This is the challenge for social partnership. The Government should say let us agree on the problem, offer possible solutions and ask if the social partners can deliver, but that is not being done. I was appalled that the plan, launched a couple of weeks ago in Dublin Castle, was not launched also in both Houses of the Oireachtas. The Government has no problem dealing with the social partners but why exclude the politicians? Was it not a great opportunity for the Government? This is what is emerging as an indication of a lack of leadership.
The Government is entitled to be a bit more confident. I have the benefit of hindsight because I am a sad person and spent a couple of hours last week going through what our commentators said a year ago about the year just gone, and it made very interesting reading. National Irish Bank was talking about another year of strong growth in 2008. IIB's Austin Hughes talked about employment being broadly flat and said there might be a technical recession. Dan McLaughlin of Bank of Ireland talked about 5% and 6% growth. AIB's John Beggs talked about GDP growth recovering to over 4% in 2009 as well as being positive about 2008. Jim Power, who lectures us regularly, said we should have a modest recovery later in 2008 and into 2009.
Why do I say this? It is a good opportunity to ignore these people. They got it completely wrong so let us not be at their mercy. It would a good time to introduce a new section 30 to prevent RTE interviewing too many economists from here on in. They are misleading the public and are getting it wrong. I ask the Minister of State to look at that issue.
I refer to our friends in IBEC who get a huge amount of time. Let me put something clearly on the record. The main financial supporters of IBEC are the five or six large financial institutions. I would like someone to ask IBEC every time its representatives open their mouths what it is doing about its members who caused this major problem for us. They are welcomed as people who can solve our problem without any reference to the fact they caused it in the first place. We should be very clear about that. Bankers, IBEC and economists are not the people who should tell us what to do next.
It is fair to say the people are losing confidence in the Government but it is unfair to say it has got it completely wrong. The Government has not got it any more wrong than the governments of the US, the UK, Germany or France. During the first debate we had on this issue four or five months ago, people said Germany got it right but clearly it did not and it is now in the same position as the rest of us. As the Minister of State probably mentioned, we have a lower debt-gross national product ratio than any of the countries I mentioned. It is impossible to estimate the debt-GNP ratio of the United States. It is off the scale. It is right to say we have 2 million people working and a better infrastructure than on the previous occasion we came through it. We should examine these aspects.
We should not talk down the economy. My only disappointment in the Minister of State is that he talked himself out of a job recently on a radio programme. I cringed when I heard that. The Minister of State is a busy, active, articulate and effective Minister of State — he can add that to his curriculum vitae — and it ill-behoves him to say on a radio programme that we do not need him. It is not the case that we must sack people to give some kind of fodder to the media in terms of politicians' expenses and the numbers of Ministers of State. If the Minister wants to examine the position of Ministers of State he should give me their diaries for the past six months and I will tell him who needs to go. That can be done quickly and easily in terms of their productivity. I have done it all my life in other jobs; I can do it in this one as well. If people are delivering, they are delivering and we should not posture about it.
Public sector unions are closer to the position on the ground. What should we do with the public sector unions? In terms of whether there will be a deal, of course there will be a deal because those people are committed to nothing else except the public service. They want this country to work. They are not in it for the profit. They want to make it work. They also want to protect their members.
We should not do this piecemeal. We should not leave people in a situation where they are dealing with a 1% levy and where they might also have to deal with an extra pension payment, although I accept the ICTU's point in terms of what we should do, and a pay cut. That will demoralise people. We should examine the figures. If €1.8 billion or €2 billion is needed this year, the public sector unions should be asked if they can deliver on that and how they can do it. They should be asked to give it back to us. They should not give us a solution with wage cuts and expect people to buy into that publicly.
I believe in the recovery bond. I have been saying that for a number of months. I discussed it with my colleagues in the ICTU. If every public sector union was given the option of buying into a recovery bond, which would ensure our Government got money cheaper than we could borrow it from Germany or elsewhere, either at 0% or 1% interest or an interest rate related to gross domestic product and with no exit before five years, we would then get people involved who could afford it. There is no difference between public sector and private sector workers in terms of making ends meet.
Last May people were struggling with income in terms of paying their mortgages. The drop in interest rates has brought them back into the game, so to speak. If we cut their salary, whether they are in the public or private sector, they will now be back in the same position again. Salary cuts are not the issue.
I would go around this country as a union leader selling the idea of a recovery bond. It was done previously. Michael Collins did it in 1922. We should collect the money from the people for the people. It would be an investment in the country. We should show some leadership. The Minister should give us an objective and a target and let us deliver. We can do that. That is as much as I can add at this stage but we should give this issue to the people who we need to bring about a solution and let us make this work together.
I thank Senator O'Toole for sharing his time with me. The idea of a recovery bond, which has just been mentioned, is an imaginative one. That is the way we should be thinking but the Minister of State's speech, and that of Senator MacSharry, was somewhat calm, lacking in urgency and, to a great extent, too complacent.
The Minister of State should read the article on bonds in today's Financial Times. I am not talking about British Paddy bashing, which has been going on recently. I am looking at the spreads on ten year government bonds. Out of 21 countries, Ireland is 20th. It is just cheaper for Ireland to borrow than Greece, and that gap has been closing rapidly in recent days. That tells us that the international money markets have lost confidence in Ireland Inc. and in the Irish Government. The people who make these markets do not have some sort of prejudice against this country. These are people who make cold, forensic judgments about what is going on in this country and whether they should lend it money. They are saying specifically, and they are saying it much more so in the past three days, that Ireland is at risk and is a big risk. I do not know whether it has overtaken Greece today but to be honest about it, Greece is not the sort of company we want to be keeping. In terms of the others, which are known as the PIGS countries, as the Minister of State will be aware — Portugal, Italy, Greece and Spain — we are far higher in terms of borrowing than those, bar Greece. The international markets have made a judgment on us which is damning. The signal coming out from there, and I say this as one who has supported Government finance policy for many years, is that the Government here is not capable and is not going to produce measures which are adequate to satisfy the markets.
It was the Irish Commissioner, a former Minister for Finance, who said in the Merrion Hotel some weeks ago that we had better realise that we cannot keep ratcheting up the national debt by €2 billion, €10 billion or whatever because there may be no one who will lend to us. That is the problem we are facing today, and the lack of urgency in the Minister of State's speech is part of that problem.
I was shattered to hear the Taoiseach say this morning that he may be able to further postpone a deal. I do not know what sort of a financial world the Department of Finance and the Department of the Taoiseach are living in because every day this happens, the cost of borrowing goes up. The Minister of State can examine the figures. It has happened in the past week. Every day there is a delay, it will cost millions of euro more in interest payments and in the cost of borrowing to the taxpayer. We will be making false economies if we just keep talking and pretend it will go right because the cost of borrowing is increasing.
There is no confidence in the international markets about what is happening in Ireland. There is a great deal of disappointment. I share Senator O'Toole's view, but even more so those from the Fine Gael benches because I have been saying it for years about the extraordinary way the Government goes to the social partners before it comes to this House. This House has never been consulted on any pay deal. I do not know why people are suddenly becoming converted to this now in a time of crisis. This House has been ignored, as has the Dáil, while the important decisions on the economy have been made elsewhere. The reality is that the Minister of State cannot tell us anything about anything in his speech except that the Government is monitoring this and discussing that. He used those words frequently. He is discussing it while the place is going up in flames. It is long past time for decisions.
Senator O'Toole referred to IBEC, and I agree with every word he said, but IBEC does not matter. It is a convenient foil for the unions to engage in a little bit of drama to rally the troops, and everyone needs that in this sort of situation. IBEC does not care two hoots what people say. Everyone knows that. It has got nothing to fight with. The people who matter are the public service unions.
There is no doubt a deal will be done by the public service unions but the danger is that it is dictated by the public service unions and not by the Government. We only have to look back to the last deal in the autumn — I have forgotten the month — which is now about to be scrapped because the Government capitulated and gave them what they wanted. They are now so embarrassed by what they got they are now saying they will give back something to the Government in the national interest.
Social partnership may or may not have served us well. I do not want to go back over that argument. It is a fairly stupid one and it cannot be proved either way. We know, however, that it did not save us from the circumstances in which we find ourselves and we are making the same mistake again. I hope the Minister and others do not appear in Dublin Castle in two weeks to tell the world, as they did a few months ago, what a great triumph they have achieved. This is not the way the finances of the country should be run and it does not fool the international markets.
In terms of other cuts in public expenditure, I plead that a hatchet be ruthlessly taken to State and semi-State agencies. The waste of taxpayers' money in these bodies which I could spell out if I had time is criminal. It would be utterly wrong to deprive education, health and other areas of vital importance when such unforgivable waste is permitted in semi-State bodies. It is there for the taking if there was the political will to do it.
What do we need to point the economy in the right direction when every economic indicator is heading in the wrong direction and it may not be possible to arrest the problem for a considerable period? We need a Government which is honest with the people about the scale of the problems we face and the decisions required to overcome them. We need an Opposition which takes a responsible approach to the most serious economic crisis in the history of the State and avoids the temptation to engage in naked political point scoring, one which suggests procedures and processes conducive to achieving the necessary recovery. We need media which take a rounded approach to reporting the sad, economic story. Notwithstanding the current economic indicators, a constant diet of doom and gloom becomes a self-fulfilling prophesy which precludes economic recovery in the short term. We need to encourage citizens to use their full potential as economic actors, which requires them to be productive in producing, purchasing and consuming goods and services.
The ingredient most lacking in the economy since the end of the Celtic tiger period, however real or otherwise that era was, is confidence. This confidence is required on a number of levels. Yesterday a prominent director of a major financial institution expressed to me his concern that the lack of confidence in Irish financial services arose from a belief there had been a level of corruption in that sector. As a result, Ireland is not regarded as a good country with which to do business. We need to sort out this problem.
I suggest the establishment of an Oireachtas committee on financial services with powers similar to those enjoyed by the Committee of Public Accounts would be a first step towards achieving public and international confidence in our financial services sector. Such a committee could investigate the practices followed in the financial services sector and, in bringing them to the surface, help to eliminate them. The introduction of the bank guarantee scheme and nationalisation of one of our major financial institutions make the Oireachtas the custodian of these institutions and their future behaviour. If we fail to take this action, we will entrench the bad behaviour which has brought about the current problem. As Senator Ross noted, international confidence is an important factor. The absence of confidence is creating a poor perception among members of the public. It is important, therefore, that we also generate confidence among citizens as economic actors. It will be difficult to reverse the current problems for as long as the belief persists we are in a downward economic spiral.
I concur with Senator Ross that we need to avoid a sense of complacency. The State has entered the most difficult economic period in its history. This requires a degree of national cohesion which is not usually sought in political discourse but which will be necessary if the economy is to regain the international respect and trust it enjoyed just a few short months ago. Decisions are being made and further decisions will be reached in the coming days to reflect the immediate need to curb public expenditure by €2 billion. It is clear a mechanism must be found to cut at least half of this sum from the public sector pay bill.
Public service pay which is necessary to run essential public services costs every man, woman and child €5,000 per annum. If people believe this is sustainable, given current revenue from taxation and the level of public expenditure committed and agreed to by the Houses, they do not have a grasp of basic economics. The expenditure and revenue sides of the equation must add up. While it may be uncomfortable for many Members, we have a responsibility to ensure cuts in the cost of running the political system are greater than those we ask other public services to accept as part of an overall package of expenditure reductions.
This period of national crisis should be a time of solidarity. If there is a perception that the Government and members of the political system wish to avoid reducing the overblown and burgeoning costs of the political system while seeking to impose swingeing cuts on many of those who are least capable of sustaining reductions in services, we will have failed as public representatives. I am confident, however, that the package which will emerge in the coming days will bring about a realisation of the seriousness of the position in which we find ourselves and the nature of the decisions we must take. While this package will emerge from consultations with the social partners, the decision making function remains with the Government, in the first instance, and, ultimately, the Houses of the Oireachtas. While we need solidarity and social partnership, the political system must take responsibility on behalf of the people. If we do not do so, we will delay the inevitable, make matters worse and render our objective more difficult to achieve.
I begin by repeating a comment I made on the Order of the Business when I described as a spectacle the scenario that this House has been invited to have a debate on the economy, one which has been correctly facilitated by the Minister and the Leader, in circumstances in which the presentation made to us by the Government, through the Minister of State, Deputy Mansergh — I do not criticise him personally — is almost completely devoid of detail in respect of the Government's proposals to take us out of the crisis described by Senator Boyle. At precisely the same time as the Minister of State is appearing before the House, a document, described in the media as a framework document, is apparently being presented to the social partners and one is asked to believe it contains specific proposals as to how we are to proceed. It is a spectacle and it is wrong, notwithstanding that Senator Boyle said decisions will be made by Government and these Houses and it is just a matter of consultation.
I enthusiastically support social partnership, but what is the problem with the Government sharing with the public and these Houses the bones of its proposals on where we are at? Why, day in and day out, must we pick up the newspapers, read informed and less informed, inspired and less inspired speculation on what will occur? Pay freezes, pay cuts, tax increases, public expenditure cuts are all mentioned. I ask the Minister of State to deal with this matter directly in his response.
It seems to me that kites are flown for a day or two to see how far they travel and are then drawn in by Government when they do not achieve a particular outcome it hoped for. That is no way to conduct this debate. I doubt if any democracy in the world would conduct a debate about a crisis such as this in that manner. What is the problem with the Government setting out its proposals and strategy to these Houses? It clearly has not been done. Why has it not been done? Why can it not be done? I understand the process of negotiation and the requirement for people to be circumspect on particular numbers, whether it concerns pay increases, reductions or freezes and so on. We are dealing with more than issues concerning pay. We are dealing with the broader sweep of the economic crisis we are facing. Senator Boyle correctly described it as a crisis.
To put it mildly, it is not good enough that we are treated to something that is not really a debate. Out of deference to these Houses, I will not describe it as a farce, but that is what amounts to, particularly in circumstances where the real action is taking place somewhere else down town. Somebody needs to explain that situation to the people we represent in these Houses. I agree entirely and enthusiastically with what I understood Senator Boyle proposed, namely a committee of these Houses to examine and report on the banking crisis and the financial situation that has arisen as a consequence of the collapses of recent months. Some examples are the Government nationalisation of Anglo Irish Bank, the various other steps taken on recapitalisation and the bank guarantee scheme.
Ministers and the Government often decry Opposition Members and journalists who want to talk about how we got here. I can understand Ministers not wanting to talk about it. That is a perfectly human response on their part, because if we are to have a debate on how we got here they will not come out of it particularly well. The Minister of State and I had an exchange here on another occasion when I reminded him and colleagues of remarks by the former Minister, Mr. McCreevy, that when he had money he spent it and when he did not have it, it could not be spent. In fairness to the Minister of State, in his response to me he expressed the same level of unhappiness with that type of sentiment as I expressed. In the opening remarks of his speech, he talks about the words of the psalm. He uses the word "perhaps", the least useful word in the sentence. He said, "In the days of our prosperity, perhaps we should have heeded the words of the psalm." It is manifest that in the days our prosperity we should have heeded the words of the psalmist.
Senator MacSharry may say that hindsight is all very well and we did not realise these things at the time. There were plenty of people making these points and talking about the overheating of the housing and construction markets. A person with a good reputation, Dr. Peter Bacon, was recruited by the Government to examine this issue. He brought out a report in 2000 which made a number of proposals which, as I recall, were calculated to take the heat out the madness of growth in the housing sector. It was a mirage rather than real growth, based on productive activity. Dr. Bacon suggested, among other things, the introduction of a 2% or 3% property tax, which would not have to be paid if a speculator signed up to various standards in accommodation and so on. He also sought major reform of stamp duty, with staggered rates, depending on whether the purchaser was a first time buyer. Changes were made later, but these recommendations were made in 2000. Bacon is an expert economic consultant who was retained by the Government, not a solo operator writing op-ed pieces in a newspaper. He made it very clear at the time that property prices would continue to go through the roof and if the situation was not brought under control it would cause huge difficulties down the road, which is precisely what occurred. People cannot say, "This is all a big surprise, we could never have known." Likewise, the Minister of State cannot seek to persuade us that what occurred is like a natural disaster.
I hope to raise this issue again in the House. Senator Boyle made a proposal to establish a dedicated committee of these Houses to consider the banking crisis. I would have thought that the Minister of State, as a historian, would agree with the general proposition that it is very difficult for the Government, the Houses of the Oireachtas or the community to buy into — a phrase which I hate — have confidence in and be party to difficult proposals on cutbacks to services, pay cuts or anything else unless there is an honest assessment made of how we have reached the stage we are at now. It is not good enough for the Government to give the impression that once proposals have been put through the social partnership process, there will suddenly be a set of proposals to solve everything. I am not suggesting the Government thinks it will be that easy — because clearly it will not — but it would be vastly easier for the country if people were spoken to honestly and frankly on how we reached the current situation.
The nature of political debate and discourse in this country on issues such as taxation has been, in my opinion, almost poisoned in recent years by a mad rush to encourage people to see that wealth, the future of their families and future well-being reposed in property, whether it was a first, second or third property. There was no serious debate. Allied to that was the complete failure, across the board, to have an adult debate on the relationship between taxation and public services. We have not had such a debate in this country for 20 years or more. People have become petrified by the notion that if one talks about the need for a broader tax base, one is a tax-and-spend merchant coming in from stage left, and all one wants to do is raise taxation and spend people's money. Glib dismissals of those kinds of issues have made it difficult for us to have an intelligent adult debate on taxation.
I heard a Government colleague criticise Senator Twomey, saying that the Opposition's only solution was to raise taxes. I remind the Minister of State and my colleagues opposite that this Government raised taxes dramatically in the recent budget. Let nobody say that the income levy is not a tax. Does anybody believe that levy will be a temporary provision and will not be continued, perhaps being integrated into the tax code itself? We all know the levy is there for good. We also know that it is only a matter of time before taxes will be raised. The tragedy is that taxes are being raised when the Government has its back to the ropes and must levy moneys to provide services to which it is committed, rather than having had a more serious debate over the past ten years about the proper level of taxation consistent with the required level of public services. It is almost an emergency situation. Meanwhile, we have pushed many public services into the private sector, most spectacularly in the health service. In child care and other areas we have been content to say that people ought largely to provide for themselves rather than having a robust State system to do so. While it may be for the wrong reasons, there is a genuine opportunity now to debate in this House, in the community, in the course of elections and in the media the level of public services we want. In that way we can match it to the necessary level of taxation.
The Commission on Taxation is due to report in the summer. Its work is complex and there is much pressure at the moment because there is a major crisis. Various options must be up for debate, both here and among the general public. Can some consideration be given to bringing forward that commission's report, or to having an interim report to assist our debate on tax? The commission was given a reasonably lengthy timeframe because of the complexity of its work, but it is a pity that it is impossible for us to have a truly comprehensive debate on all these economic issues because the tax issue is being put off until the summer when the commission reports. We should not go off on our holidays and table it for debate when we come back in September or October. I understand there are complex issues and that it is easier said than done to bring forward such a report. However, in our particular circumstances, and in view of the peculiarly important role of taxation in the context of the economic crisis and the kind of public services we aspire to have in future, it would be useful if that report were available for deliberation. Is it possible to have an interim report from the commission, which might guide the debate on that crucial issue?
Yesterday we saw an example of the difficulties in the economy. Ulster Bank and First Active announced they were merging and seeking voluntary redundancies. Of the 7,000 employees on the island of Ireland they are seeking 750 redundancies — 200 in the North and 550 in the Republic. Branches will close or merge and the trading name of First Active will cease to exist. This is a classic example because these banks are owned by the Royal Bank of Scotland. RBS recently purchased ABN Amro which in turn purchased €20 billion worth of sub-prime mortgages. That is how the global economy is affecting Ireland severely. We are major traders and have one of the most open economies in the world. When there is a global downturn it will inevitably affect the Irish economy quite seriously. We trade 35% of all our exports between the US and the UK. In the last few years the euro has significantly appreciated against both sterling and the US dollar.
Despite the perfect storm this Government has found itself in, with hugely decreased income in a short time, it has reacted properly and with a measure of confidence. The Government has not attempted to cut back and create a difficulty. In other words, the last thing the Government wishes to do is turn off the light at the end of the tunnel. In fact, it has decided to spread over a number of years the decreases in expenditure that will be necessary.
I am glad the Government is examining all areas of public expenditure to identify where some of the €2 billion can be saved. One of the major areas of expenditure is public pay. I believe the public service will play its part and we will find savings of €2 billion. How can we get the confidence of world markets in such a short space of time? We have that confidence. Fitch's, one of the rating agencies, recently reinstated the triple A status of Ireland incorporated. We are a good group to lend money to. In ensuring that we continue to have some capital expenditure and that we do not just cut and slash, we are ensuring our future productivity and our future generally. We have had a budget deficit in only one of the past 12 years.
Unfortunately, we tend to forget that there will be a turn. We might look inward rather than outward and say that the world economy and our own will pick up. There are a number of positive signs already. We are now looking at interest rates that are historically low. In the UK the rate has not been as low since the Bank of England was established in the 1600s. The ECB rate is currently at 2% and could fall lower to 1.5% or 1%. In America, money is probably not even earning the return on inflation. Those facts, coupled with low oil prices and lower expectations, mean that we have deflation in some countries. Ireland has deflation of minus 2%. It is a good time to commend the Government because in the most difficult, most severe and swiftest downturn it gave a 3% increase across the board in social welfare payments for those who can least afford to meet the challenges. The same people are now seeing a real increase of 5% in their net incomes, due to 2% deflation. That is not to suggest that we do not have severe challenges ahead. Those challenges are being met and will continue to be met. The Government put us in a position to be able to meet those challenges because we have a low tax rate. We have one of the lowest tax rates in Europe, which gives us a particular edge in increasing taxation if needs be. We have a very low debt and, as a percentage of general government debt, we have the lowest in Europe. It is half the EU average when local government and other subsidiary debt are taken into account. We also put in place the National Pension Reserve Fund and, therefore, we are well positioned.
The Opposition parties did not do themselves many favours by refusing to support the nationalisation of Anglo Irish Bank. If one lives long enough, one will see everything.
Words have meaning and they take flight, particularly in the financial sector, when they are reported and quoted. An Opposition spokesperson said the reason Anglo Irish Bank was being nationalised was to support builders and friends of Fianna Fáil but that is not true. It was essential for the economy because it is the third largest bank in the State.
We are well placed and we are taking the right decisions. We will continue to take the right decisions and the necessary cuts will be made while protecting the less well-off in society. I agree with Senator MacSharry about how sensible companies are in making adjustments where necessary by adopting short-term, week on, week off arrangements. The last thing we need to do is close businesses because the economy will pick up again, as will the international economy. I expect the economy to continue to be a major player.
I welcome the Minister of State to the House and I thank him for his brief outline. It is unfortunate that the relevant document is, as Senator Alex White stated " in circulation among other people down town", particularly the social partners. As I stated on the Order of Business, we are supportive of the social partnership process and we would like progress to be made but this is one of two Houses of Parliament and, as Senator Ross said, it is strange that in our democracy we are being denied the document, which might list options and lead to a more structured and better informed debate. All of us want the country to succeed and we are playing for the same team — Ireland. We all have a vested interest in its success. Everybody on this side of the House is as patriotic about their intentions to succeed as any Government Member.
As the Minister of State said, we are in difficulty on all fronts — budgetary, banking and economic. I also acknowledge that a negative impact is being felt worldwide. The Minister of State referred to the difficulty we are facing with competitiveness issues, particularly exports to sterling areas. We must struggle with this until it comes right. Why not consult everyone in order that they are on the same team working for this great country, which we want to succeed?
We have experienced a significantly sharp contraction in the housing market. Construction was important to our economy in the recent past and it helped to create the so-called Celtic tiger. However, house prices have reduced by between 20% and 35% depending on the part of the country in which one lives. Significant tax revenue is tied up in unsold houses. The average price of a house is approximately €250,000, 40% of which could be realised in tax if it was sold. There are small signs of momentum in house sales as a result of low interest rates. Why scare people from investing by imposing an additional tax of €400 per house? A tax of €200 was imposed on second homes in the budget and the energy rating certificate requirement for new houses is a stealth tax of between €300 and €600 depending on who carries out the survey. Landlords were caught by the income levy imposed in the budget while management companies running apartment blocks charge up to €2,000 per annum. The Government should not kill off the prospect of the housing market getting off the ground again. That is very important. We all know small builders and hard working tradesmen, as opposed to massive speculators, who have between three and six houses they cannot sell. Their future and those of the few employees they have retained is uncertain. It is difficult for them on a daily basis and I would do anything to enable them to sell their houses because that would be good for the economy as well as them. I would hate to see us go down the road of additional property taxation.
This is why all the options must be discussed. As Senator O'Toole said, we have had solidity from Deputies Bruton and Burton but more openness and consultation are needed. I agree with Senator Boyle's proposal for a dedicated all-party committee. That could be very beneficial because these are nervous times for our economy, particularly the banking sector, and we are trying to eke our way out of them. Fine Gael accepted the principle underpinning the nationalisation of Anglo Irish Bank but we were upset about the way the debate was guillotined in both Houses because we were denied the opportunity to give matters we wished to air the detailed consideration they needed. However, we have moved on and that measure has been taken.
I refer to the recapitalisation of AIB and Bank of Ireland. These banks have significant networks throughout the State and our economy cannot work without them. Their recapitalisation is vital. We cannot afford delay, which is the enemy of progress. The delay will adversely impact on investor confidence. There have been small but encouraging signs in the movement of the prices of both, particularly today. The talks with the two banks should be progressed urgently and brought to fruition. The longer they drag on the longer we will have an absence of confidence. Confidence is the intangible that is so important. Without it we are going nowhere. The acceptance in the investment community and the wider economy that the recapitalisation of the banks has been a success will be vital in getting off the ground.
There is responsible opposition on all these matters. There has been great waste in State and semi-Stage agencies. I had wanted to deal with——
Senator Coghlan has set the tone for me regarding people with second houses. The construction sector has gone extremely flat and the Senator is right in pointing to the surplus of houses. One in two is owned by someone who bought it towards a pension or for the use of his or her children going to college in Dublin, Limerick or Galway. Such persons now find themselves in a position of negative equity. We do not need to put pressure on them.
Economic forecasting has been near impossible in recent months. The International Monetary Fund has looked at every economy and revised its projections of economic growth on a number of occasions. Even though it is one of the better bodies at forecasting, it has not got it right. The Government has taken action as difficulties have emerged. The Taoiseach has made it very clear that there is an immediate and intensive round of discussions with the social partners, with which it is very important to consult. As the social partners have been extremely good in ensuring we have had a stable economy for the past 12 or 13 years, why would we not hold discussions with them when we find ourselves in some difficulty, as is the case now? It will not be a problem if it takes an extra few days to get agreement on savings of €15 billion in the next five years. People have not listened carefully to what the Taoiseach has said. There is a plan. We need to ensure we meet the target of €15 billion in the next five years.
The spreads on borrowing have widened in virtually every country. It is more difficult to raise money on world markets because of a major extension of borrowing, not just in Ireland but across the globe. Decisions in countries such the United Kingdom which I would regard as knee-jerk reactions have not ensured their banking sectors are any safer than ours. Our approach to dealing with the sector has been responsible. We have not cost the taxpayer one penny. We bought Anglo Irish Bank at a very modest price — if we need to pay anything for it. The people would expect us to take a cautious approach to the banking crisis. We must investigate the disgraceful behaviour of former directors of Anglo Irish Bank. I agree with Senator Boyle on the need for a proper inquiry into what happened at that bank.
We are going to have a difficult time in the next five years. We need to support the Government in its efforts to bring spending under control. If we do not do so, it will cost us dearly. It is important not to be doom and gloom merchants. We can exaggerate our difficulties. Mortgage and bank interest rates have reduced considerably in recent months, which is very good news. Petrol and diesel prices have reduced. Houses are becoming more affordable for young people. There is a competitive market for clothing and footwear. We will benefit from this readjustment in the economy. A competitive market for consumer products is improving. There is no point in increasing wage rates when inflation rates have stabilised. Even if we stand still for the next year we will be in good stead because prices have stabilised.
I have made a proposal to the Fianna Fáil parliamentary party in respect of a €9 billion retrofit of housing which could create up to 25,000 new jobs — three times the number of jobs associated with Dell. Inspections with regard to the new building energy rating, introduced on 1 January, will result in the creation of at least 1,300 jobs. The Government will put substantial money behind that job creation project in the budget. There are more than 1 million houses which need to have their insulation upgraded. Through attic insulation, cavity wall filling and air tightness, for approximately €15,000 to €20,000 the energy rating of a house could be raised to a "B" standard. This, in turn, would result in a payback to the householder who would benefit by a 50% reduction in energy consumption. We would also meet our EU commitments in CO2 reductions. Such a job creation project would do more than taking 100,000 cars off the road. We must reduce our dependency on fossil fuels through the provision of grants or tax incentives. The use of solar energy and wood pellet burning would benefit the economy greatly and help to ensure we meet our EU commitments in CO2 reductions.
I welcome the Minister of State, Deputy Mansergh, to the House. I did not think the bail out of Anglo Irish Bank was free. Perhaps the Minister will give us the report by PricewaterhouseCoopers on the bad debts in Anglo Irish Bank. Perhaps Senator Butler can let the Irish people know what they are paying to bail out the bank and the friends of Fianna Fáil. The bailout was not free — the Irish taxpayer will pay for it.
The Minister of State is a genuine, decent person and I supported his call last week. I admired his bravery in saying that he would not mind being fired. Senator Hanafin blamed Fine Gael for being unsupportive of the Government. Let us put the record straight. We were the first to raise the flag about benchmarking and public spending. What do we get from the Government? The laissez-faire approach, being all things to all people. Let us call a spade a spade. The scale of the economic crisis is due to bad Government planning, bad policy and the legacy of bad leadership over the past ten years. The Irish people were sold a pup by Fianna Fáil, in particular in 2002 and 2007. We built our economy on a false boom.
This party has never been found wanting on the economy, the North or any other issue. Fine Gael has always been supportive and has always put the country first. An example is the capitalisation programme at the end of September and October. I resent any cheap shots and I will challenge them. I will take on the Senators opposite. The reality is that we have had no plan from the Government. Last summer, the Minister for Finance ordered a sort of mini budget. There was pandemonium during the summer holidays. The Cabinet decided to bring the budget forward to 14 October. They forgot about the consequences of declining tax returns and that the budgetary process was not ready. The budget was a botched job.
Let us put the record straight. The Government has not demonstrated leadership. Where is the plan? What have the social partners been told today? I am an unashamed fan of social partnership and I admire what has been done in that respect. No detail has been given to Members of either House of the Oireachtas.
The people have lost confidence, not just in the Government but in each other. Walking through the streets of Cork at the weekend, one could drive a bus through some of the shops and restaurants in town. These small businesses are struggling; they are not multinationals. They are struggling to survive because banks will not lend, liquidity is being taken from them and there is no support from Government. This has dragged on for ages. We are in a vacuum yet again. Tax revenues have plummeted. This Government reminds me of the Tories in England in the 1980s. It is going from crisis to crisis, bereft of ideas and lacking in leadership.
The Fine Gael general election manifesto was referred to and I want to clarify that Fine Gael produced this on the basis of 4% growth. Long before the Government, the Fine Gael spokesperson on finance, Deputy Richard Bruton, published a document entitled Recovery through Reform. We identified areas and proposed solutions. It is important that we allow cash to flow to small and medium-sized enterprises, that money is lent and that banks allow small enterprises to continue.
As a public servant in my previous incarnation as a teacher, I want to defend the public servants. They have been wrongly maligned by many commentators in the media. The majority of public servants do an extraordinarily good job and are committed to the delivery of service. I praise our education establishments and pay tribute to our teachers, nurses and gardaí. They do a job and are entitled to be treated with respect. Mr. Turlough O'Sullivan and some other commentators should get off their backs. There is a political malaise where we blame the public service for everything. Many politicians do so as well and it is not fair.
We need the articulation of a plan. We need a blueprint on how to move forward. Judging by the behaviour of the Taoiseach in the other House today, he is not interested in collegiality or consensus. How long can we prolong the drip-drip effect of Ministers talking about cuts in pension provision, cuts in salaries and cuts in services? How long can this continue? One cannot postpone the decision-making process forever. We have been at this since the middle of May. Change is necessary.
The Government should stop blaming the Opposition, Joe Duffy, the people on "Liveline" and public servants. The Government should blame those who got us into this. We should regulate the banks properly once and for all. The people of Ireland require action, not an urbi et orbi state of the nation address. If that is all the Fianna Fáil parliamentary party could come up with after five hours yesterday, God help us.
We need action, not talk. Fianna Fáil has had its chance for 11 years. It was given a great economy by the parties then in Government and it has squandered it. Now it wants Fine Gael to come in and help it out. Let us have an election and change it for good.
I could respond to the last speaker but it is best if I stay on course. Anyone who wants to be invigorated and encouraged at this difficult time should participate in a good, heavy, five-hour debate with the leader of the country, his ministerial team and the broadest spectrum of individuals who took part in that debate. Senator Buttimer and others would learn a lot from it.
Our country is battling the most severe global storm experienced in decades. The Irish economy has hit a turbulent patch and this is totally different from any downturn we experienced in the past. Some of my colleagues have stated that we have been through this before and that we will get through it again. As Richard Nixon says, it is only when one reaches the dizzy heights that one appreciates the lowest valley. We are battling this storm coming from the dizzy heights of a booming economy to a serious crash in the economy with deteriorating conditions elsewhere in the global economy along with exchange rate movements which have been most unhelpful. The international markets and financial institutions play a pivotal role in our economy.
The housing market has slowed down to a near standstill and has adjusted other sectors of industry. This is especially noticeable in the retail areas of bedding, furniture, flooring and soft furnishings. Consumer spending has been curtailed and a broad spectrum of businesses are experiencing difficulties, the car sales sector, for example. Other sectors that feed into our economy are feeling the pinch and there is thus a visible decline in activity with reduced spending across the board which has triggered other difficulties such as unemployment and uncertainty.
Many of the factors weighing down economic developments will continue throughout 2009 and into 2010. International forecasting agencies are projecting that the global economy will record negative growth which does not bode well for a small country like Ireland which depends on its exports. However, there is a view that the markets will pick up in 2010 and there will be some modest growth in 2010.
Many of our difficulties are related to the manner in which our financial institutions carry out their business. I have raised this issue with the highest authority and have been assured the banks have assured the authorities they are open for business. That may be so but I suggest that the banks' approach to business should be closely monitored. Are the banks operating in a pragmatic and realistic manner given the current climate? I pose the question and I understand that the banks are causing serious and grave difficulties that warrant special focus in light of the fact that they are receiving support to recapitalise.
I refer to the opening remarks of the Minister of State. Our requirement for the banking sector is that it will serve borrowers, small and medium-size enterprises and all stakeholders in an honest and straightforward way and ensure customers and consumers are treated in a reputable and respectable manner. I wholeheartedly support the Minister of State in that regard. We should neither underestimate our challenges nor overstate our difficulties. It is important to have a positive attitude to our future and the opportunities that may present.
Last week, we witnessed what many believed would never happen, namely, the inauguration of the new President of the United States of America, Barack Obama. This is a president who has already raised the bar on many issues and who has brought hope and confidence for the future. It is no exaggeration to assert we are at a point in our history where we have never been able to see more clearly what we can achieve. The Irish "can do" attitude has characterised our success before and it is all the more necessary now.
We have the basic ingredients of a good infrastructure, excellent educational and research and development facilities, diverse markets, established trade links, an entrepreneurial and determined population and much more. We know the resources exist and we can get them working, especially with the correct incentives and investment policies.
The Government has a wealth of ability, knowledge and experience and it is eager to get down to the task of getting us moving again along the road we successfully travelled in the past. I wish all the parties in the social partnership well in their endeavours.
The deterioration in revenue and the increase in expenditure has brought us to a position where our national debt in 2007 was €37 billion. An additional €18 billion in 2008 has brought the debt just shy of €50 billion. We are borrowing €50 million a day as our basic daily requirement. I support the focus on restoring stability to our public finances and the rebooting of our financial institutions to meet customer needs, as outlined by the Minister of State, especially with regard to finance and credit requirements, and the commencement of the process of restoring confidence and competitiveness.
We need a framework to include all stakeholders which will be even and fair for economic recovery. We need to initiate a range of pro-enterprise tax measures to stimulate activity and employment opportunities. We need to reduce administrative burdens and regulation on business. We need to create favourable opportunities for enterprise development through the generation of renewable energy resources, green enterprise and the smart economy. We need to ensure wage moderation and flexibility consistent with a competitive position. I refer in particular to the need to address the minimum wage and other cost factors such as regulation adherence costs. I meet people who are active in the marketplace and are trying to adhere to the regulations in place in the Republic while they cannot compete with the Six Counties. This situation must be addressed or else we will continue to see what has happened in Dell and in other places. We must get real and be pragmatic.
I support the stimulation of the economy by pumping billions of euro into the capital investment programmes, the multi-million investment in motorways, the roll-out of broadband, the investment in the commercial sea ports, and the upgrading of water services, school buildings and health facilities and social housing. A total of €20 billion will be invested over a period of years in ESB, EirGrid and Bord Gáis network upgrades.
I listened to the Taoiseach speaking on the Order of Business in the Dáil today. I could not believe the arrogance he displayed at a time when he is asking for the co-operation of the Opposition and all sides on the economy. The best he could come up was to ask the Opposition to state their ideas. We have been giving him our ideas for the past six or seven years and more and not one of them has been listened to. The positive ideas given over the past six or seven years by our leader and our spokesperson on finance have been ridiculed. When we warned of a property bust after the boom, we were laughed at and told we were being negative instead of being positive. It is all very well to be positive when one has a reason to be with an economy built on solid foundations. When it was built on the foundations such as those in Ireland over the past several years, however, there was no reason to be positive. The chickens now have come home to roost.
Senator Callely spoke of a global storm. Continuing with the nautical theme, Ireland has no captain, first mate or leadership. It is a rudderless ship of state. Senator Callely told us not to talk about our difficulties but to be positive. This denial, as shown by the Minister for Finance on BBC's "Newsnight" recently, is what got us into the current problem in the first place. The Government is only waking up now after every economist has told it for the past six months, some even years ago, of the problems in the economy.
This Fianna Fáil, Green Party and other mixum gatherum Government's legacy is that in just 18 months it has managed to double the unemployment level and the national debt. This has never happened before in the State's history. May we get rid of this Government as soon as possible to ensure it will never happen again. The electorate is looking for leadership and policies which the Fine Gael Party has advocated for the past several years. An early general election is needed.
In its latest quarterly bulletin, the ESRI has forecasted the economy will contract by 5% in 2009 after an estimated contraction of 2.2% in 2008. This is unprecedented. It has been the greatest reversal in economic growth, both historically and by current domestic and international standards. In the depth of the last recession in the 1980s, the economy declined by 1.3% and 1.9% in 1982 and 1983, respectively. That is less than half the current rate of the current decline which shows how bad the Government has run down the economy.
While all countries face economic difficulties, not many of them face a crisis similar to Ireland's. According to OECD forecasts, developed economies as a whole are expected to grow marginally in 2009 while the next worst performing EU member state to Ireland will be Hungary, whose economy has contracted by 1.5%. Ireland has the worst deficit in public finances of any EU member state with borrowing likely to exceed €18 billion, 10% of gross domestic product, next year. The national debt will be doubled by 2010. Ireland will suffer the largest increase in unemployment of any EU member state.
Fianna Fáil wasted the boom and destroyed the fundamentals of the economy. The economy was left uniquely exposed to the global economic crisis. Of all the EU member states, Ireland had the largest property boom, the greatest dependence on the construction sector for jobs, the highest levels of personal indebtedness, the largest increases in costs and the greatest loss of export market share.
The economic principles that delivered the prosperity of the Celtic tiger in the 1990s were keeping costs down, ensuring high levels of productivity, export-led growth, tight budgeting and prudent regulation of the financial sector and the housing market. All these principles were abandoned by the Government. The impact the collapsing economy will have on families and communities will be devastating. Private sector wages will fall for the first time in the State's history, even as Ireland will remain the most expensive EU member state for food and household goods. Employment is expected to fall by 116,000, 2,000 jobs a week, pushing up the live register to 375,000 by the end of 2009.
The Government's policies are putting people into unemployment. Competitiveness has been affected. The ESB's electricity prices, for example, will not come down because of regulation even though oil prices have dropped significantly. Domestic and industrial electricity prices should be coming down so we can position ourselves properly to come out of this recession.
Only in recent months has the Government used the term "recession". It was afraid to mention it before then when everyone else could see the economy tumbling. The people will have to make sacrifices because of this Government's failure and that of the Government in which the Taoiseach was Minister for Finance. The best the Government can do now is ask us for our ideas. It would not listen to us for the past seven years. Now it wants to hear these ideas and claim it is implementing Fine Gael's cuts. It will not work and the public will not buy it any more.
I do not know why the Government would ask for suggestions from certain quarters because they seem to be bereft of any positive suggestions. I too could engage in partisan politics but the situation is far too serious and would serve no useful purpose.
As many Members have recognised, there is a global dimension to this economic problem. That is not to deny there are domestic problems as well. The entire banking system across the major western economies is in crisis. While it may have been building up for years, it has happened rapidly and was not recognised by many economic commentators, as Senator Joe O'Toole stated earlier.
In a report last week, Professor Roubini of New York University stated the US financial institutions could be facing losses to the tune of €3.6 trillion. His estimation was that if this turned out to be true, they would be effectively insolvent. Who would have ever thought the banking institutions of the number one economy in the world could reach this disastrous point.
In the neighbouring island, the UK Government had to inject €20 billion into the Royal Bank of Scotland. The bank has recorded a loss of €28 billion for 2008 and may well have to be nationalised to be salvaged. In the last quarter the German economy's output was reduced by 2.4%. We are in uncharted waters. No one in our lifetimes has seen such challenges.
Every village in the world is experiencing recession. Unemployment is rising in practically all our competing countries. However, this is no consolation to us. We have our own problems and, while we may look to certain international institutions or the EU for assistance, we ultimately have to address them ourselves.
Investor and consumer confidence is at an extremely low ebb but whether we are in Government, Opposition or the media, we all have a part to play as economic commentators to give a fair and objective account of our circumstances. I was told last week by a person from America who plays an important public service role in this country that even though the United States' economy is in deeper trouble than ours, the feelings of doom and gloom are much more pervasive here. We need to manage those feelings because the sooner we restore consumer confidence, the better. Unless we increase spending in the economy, unemployment will continue to grow. Unfortunately, unemployment will be a feature in all the major economies this and next year.
Suggestions have been made, although not by Fine Gael Members, regarding credit availability from banks. We can all provide anecdotal evidence that credit is not being made available. Efforts have been made to improve capitalisation and the policies of banks but perhaps it is also necessary to restore confidence in their lending policies. Our procurement policies should as much as possible assist small and medium enterprises. There should be less bureaucracy and fewer forms. In so far as small and medium enterprises are concerned, regulations and labour interventions in particular should be set aside for the present. I have learned of instances in my neck of the woods, which I know are being repeated throughout the country, whereby National Employment Rights Agency inspectors insist that restaurant staff are paid double time on Sundays. Apparently that is the law but it goes against the wishes of the employees and their employers who cannot afford the wage bill, and people are losing their jobs as a consequence. It is a ludicrous policy in the current climate. It was one matter to enforce these regulations in good economic times but we must now be pragmatic. I make the same argument about the minimum wage. Every obstacle to employment must be examined and possibly set aside.
Competitiveness is a major issue in terms of Exchequer borrowing. We may borrow as much as €20 billion this year unless corrective measures are taken. That is an unsustainable figure. There is no room for manoeuvre and there is no such thing, which I sometimes hear in the public service, as setting aside 80% of expenditure and considering only the remainder as discretionary spending. We have to consider our entire expenditure as discretionary.
Approximately €20 billion is paid on wages across the public service, of which we are part, and a further €20 billion on social welfare. It is my opinion that we need to cut €4 billion to €5 billion from the pay. That will not be done without pain. I have previously suggested that an immediate 10% cut should be made to the payroll of everyone in the public service without exception. The number of public servants also needs to be reduced by 15%. This can be done by means of career breaks or retirement. I acknowledge the many hardworking people employed in the public service who are indispensable to the system but, like every large organisation, a proportion of public servants are hiding or unproductive. We need to concentrate on identifying the latter. In any large organisation, money is spent unnecessarily and sometimes wastefully. It will not be easy to identify that waste but we must do so. The best people to assist us in this task are the middle managers who know how to address inefficiencies without impacting front-line services.
I recommend pay cuts over increasing pension contributions or taking other soft options such as borrowing for the national development plan because we are uncompetitive in our wages. A report conducted 12 months ago by the University of Glasgow on income levels in urban areas of western European economies put Ireland in first place at €44,300. Denmark was second at €36,200, which means we are 23% ahead. Britain was in seventh place, at €29,200. In other words, our average wage in urban areas is 52% higher than Britain's. The people who have bankrolled the EU since we joined, the west Germans, earned €32,300 in urban areas, or 38% less than here. These figures are not sustainable and unless we act now, wages in the private sector will be forced to fall further. I appeal to the unions to consider this issue before the problems become more serious in two years' time. We will not be able to afford these pay levels and others will be dictating to us the cuts we need to make.
I ask the Minister of State and the previous speaker to tell us something we do not know. The Minister of State's presentation threw out a few new figures, several generalities and some literary comments of such a generic nature that they have no relevance to the problems we face. We need the Government to provide directions, decisions and policies. The role of the Opposition is to comment on Government policy and point out weaknesses to bring improvements but we are being asked instead to come up with solutions. Last July our spokesperson on finance, Deputy Bruton, proposed a series of measures which have been followed religiously by the Minister for Finance. I cannot find in the measures introduced by the Minister any that have not been proposed by Fine Gael. Deputy Bruton set out a programme for recovery in the autumn and articulated further measures last week.
All we are getting from this Government are frameworks for dealing with the banking crisis and the recovery of the economy. We have to read about the framework for discussions with social partners in the newspapers because we are told very little in the House. Essentially, this comprises the agenda for their meetings. I do not know the Taoiseach's problem but his policy seems to consist of asking everyone what should be done. No one in the Government is setting out a series of measures which could be judged on an objective basis. This country's international credibility has been affected owing to the Government's lack of action. Even when it became apparent that problems existed in respect of regulation in the banking sector, it did not act promptly to condemn bad practices and take the necessary actions.
The Minister of State suggested we should never again rely on the assumption that there would not be an economic cycle. Who assumed there was no such thing as the economic cycle? If that is what is being suggested in the introductory remarks as being a conventional wisdom over recent years, it was only in the mind of the Fianna Fáil-led Government of the past ten years. It never saw the necessity of prudent public finances but merely assumed that the tax take from the construction sector — stamp duty, etc. — would go on and built economic policies on that. That is the fundamental problem today.
The Minister of State has indicated global financial market conditions remain extremely difficult and this compounds the sharp contraction in the construction sector. It does not. All that international financial market conditions highlight is the weakness in economic management over the past ten years and the lack of regulation in our own financial sector. It exposes the faults and mistakes made, and this is why Ireland was first into recession in the European Union and the reason the recession in Ireland is deeper than that of any other member state. It is why our public finances are in much worse shape than in any other European Union member state.
The Minister of State has indicated the Department of Finance expects the economy to contract by 4% following a decline of nearly 1.5% last year. The ESRI has indicated in its latest quarterly report that the economy is expected to contract by 5% following a decline of 2.2% last year. The extent of the economic expertise in the Department of Finance has recently been highlighted and I wonder, even at this late stage, if the Government and the Minister have the correct figures.
The Minister of State has said we must demonstrate clearly, both nationally and internationally, that in response to the exceptionally difficult environment we face, our public finances will be managed in a stable and sustainable manner and be brought back on track. The Taoiseach said this last summer, after the summer, before Christmas and we have had a statement again today. We know this but a programme of action is required. The Government must bring forward policy, which we do not have before us today. As a result, commenting on any policy prescription from the Government is impossible. There is none.
I thought I would have the chance to make my comments when we had the debate on the nationalisation of Anglo Irish Bank. We were guillotined on that occasion so there was no opportunity then either.
I will briefly ask the Minister of State a few questions. It is easy to see what has gone wrong over recent years. Too many sections of this economy and parts of the Government were on autopilot. There was no control, accountability or management. When a former Minister, Charlie McCreevy, took some responsible decisions, he was given the boot and sent to Europe. He got no great comfort on the backbenches of his own party either at that time.
A former leader of our party, Deputy Michael Noonan, was scoffed at by Fianna Fáil and the Government of the day when he suggested that money from the National Pensions Reserve Fund be used for infrastructure within this country. Now we find money from fund will be used to bail out Anglo Irish Bank and, perhaps, other banks.
The Minister stated on the BBC the other day that it was a good job we are linked to the eurozone. I believe we are in the eurozone. It was a big slip-up for the Minister for Finance to say we are linked with the eurozone when we are definitely in it. It is a good job we are.
The Minister for Finance places great confidence in the Governor of the Central Bank, the Financial Regulator and the National Treasury Management Agency. Not for the first time, the National Treasury Management Agency has lost a lot of money in the pensions fund. It lost money a number of years ago and has done so again in the past two years.
Shareholders buying shares in various institutions or banks do so at their own risk. They know the responsibilities taken on and that they can lose everything. The National Treasury Management Agency is acting on behalf of the people of this country and it has failed them and their pensions. Its people did not carry out due diligence with many of the shares bought on behalf of the people and their agencies. If the Minister of State makes a response, he should indicate how much money has been lost from pensions in 2007 and 2008.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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I thank Senators for what has been, by and large, a constructive debate. I had the privilege of sitting in the House throughout the entire debate and many interesting ideas and suggestions were put forward.
A point was just made about the alleged difference between the ESRI and the Department of Finance. This possibly arises from rounding up and rounding down figures. The ESRI is forecasting gross national product will contract by 4.6% this year and the Department of Finance is forecasting a contraction of 4.5%. There is really no difference.
Martin Mansergh (Minister of State with special responsibility for the Arts, Department of Arts, Sport and Tourism; Minister of State with special responsibility for the Office of Public Works, Department of Finance; Tipperary South, Fianna Fail)
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The Houses of the Oireachtas have many opportunities to make inputs of ideas, and this has been one. They can also constitutionally accept or reject outcomes of programmes, plans and negotiations. Inevitably, negotiations which involve the size of a pay bill must take in those who receive or earn incomes and those who pay them. It is not realistic to believe negotiations — I have been involved in some in my time — can be done in public with partial ideas. In a negotiation, nothing is agreed until everything is. The problem with a partial approach is that the picture is distorted.
The urgency of reaching a conclusion at an early stage is well accepted but the opportunity of getting it right with wide public support should not be missed, if possible. Any agreed document will be published when there is agreement but at the end of the day the Government is democratically elected and must make decisions for which it can be held accountable through the Oireachtas. These decisions can be debated.
With regard to the banks issue, which is important, discussions are ongoing with AIB and Bank of Ireland on recapitalisation. The recapitalisation announced in December included a credit package under which the banks committed to, among other things, providing an additional 10% capacity for lending to small to medium enterprise in 2009, an additional 30% capacity for lending to first-time buyers in 2009, assisting householders in arrears on their mortgages and introducing a €100 million fund to support environmentally friendly investments with a view to reducing energy usage and facilitating a switch to renewable energies.
The immediate impact of the Act to nationalise Anglo Irish Bank which was signed into law on Wednesday last is to provide certainty for all of the bank's depositors and other customers across all of its operations in Ireland and internationally that it is secure and stable and will continue to conduct its business on normal terms. One cannot overemphasise the need for a healthy and sustainable banking system which is vital for the functioning of society and will be a central plank of recovery.
The Minister met the chairman of the Commission on Taxation last week and asked him to complete his report as soon as possible. However, the complexity of the issues involved must be borne in mind. In addition, decisions on changes in taxation will be made in the next budget which will not be introduced before the autumn.
Reference was made to the payment of bills by public sector bodies. Under legislation, all commercial transactions undertaken by State bodies are required to be paid within a specified period — usually 30 days — subject to contractual arrangements.
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I will do so on that note.