Thursday, 26 March 2009
Forthcoming Budget: 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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In recent decades we have positioned ourselves as a flexible and open economy, deeply integrated into the globalised trading environment. This economic strategy has served us well in recent years, leading to a period of unprecedented economic growth as our living standards moved into line with those of our European partners. This point is perhaps most strikingly highlighted by the fact that in 1973, GDP per capita was only 58% of the European average. By the end of 2007, GDP per capita represented 144% of the EU average. Of course, as we all understand the figure substantially overstates the position because of the earnings of multinational corporations.
However, as a small, open economy, this strategy necessarily leaves us vulnerable to downturns in global economic activity. When such periods of declining economic growth occur, it is crucial that we take the opportunity to ensure that our domestic structures are realigned to maximise our potential when the global recovery emerges, as it inevitably will.
We are all aware that the global economy is in the midst of its deepest and most widespread slowdown in decades. Arising from the international financial crisis, global economic prospects have deteriorated sharply. Last week, the International Monetary Fund announced that it expects the world economy to shrink for the first time in more than 60 years. Global trade has fallen dramatically and manufacturing output in many economies is contracting, with the advanced economies most severely affected. Globally, car sales, for example, were down 20% in the opening part of this year. This is impacting upon Ireland as our economic prospects are so closely aligned with developments elsewhere. Allied to this, unfavourable movements in the euro to sterling exchange rate are unhelpful for our exporters and are raising competitiveness concerns in that sector. It was interesting to note this week that whereas our prices are falling, the British inflation rate is rising sharply, which obviously reflects exchange rate movements.
On the domestic side, the downturn in the residential construction sector has spread to the rest of the economy, impacting upon the labour market and public finances and weighing upon consumer and business confidence. Due to this unprecedented confluence of adverse external and domestic factors, economic activity in Ireland will be very weak this year.
We must continue to pursue appropriate policies to position the economy to benefit from the global recovery when it eventually emerges. Through taking the necessary action now, we will safeguard our recent progress and secure our future prospects. Our economy remains flexible and resilient and this will facilitate an adjustment to reflect the prevailing conditions. Despite our constrained budgetary parameters, we have continued to make productive investment in physical and human capital under the national development plan. These measures will help equip the economy with the requisite skills, infrastructure and operating environment needed to participate in a future sustainable, export led growth pattern.
The economic downturn has been felt in the Irish economy on two fronts, namely, the rapid decline in the domestic construction industry and, by virtue of our small open economy, our exposure to the international deterioration. The speed and severity of the downturn has been unprecedented.
The Government is determined to deal with the economic challenges we face. In such instances, it is vital to prioritise our goals. The immediate task facing the Government is to address the difficulties in the public finances. If we cannot bring our public finances back to a sustainable path, we will fail to position ourselves to take full advantage as the global economy improves. We are absolutely committed to taking resolute corrective action and confident that we will succeed.
The Government has taken important action to address the emerging difficult economic and budgetary position, bringing forward the budget, implementing taxation and spending changes and introducing a pension contribution for public servants. Many governments are continually adapting and revising their responses as the recession deepens. Last July, the Government acted by announcing spending cuts of €400 million, effective for 2008, and €1 billion in 2009. This was followed up by the introduction in the budget of additional revenue raising measures of close to €2 billion.
The Government, in early January, set a five year framework to restore order to the public finances. In February, in line with the framework, a series of measures were introduced to secure further savings of up to €2 billion on a full year basis. We are committed to sustainable public finances and action taken to date points to this. It also demonstrates the difficult trading position in which we find ourselves.
The Government's determination to restore order to the public finances is recognised by our European partners. On Wednesday, the European Commission published the proposed Council recommendation on the excessive deficit procedure for Ireland which is a normal part of the operation of the Stability and Growth Pact. I welcome the endorsement in the Commission documents of the Government's aim to reduce the deficit below 3% by 2013, as set out in the January 2009 addendum to the stability programme and in its overall budgetary strategy. I understand the Minister for Finance has been in regular contact with colleagues at EU level and support for his approach has been expressed by the Commissioner for Economic and Monetary Affairs, Mr. Almunia, and the ECB President, Mr. Trichet, who was in Dublin recently.
I was glad to note that last week's edition of The Economist recognised the efforts Ireland has been making. It made two interesting points. It noted that despite the bursting, if one likes, of the housing bubble, Ireland has made strong gains from the Celtic tiger era. It is sometimes suggested that much of the growth was squandered. While I would accept some criticism, it is important to remember that, for example, we were frequently praised by the European Commission for the way in which we spent Structural and Cohesion Funds. The Commission was able to compare our expenditure of such funds with that of other countries. In addition, we managed to drive down our debt to an exceptionally low level and, as we discussed in other contexts, we put aside a substantial national pension reserve fund.
The second point made by The Economist was that when it came to retrenchment Ireland had form. Its commentary seemed to recognise that, as a country, we were buckling down to do what is necessary in the present circumstances, namely, to lower incomes and costs. I attended an Irish Financial Services Centre conference this morning at which one of the speakers made the point that since the recession has hit — so far its effect on the IFSC has been relatively light — it has become much more competitive to hire people and rents have fallen a good deal. With the drop in incomes and costs, we will shortly begin to see that Ireland will recover much of its competitiveness, as we most certainly need to do.
With the continued difficult international conditions, the public finances have inevitably come under pressure, with declining tax revenues and rising unemployment related payments. There is no doubt that the position in the public finances is extremely challenging. Our tax revenues in 2008 fell by 14% and the early Exchequer returns in 2009 have continued to be disappointing. Action must be taken to address this worsening position and the Government is determined to meet the difficult challenge of restoring the public finances to a stable and sustainable footing. We will do this as well as adjusting our cost base, improving our competitiveness and ensuring the economy is again positioned to provide employment, prosperity and opportunity for all our people.
To achieve this, necessary additional measures are required this year involving the introduction of additional taxation and expenditure measures to stabilise the budgetary position. These measures will be presented in a supplementary budget on 7 April, which will, it is fair to say, be a supplementary budget like no other.
Although we face considerable challenges at present and are experiencing a relatively sharper adjustment and slowdown than many other countries, it is worth emphasising that many of the factors which facilitated Ireland's economic success in recent years remain. We continue to have a young, flexible and highly educated, English speaking workforce. This labour force continues to be highly skilled and we are continuing to invest in education at all levels to ensure we have the skills demanded by our increasingly knowledge intensive economy. We have a flexible and export orientated, open economy with low corporation tax and a pro-enterprise focus. The Government is positioning the economy to benefit when improvements in the international environment arise. It will achieve this by building on our strengths in innovation and research and development, through continued investment in critical infrastructure and by supporting employment intensive activity. Building Ireland's smart economy, the framework for sustainable economic renewal launched in December will provide a blueprint for ongoing developments in this regard.
As far as possible we will continue to invest in capital projects in areas such as roads, public transport, schools and housing to provide an ongoing stimulus to the economy, support future development and enhance our productive capacity. With regard to Government borrowing, while this will increase in the coming years we are starting from a relatively low position, having had one of the lowest debt-GDP ratios in Europe at the end of 2008. We will continue to remain, despite increased borrowing, below the Commission's projected EU and eurozone average.
As a small trading economy, sustainable improvements in Irish living standards can only be achieved by supplying goods and services to the wider global economy. The Government's overriding objective is to position the economy to exploit a global recovery when it emerges. This is important because from our experience in the 1980s, while the global recovery emerged in about 1982 or 1983, we were not able to take advantage of it until the late 1980s. We do not want that position to arise again.
That is the reason we are taking action to put the public finances on a more sustainable path to get credit flowing and improve competitiveness. Our position as a small open economy means that we attract a high degree of international intention, particularly from the markets, on which we are increasingly dependent for borrowing because of our budgetary position. These markets must have confidence that we will take the necessary budgetary measures to restore the public finances to a sustainable footing. We cannot look outward for solutions. The primary source of our recovery must be found within the Irish economy and I have no doubt we are in a position to overcome our problems.
The second important element of restoring Ireland to a sustainable path of growth is to deal with the difficulties in our own financial system. The international financial crisis has demanded Government interventions in most developed countries. It is a global problem and Governments across the world have intervened repeatedly to ensure financial stability. Governments have guaranteed the liabilities of banks, injected capital into them, provided short-term liquidity facilities to ensure banks can access funds as required and, in a number of cases, taken banks into the protection of public ownership.
The Government's approach has at all times been informed by advice from, and in consultation with, the Central Bank and Financial Services Authority of Ireland, the National Treasury Management Agency and legal and financial advisers. The Government has had and will continue to have regard to discussion with our partners at European Union level. We have provided real support to the banking sector through the bank guarantee, recapitalisation and the protection of public ownership. The support is conditional, meaning that the State will receive substantial fees for the assistance provided, has representation at board level, ensured commitment to a bank customer package and imposed restrictions on remuneration following completion of the report of the Covered Institutions Remuneration Oversight Committee.
The Government is committed to securing the position of our financial system and protecting systemically relevant institutions. With the six month review of the guarantee scheme to be completed by mid-April 2009, the Government will consider examining how the scheme can be revised, subject to European Commission approval and consistent with EU state aid requirements. The Government is also committed to reviewing proposals to deal with the risks associated with certain assets. In this context, the Minister for Finance asked Dr. Peter Bacon and the National Treasury Management Agency to report to him on the matter. This has been completed and will inform the Government's ongoing considerations.
Furthermore, the Government is committed to reforming our regulatory system as a matter of priority. The Government will introduce new structures for banking regulation, provide for the integration of Central Bank responsibilities with the regulatory and supervisory functions, new standards of corporate governance and a new approach to enhance consumer protection. These changes will restore our reputation and will be consistent with the emerging international agenda for reform in the financial services sector. Structural changes and a substantial increase in regulatory capacity will lead to a more effective and efficient financial services regulatory system, which will be aligned to the best international standards.
The world is watching. It is vital that we demonstrate that we are following sound and sustainable policies that will ensure a growth economy and a productive society. The first step in this regard is restoring order to the public finances. The second and related task is to reform our own financial system. The Government will continue the processes of delivering on these goals and will address the detail of the changes proposed to the public finances in the forthcoming supplementary budget on 7 April. The restoration of the public finances to a stable and sustainable footing and the revitalisation of the Irish economy is a challenge this Government will address successfully.
I welcome the Minister of State, Deputy Mansergh, back to the House. He is a frequent visitor. He has been coming here so often his attendance is almost as good as when he was a Senator.
In terms of the next budget, unfortunately for the Government it will be "damned if it does and damned if it doesn't". We cannot discuss the budget because we do not know the details of it and therefore much of the discussion is about the theories in terms of what will happen in two weeks' time. The Government must now make the difficult decisions to put the country first and history may judge it more fairly, but regardless of the decisions it makes in two weeks' time the people will judge it very harshly. It is damned either way.
The Minister of State has been around for a long time. He saw what happened in the 1970s when we tried to spend our way into utopia. It all went wrong and it took us a decade to get out. As the rest of the world was improving we were trying to jump on the same conveyor belt that was global economic growth at that time.
The Minister need not be deluded in terms of what Commissioner Almunia or the economists say. The problem is that the Government has destroyed the dreams of thousands of people with what has happened to our economy in the past two years. The perception given to the Irish people was that everything would be fine. Up to 12 months ago it was telling the people that there would be a soft landing in terms of the property bubble, that there was nothing to worry about and that we had an open economy which would help to get us out of all our difficulties, but the Government misled the people. There was no soft landing in terms of the property bubble and the loss of competitiveness in our open economy has put us in a precarious position globally.
In his contribution the Minister of State, Deputy Mansergh, said we must consider having lower incomes and lower costs. Perhaps the Minister of State, Deputy Noel Ahern, will expand on that when replying because there is no doubt that the issue of lower incomes being necessary to restore our competitiveness will create havoc in the discussions with the social partners. How will those lower incomes be introduced in the economy? Is he talking about the civil and public service, over which the Government has direct control, or the private sector which looks after itself?
Members of the Government spoke about this issue in the House. Senator Hanafin, who is present, is one of those who tried to make out that we should see our indebtedness as a type of buffer. It is a buffer, but it is a very small buffer and one that should not be wasted in the next year or two to get us out of the current financial crisis. The debt of the Irish people is the equivalent of our GNP, which is the one we should use. The debt of the State will be 50% of GNP by the end of this year but we are only at the beginning of sorting out the crisis in our economy. Another Senator, in trying to make this out as something that we should regard as positive, made comparisons with Italy. I hope the Government is not using the scenario in Italy as the baseline for our economy. We must get our public finances right.
Regarding how much the Government will allow to drift, so to speak, it appears now the figure of 9.5% was not an absolute but only an indication. The shadow Chancellor in the United Kingdom got into deep water by outlining the difference between an anticipation and a promise. We started here with a figure of 3%, but that went up to 6%, then to 9.5% and we are now saying that figure is only an approximation.
International investors are becoming concerned about the way we are dealing with our economy. The Minister of State came into the House and spoke as if everything was grand. He said the economists and the European Commission are speaking positively about Ireland but no one in this House is deluded to that extent. The economy is in dire straits and we must have that international confidence if we borrow the billions of euro we need in the course of the next three years.
In the seven years I have been a Member of the Oireachtas I have seen the biggest budget surpluses and I will now see the biggest budget deficits. That is the classic boom and bust economy which has got this country into an unholy mess and the uncontrollable Government spending and lack of tax revenue coming in makes the position much worse.
We are not being honest with the people about the seriousness of the position. The Minister of State, Deputy Mansergh, in all his visits here, with the Minister for Finance, was the first to speak about reducing incomes, lowering costs and introducing a draconian budget to bring some stability to our public finances. We need more of that from the Government. It must stop deluding us into thinking things are not really that bad. It is a case of "damned if you do and damned if you don't". No matter what happens, people will notice that in the services they receive, whether social welfare benefits, school places, road infrastructure, public transport or health care. Everybody knows we are heading back towards the 1980s in terms of those services.
The philosophy of the Progressive Democrats in recent years was one of privatisation. We have seen little major investment in the health service in terms of building up capacity to deal with our growing elderly population. When I was health spokesperson for Fine Gael in the last Dáil, the Minister, Deputy Harney, constantly talked about all the private hospitals that were to be built, how 70% of the population had private health insurance and we were moving towards a Boston model in which people would seek health care through the private sector, paying for it themselves with higher wages. Nothing could persuade her or her Fianna Fáil colleagues that this was not the right way forward for the people of Ireland. Now, 500,000 people are unemployed and many of these cannot afford private health insurance. The private hospitals promised by the Minister — she said they could be built faster than public hospitals — have not been built. At the same time, the health sector has been seriously run down and, if we are to believe the recent comments of Professor Drumm in the media, this will get worse in the next couple of years. We have created a social and economic disaster for ourselves because we had a boom-and-bust Government that did not pay attention to the most basic tenets of economics when it was running the country.
We have seen things happen which one could say are legally correct but are ethically and morally wrong. The behaviour of bankers and developers in the last couple of years has been wrong anyway. However, since the crisis struck and these individuals were bailed out by the taxpayer, their amoral behaviour has been sickening for the Irish people to watch. What has been more sickening, however, is the way in which the Government has responded. I do not know whether this was because its members are not capable intellectually of dealing with these individuals or because they themselves are morally compromised by the numerous scandals that have occurred. Some individuals are paying themselves bonuses, taking money and giving themselves loans, and the Ministers are whingeing and squealing that it is wrong, but they are doing nothing about it. It reminds me that the Governor of the Central Bank and the Financial Regulator squealed, below whispering level, about the crisis that was brewing in the economy, but it was completely ignored by Government. Some of the problem, although this has been denied repeatedly by Ministers, is that there has been too much complacency and cosiness between the individuals involved. They have all been there together for too long.
The Irish people have given Fianna Fáil power, with the assistance of a small political party, in the last six general elections. In some respects we are reaping what we sow in this regard. Going forward, which is another great term used by the Taoiseach, we need to see exactly what the Government is doing. Perhaps in two weeks' time it will for once put the national interest first. It should show us it can do that. The reversion to discussions with the social partners also needs to be more public. I do not know if the social partners can accept the reduction in wages that is required to reform the public service and Civil Service. We have been talking about reform of the health services in both Houses of the Oireachtas since the day the HSE was set up five years ago, yet we have not seen major change of the type that is required. We have seen an explosion in top management, but the Government has not done what it promised.
The Government must deal with a few important issues. What is its position on consultants' pay in the health service? Will it continue to pay them a quarter of a million euro a year and allow them to carry on their private practices, or has that come to a stop? That deal was made in the best of times. What reforms will the Government genuinely implement in the public service? I do not mean yapping about another commission or report. Since the day the Minister, Deputy Martin, went into the Department of Health and Children, every difficulty has been kicked to touch. What will the Government do to reform the Oireachtas? If, for example, five or six junior Ministers were removed from their positions at the next budget, that would not correct the public finances, but it would show moral authority in terms of what the public needs to do. To defend long-service increment payments, a matter which has cropped up recently, by saying that is the way it has always been is not acceptable. The Minister must show courage by not asking for voluntary cuts but making massive reductions in what we as public servants get paid. We need to do this to regain the confidence of the people.
Some people are losing their jobs and homes. They have lost their dreams and expectations from three or four years ago. In some respects they were fooled into having those dreams. They were told three years ago by the former Taoiseach, as the Minister of State is well aware, that the economy was in fine shape and everything was going great. There were more than enough warning signs then. The Government should have told the people the truth and should have done something about this crisis a long time ago rather than leaving it until 7 April 2009 to deal with it, by introducing an emergency budget that will be the harshest in our history.
The Government has not accepted that it did not deal with the crisis. Acceptance of the fact that things were not dealt with as they should have been is important. The first time the Minister talked about cutting public sector spending was when there was a projected reduction of €500 million in Government spending, which did not turn out to be the case. It was a drop in the ocean at the time. When the last budget — the early budget — was introduced, the Government said it would reduce public sector spending by €2 billion, but it turned out to be less than that. When it was taken into account that people could get tax rebates on their pension payments, it was less again. There has not yet been acceptance of the crisis by Government. Even though it is borrowing money to bail out the banks and shore up Government spending, it is still giving the impression this money will fall off trees if we need it.
As the Minister of State is well aware, UK bonds did not sell at auction yesterday. Our saving grace is that we are in the eurozone. I would not like to say where we would be if we were not part of the eurozone, but we would be in trouble. There is a need to get that message across. It comes from everyone, not just the Taoiseach and the Minister for Finance but from all sides of the House. Senators on the other side of the House need to wake up. They should stop saying there is no problem here and that our level of indebtedness is nothing more than a blip. It is not a blip, it is a serious issue and it will get worse.
This debate takes place against the background of the most dramatic deterioration of our economy and a widespread loss of confidence across the broad spectrum of society. The 2008 end-of-year results have been calculated and are not good, and the first quarter results for 2009 are likely to be the worst in modern times. No one yet knows the full extent of these developments but an almost unprecedented set of circumstances has now emerged which translates into an enormous challenge on all budgetary, banking and economic fronts.
It is understandable that people have lost confidence. We live in uncertain times, are in uncharted territory, and people are afraid and angry. It is only natural that when things go wrong, people will look critically at those who represent them, at leaders in social, community and business circles, and at all who are entrusted to manage and show leadership in their respective roles when necessary. They have been found wanting in recent times.
The dire state of the economy warrants unity, purpose, firmness of resolve and belief in our ability to overcome. We are obliged to offer leadership, direction and hope, especially to our young people who had no input into this mess we find ourselves in. I welcome the Taoiseach's initiative with the social partners to re-enter discussions to avoid social and industrial unrest and wish all well with their endeavours. We all have a stake in each other's success because the more each individual succeeds, the more all will succeed and we must be positive about our future.
On the jobs front, there has been an almost total collapse of the building and construction industry, with serious consequences for related activity. In other industries there have been widespread factory closures, job losses and redundancies. We must strive to protect employment and find new areas to create job opportunities, especially in the knowledge-based economy and renewable energies. Employment is declining, job opportunities are reducing and the worldwide economic recession is limiting our ability to find other markets, making it all the more necessary to encourage small and medium enterprises by offering a range of enterprise incentives.
There is a fine balance to be struck to reduce the gap between income and expenditure. To increase tax alone without a clear three-year recovery strategy is likely to damage our economy further rather than cure it. We must focus on solutions rather than blame. At this time we cannot look outward for solutions. Solutions and recovery must be found within. This is a time to be brave and to think outside the box.
I do not have time to deal with all aspects but I wish to mention some points of interest. The taxation system in Ireland has been overly reliant on the property sector and now that sector is undergoing a severe correction. This situation is made worse because it is happening at the same time as a global financial crisis which is having a serious impact on other sectors of the economy as well. The effects on the public finances of the property downturn have been exacerbated because of the combination of reduced income levels from stamp duty, VAT and construction related taxes allied to increased expenditure on social welfare supports. A serious gap has arisen between the income and the expenditure of Ireland Inc.
There is little to be gained, however, in diagnosing how we got here. We need firm and workable strategies to allow us to deal with the current situation and return the economy to a position where the curse of endemic unemployment and immigration does not return and this country can return to a growth path. We must revise our budgetary approach to ensure the State continues to support the development of the social and economic fabric of the nation.
The lavish overspend of former years now must give way to a sober reflection on what we can afford based on making difficult choices. As stated by the Minister for Finance, Deputy Lenihan, these choices will be underpinned:
[B]y the principles of fairness, sustainability and affordability and by the need to put in place measures to enhance our economic performance. The Government is committed to protecting the economy from the worst effects of the current international downturn and to ensuring our international competitiveness is maintained and enhanced.
It would be tempting to spend our way out of this current situation but this is not possible. Opposition politicians have suggested that we should not increase taxation levels or reduce expenditure levels but that we should rely instead on increased borrowing. Such suggestions are unrealistic and would expose our economy to even more problems in the future. The solution to our problems will involve a combination of a widened tax base, reduced current expenditure, a re-examination of capital expenditure as set out in the national development plan and recourse to borrowings where justified and sustainable.
Every earner should pay tax, even if it is at very low rates for the lowest paid workers. Those who earn more should pay tax at higher rates. Fiscal incentives to enable risk takers to reduce their personal or corporate tax bill should be available but strictly controlled so that public policy objectives are paramount in any decision to introduce or maintain such incentives. Any such incentives should be limited in their effect so that, for example, a higher rate taxpayer cannot use any incentive or combination of incentives to reduce the rate at which he or she pays tax to below the standard rate of tax. All existing tax shelters and tax incentives that allow a top rate reduction should be reduced immediately to the standard rate of tax. With citizenship come
Widening the tax base necessarily means that those on low income levels will become liable for tax. This will be unpopular and resisted but the benefits of citizenship are there for all and that means that everyone who can must be prepared to pay for those benefits. At the same time, we must ensure the tax system, in combination with the social welfare system, does not create or maintain disincentives to work.
As we all know, the Commission on Taxation is at work and I would like to see its proposals, if even in draft format, brought forward as a matter of urgency. The commission was established in February 2008 to review the structure, efficiency and appropriateness of the taxation system. We need its proposals now even if they are incomplete.
The terms of reference for the commission take into account commitments on economic competitiveness and on taxation contained in the programme for Government, including keeping the overall tax burden low and implementing further changes to enhance the rewards of work while increasing the fairness of the tax system, ensuring our regulatory framework remains flexible, proportionate and up to date, introducing measures to lower carbon emissions further and to phase in on a revenue neutral basis appropriate fiscal measures, including a carbon levy, over the lifetime of the Government, and guaranteeing that the 12.5% corporation tax rate will remain.
Apart from the guarantee on the corporation tax rate of 12.5%, which is essential, these terms of reference appear to need revision or at least clarification, especially to keep the overall tax burden low while allowing for a flexible, proportionate regulatory framework. We need a tax burden that is fair and appropriate but not necessarily low. In addition, we need a comprehensive and robust regulatory framework, not a flexible one. Regulatory frameworks in areas such as banking and finance must be strengthened to show the international community that Ireland is a reliable and sound environment to do business.
Apart from restructuring of the existing tax system whereby limits, thresholds, tax bands and so forth are revised, there is a need to identify new areas of taxation. According to the most recent quarterly report from ComReg, the total number of SMS messages sent by mobile users in Ireland totalled 2.8 billion in the fourth quarter of 2008 compared with 2.5 billion in the previous quarter. SMS messaging volumes have increased by 32.5% since the fourth quarter of 2007 and by 70.3% since the third quarter of 2006. To put these numbers into context, a tax of 1 cent on each SMS would raise more than €100 million euros in a full year. Similarly, almost 3 billion mobile voice calls were made in Ireland in the last quarter of 2008. A tax of 1 cent on mobile voice calls would raise almost €120 million.
This sum would not on its own solve our difficulties but is an example of where new sources of taxation can be generated. Other industries and sectors also need to be examined to see whether such initiatives would generate taxation revenue. We should also examine extending the public sector levy to all those in Anglo Irish Bank or any other financial institution nationalised or supported by the State, and imposing a super tax on any individual or group of individuals found to have unjustly profited at taxpayers' expense.
As regards reduced current expenditure, particularly in health, education and social and family affairs, there needs to be a root and branch review of where the money is spent, focused on expenditure which is not directly consumer or customer-related. The proliferation of schemes, as well as the overlap and duplication between such schemes, means that some services are being provided in a wasteful and unco-ordinated manner. Where there is waste or where value for money cannot be demonstrated, then all such expenditure should cease.
The Office of the Comptroller and Auditor General has a specific value for money remit. It should be given additional resources to carry out such root and branch, value for money reviews, directly and indirectly.
Another area that appears a likely opportunity for saving is in the proliferation of small agencies, quangos and other such bodies. Such agencies are required to comply with an onerous but necessary burden of compliance on matters such as internal audit requirements, maintaining complex financial systems and health and safety requirements. I understand that many such agencies buy these services in from outside providers at huge expense. Ways should be examined to co-ordinate these requirements on a shared service basis through directly appointed employees. I pursued this issue when I was a member of the former Eastern Health Board and the Eastern Regional Health Authority. When we brought in shared services massive savings were achieved.
As a trading nation our future prosperity depends on making Ireland an attractive and efficient location for exporting and importing goods and services. The national development plan is comprised of numerous projects, each of which needs to be assessed by comparing the economic costs and benefits.
The Department of Finance has well established guidelines to carry out such appraisals and recommends that benefits are discounted at a rate of 4%. This discount rate should be increased to ensure that we are supporting, in a fair and objective manner, only those projects which exceed the current minimum threshold. Following this, only those projects showing the highest benefits compared to costs should be supported within the available financial resources. Only projects which can demonstrate that the economic benefits outweigh the economic costs should proceed. A stricter cost benefit analysis appraisal should be used to prioritise the projects to be completed first.
We must continue to stimulate the economy through rolling out our national development plan. Despite the challenging times ahead, we should tap into what will be competitive tendering processes for projects that can be achieved in the months and years ahead.
These are just some views that may be considered in the great challenges our country faces. There has been a careful assessment by the Department of Finance of the extent of our problems. Well qualified economists, accountants and other professionals are available to the Department in its consideration of the extent of those problems and the exceptional effort it will take to improve the situation.
It is often said that people on this side of the House do not put up their hands and accept a certain amount of responsibility. If there is one area in which we have faltered, it is that the Government has failed to get the message across concerning the extent of the problem and the exceptional effort it will take to improve the situation.
If people fully understood the position and could relate to a clear recovery strategy, there would be a greater willingness to help get our country back on track. Given the position we now find ourselves in, the best way to undertake such a strategy would be over a three-year period. We require a three-year recovery strategy that people would fully understand. If they do not understand it, they will not be willing to sign up to it. The exceptional effort needed to respond to the problems and improve the situation should be clearly outlined.
Because of the position in which we find ourselves, departmental decisions based on annual budgets must be re-examined in a totally different context. A multi-annual budgetary plan must be found, together with a clear strategy to help the public understand the seriousness of the situation.
I wish the Taoiseach, the Minister for Finance and their Cabinet colleagues well in facing this very difficult and challenging position.
I welcome this debate and I welcome the Minister of State, Deputy Noel Ahern, to the House. I thank the other Minister of State, Deputy Mansergh, for his contribution earlier. While there are many aspects to look at, we need to keep examining the broader issue. One of the difficulties is that the public looks at this purely as Ireland Inc., whereas we need to look at the nation and how every decision we make impacts on ordinary people. Some of the difficulties arising from the current economic crisis can be seen across the world.
It is worthwhile recalling what Ireland was like before social partnership agreements. Many of us are old enough to remember the oil tanker strikes and the extraordinarily bad industrial relations in the 1970s and 1980s. It is worthwhile dwelling on that for a moment and remembering the pictures of a closed down country. That has not happened in the past 25 years or so. I was involved in the benchmarking process, after which there was no strike in the public sector for four and a half years. That did not happen in any other European country.
Arising from social partnership, Ireland changed its primary and post-primary school curricula with total support from teacher unions, school management and owners, and parents. They have not found it possible to do that anywhere else in Europe. Those are two examples of how far we have come.
Could the industrial situation of 25 years ago recur? We should remind ourselves of what can happen by looking at what is currently unfolding in France. I was slightly amused yesterday to hear Senators talking about the bad message we might be giving out if we went on strike on Monday. Of course that is absolutely true, but France has had three general strikes in the past year. In France this week groups of workers are holding big business leaders to ransom to fight their particular cause. Meanwhile, the French business and industrial community has warned the Government that it will not tolerate or implement a law that seeks to limit top executives' salaries. Not that long ago we saw social unrest on the streets of Greece. That is why it is so important to put the message across. Whatever we do, we need to bring the public with us. Civic society is crucially important.
It is also important that people have some understanding of how social partnership works. I listen all the time to various political parties saying how in some way they feel uninvolved with social partnership. I am sure that is correct, but there is no mystery about what happens in social partnership. People sit around a table and are forced to listen to each other. Therefore, everyone from the trade union side must hear every argument from the business and community side, while everybody from the Government side must listen to all that comes through from the community and voluntary groups. They must all listen to each other's viewpoints as well as engaging, arguing, proposing and eventually compromising. The challenge to the Opposition is how can one possibly buy into that system. If one signs up to such a system, it is written in blood. One has to take the downsides and sell the compromises to the unwilling. The advantage, however, of social partnership to the Government and the nation is that when an agreement is reached, the partners — I did it myself for many years — will take the ups and downs and sell them. They will show leadership and put their reputations on the line by pointing out that, while a deal may not attractive in many ways, it is the best for the country and, in the long term, for their members. This is what we will be trying to achieve with the renewed partnership talks. The Taoiseach's recent letter to the social partners is crucial.
We must examine the small as well as the large issues such as competitiveness and energy costs. ICTU's ten-point plan in all today's newspapers merits much engagement and discussion according to the Government. IBEC also recognises it as a basis for discussion, as did several Members on the Government side. The plan is an appropriate basis for discussion.
For some time the trade unions saw the need for some increases in taxation for reasons of fairness and the economy. Three months ago, the Government's position was that under no circumstances would it look at a new budget or new taxation. That is why negotiations broke down with the social partners in January. The Government has recently and rightly moved on from that position.
Certain commentators on the radio this morning, in today's newspapers and in the other House yesterday said we dare not borrow. I welcome the Minister for Finance and the Taoiseach recognising State borrowing limits may have to drift up somewhat. The reason is simple. If we were to take €8 billion out of the economy, we would freeze it to death. Such a move is simply unsustainable. We must examine how we can ensure the economy and social services are maintained in the fairest possible way, sharing the pain at all levels. We must all then sell that message. As someone said, it is a bit like fertiliser; a 2:2 approach to this. We must consider a 2% increase on both tax levels and borrowing €2 billion. No matter what savings are put in place, we will not get the amounts of money we need.
The Competition Authority's role needs to be examined. On this morning's Order of Business, Senator Butler spoke about a general practitioner in his area charging €95 a visit. Any fair-minded person would consider such a charge horrendous. Why can we not insist that the cost of attending a GP should be no more than €50? The answer is the Competition Authority. We are hoist with our own petard. The Government cannot negotiate the costs of pharmaceuticals or doctor visits because the Competition Authority will claim it is interfering with the competitive process. If it means the competition legislation needs to be amended or repealed, then it should be.
Ten years ago I spoke in this House about energy costs when Irish electricity charges were the cheapest in Europe. In a bid to move 11% of market share from the ESB, energy costs were allowed to increase to make it more attractive for the private sector to enter the market and make a profit. In that time, we have gone from the cheapest electricity in Europe to the second most expensive. That is unsustainable.
Our energy independence is crucial. The Kinsale gasfield will run out in the next two years. Ireland cannot maintain any level of energy independence without the Corrib gasfield coming on stream. I am no advocate or supporter of Shell. I have spent much of my life arguing with it, criticising it or opposing its activities. However, in our democratic structure certain obstacles, checks and balances, health and safety requirements and environmental conditions have been put in place for Shell. If it has passed every one of these checks, whether I like it or not, then the gasfield should come on stream. If it does not, we will suffer. Political leadership is needed to bring this about instead of politicians shying away from it. The gas needs to be brought ashore in the safest and most environmentally friendly way because our economy needs it.
Social partnership was never developed for the good times. It was developed in 1987 to get us out of the worst recessionary hole we were in prior to this one. A point made by Senator Hanafin on this morning's Order of Business is worth recalling. In 1987, we had a debt-GNP ratio of close to 140%, an 18% unemployment rate, 1 million working as opposed to 1.9 million currently, and interest rates in the high teens. We have a better infrastructure now and are in a better position to crawl our way out of the current recessionary hole. I have every confidence that if we can get civic society behind us through social partnership and the political classes to come together with common objectives, we will be able to deal with this recession. The people will recognise that level of leadership. It takes courage to sell the bad message but it can be done.
Yesterday the Minister for Finance said the people with most should pay most. I have heard many people remark on the fact that 20% of the people pay 80% of all taxes. Of course, the next bit to that statement which is never said is that 10% of the people own 95% of the wealth. The ordinary person in the pub would then ask why that 10% should not pay 95% of taxes. In future, any time someone reiterates the first statement, it must be balanced with the second.
I am not all about screwing people into the ground. Earlier this morning, I made the point we must take responsibility for regulation as we have regularly been dishonest about it. Not only has it failed us, the legislation which established it was inadequate and did not give enough powers. In 2003, no Member could understand why we were separating the Financial Regulator from the Central Bank. No clear case was made for it. We are now moving back into a more conjoined approach which I welcome.
We never gave the Financial Regulator the power to ban financial products such as 110% mortgages. Of course, we were quick enough to blame the regulator for not doing anything about these products when they came unstuck. We also need to examine how regulation has affected energy and telecommunications prices. If we do not get them right now, we will pay a price later.
We are dealing with a people as well as an economy. It is not just Ireland Inc. but also the Irish nation. The Irish nation is not the creature of Ireland Inc.; it is the other way around. We must ensure that Ireland Inc. looks after its people well.
In that regard, I refer to the points in the ICTU ten point document for a better way forward. One is the issue of employment. I am concerned about a number of issues relating to employment. The Government has cut back on road building and everybody knows the reason for that. It is cost saving. However, it is also a loss of jobs. Road building creates jobs. Somebody suggested this morning that €2 billion will be taken out of the school building capital programme. That is appalling. School building provides real jobs around the country for small contractors. That is surely counter-productive.
I do not pretend I am exactly right on this issue, but I believe I know as much about it as any economist. Of the best economists, even the economists who are currently celebrated for getting their forecasts right, none has been right about the past year. I have all their forecasts for last year and the year before in my office, and none of them got it right. One economist is celebrated for forecasting that the downturn in the economy would be much worse than any previous downturns. He forecast that but he did not do so until April last year, barely 11 months ago. Furthermore, if one reads his prognosis at the time he correctly forecast that we were going into a bad recession, the last three paragraphs of the article predict it will get even worse because, this economist said, under no circumstances would there be any reduction in interest rates for the foreseeable future.
We should challenge those economists. When they predict something, we should ask them why. It is not, and never has been, a science. It is always seat-of-the-pants stuff, reading from the back and not working into the future. We know as much as they do. I appeal to the Government to ensure that every decision it makes is rooted in people as well as the economy. It should not be rooted in one as opposed to the other but in both together. Social justice is as important as economic principles.
We are in an evolving situation with regard to the international economic crisis. Many people, particularly in the Opposition, have criticised a piecemeal approach on that evolving basis by the Government. However, that approach is mirrored in the approaches of governments in the United States, the United Kingdom and throughout the world. We must take the opportunity on 7 April to try to advance our situation, which is as much influenced by international factors as by the policy mistakes that have been made in this country previously.
It is a fair criticism to state that the partial responses to date have not had the desired effect. On 7 April we must try to advance a number of areas. A number of people have talked about our ability to borrow and spend our way out of the crisis. However, that does not take account of the nature of the international economic crisis, which is a credit crunch and little availability of capital. Our ability to borrow money is compromised by our ability to keep our public finances in check. If people do not think that the first step is to get the public finances in order, they are not dealing with the economic reality. Our options in doing that are very limited — we must curb public expenditure and increase taxes.
We have a number of advantages despite the difficult decisions we must make, particularly in controlling public expenditure, to help us through this crisis. We are fortunate that, through the efforts of agencies such as the National Treasury Management Agency, we have a low level of State debt when compared with other countries. This gives us one mechanism to get us through the difficult times ahead. It has also been mentioned that the splurge of the Celtic tiger years has resulted in a level of indebtedness for individual citizens that has never existed previously in this State. The year 1987 is always referred to in the House as the benchmark for how we approach times of economic difficulty. At that time, we had a very high national debt in international terms. It was €37 billion, which was 130% of our GNP. Personal debt at the time was €30 billion. Twenty-two years later, through the efforts of the National Treasury Management Agency, the national debt is only 43% of GDP, which is quite good in international terms. However, the figure for private debt in this country has risen in those 22 years to €400 billion. It is an astronomical sum. Even as we control the public finances, there are difficulties for our citizens, families and communities that must be examined as well. This is an added challenge for 7 April.
Other speakers in this debate are correct that in using the few mechanisms available to us through either increasing taxes or curbing public expenditure, we must be mindful of keeping the economy going and inspiring people to engage in further economic activity. One ingredient that has been lost, which I believe was one of the bigger factors of our success during the Celtic tiger economy, is confidence. People were confident that money was available to acquire goods and services, and that confidence generated tax revenue for the Government and new jobs and services in other areas. That ingredient is missing now. The challenge for the Government and the political system is to ensure that confidence, as well as hope, is restored.
We are starting to see some indications that this is possible. However, we must be honest about what lies ahead. It will be five, and possibly seven, years before we can return to what was enjoyed previously, even if that was a level of ephemeral wealth. We must start the process by being honest with the people we represent. There will probably be two years of difficulty before we start moving in the opposite direction. That means a real decrease in the levels of wealth that individuals enjoy. It also means holding firm the levels of public service and an inability to increase them to the levels to which people aspire. All this is happening in a climate where the third vital ingredient for our economic recovery is how other economies are able to recover. Ireland has an open economy. The United States, the United Kingdom and the European Union, together, make up the majority of our trading partners. Those entities are in recession and the longer they stay in recession and do not recover, the more difficult it will become for Ireland's economy to recover.
However, we cannot stand aside or be idle. We must get the other elements right. We must get our public expenditure right. The budget on 7 April should be an opportunity to fix many of the other damaged slates on the roof of our economy. There must be clear statements about the future of our banking system and how it will be regulated. We must put aside the corruption that has bedevilled the sector and use that as one of the first elements in increasing hope and confidence among citizens. Part of that entails putting in a new system of regulation. Another part of it is addressing the issue of bad toxic debt and whether that should be done through an asset management agency or a bad bank. We are coming closer to the type of thinking we need and we are learning from the experience of other countries in making important decisions in this area.
People must also be told what level of public service can and should be maintained. Of the €55 billion that is likely to be spent in 2009, approximately €22 billion will be spent on social welfare due to unanticipated increases in the number of unemployed. It will also be spent on people with disabilities, lone parents and pensioners. There is a huge temptation, particularly from international pressures, in this regard because if one is controlling public expenditure, one controls the area where most of the public expenditure is occurring. This will be extremely difficult politically. It is important that everybody in politics states the areas that cannot be touched. I believe that even though we are currently experiencing deflation, the rates of social welfare cannot be touched. We must examine social welfare payments that are given for specific needs, but on top of that we must address the effectiveness of universal payments in the social welfare system. I still believe they should be universal, but my party has long advocated an integration of the taxation and social welfare systems so that if a payment is universal then at least one can lessen the benefit through the taxation system for those who already have an acceptable level of wealth and target it more at the people who are in real need of income maintenance and support from the State.
I look forward to 7 April which I think will be only a partial process because of the difficulty of us being in the middle of a taxation year. I think there is an indication of bringing forward short-term measures in terms of taxation in particular and indicating what those taxation measures will be from 1 January 2010. I am especially looking forward to the report on the Commission on Taxation which looks likely to be published in July. That could be one of the most important documents that will come to the Houses of the Oireachtas in this term. It will set out a template for what we mean by taxation, the range of taxation instruments, how taxes can be collected efficiently and fairly and how we can ensure they are used as an economic tool that is sustainable so that we do not go back to the situation where we depend so much on receipts from spending taxes such as VAT or one-off taxes such as stamp duties in the middle of a construction boom.
When we get an opportunity to examine that report in this House, after the Government decides what action to take on it, that will be one of the more important debates we will have because we have lived through a kind of fool's paradise in recent years. Because the resources existed we have paid ourselves too much and taxed ourselves too little and we need to get that balance right, beginning on 7 April, for the benefit of those in our country who have suffered most because those decisions have been avoided in the past.
I welcome the Minister of State, Deputy Michael Kitt. It is good to see him in the House.
The debate is on pre-budget statements and I will use it as an opportunity to point out the need to rein in spending and costs but also to look at opportunities for growth the Government should be grasping for the sake of the country. We have a €25 billion budget deficit and we are funding pensions out of the current revenues. That is unsustainable and needs to be examined. It has been likened to what Madoff was doing in the United States and he is now charged with criminal fraud. The budget introduced in 2008 has as good as unravelled in many areas. We need a plan for the future and I hope this will be the plan. As I mentioned on the Order of Business this morning I welcome the appointment of Dr. Alan Ahearne who gives the country much hope because he has sound judgment in the area.
In the context of the talks that have resumed between the Government and the social partners, I would like the Minister of State, Deputy Michael Kitt, to bring to the attention of the Taoiseach the absolute need for the social partnership model to be reformed to include the wealth-creating and job-creating sectors in this country, namely, the multinationals and small and medium enterprises. They represent 1.5 million people and unless they are at the partnership table we will not have the right model. They are the people who generate the revenues so we can afford our services, pay public servants and pay us. It is ridiculous to have them excluded from the table.
Lest anyone think it might, IBEC does not represent them. If it represented them it would not have agreed to an increase in the national wage agreement last September. We must be serious about devising a sustainable model for the future. I know the two good Senators opposite are very serious when it comes to the economy and I assume they will see merit in what I say. The current model of social partnership is one-sided. As a union member I admit that at times the union leadership has shown itself to be reckless and is in need of lessons in economics. The only way that knowledge will be enlarged at the social partnership table is when everybody in the workforce is included at the table.
I concur with Senator O'Toole's assertion that we must rein in our costs. The cost of electricity to industry is a huge inhibiting factor in our competitiveness, job creation potential and job protection. I urge the Minister of State, Deputy Michael Kitt, to please talk to the Minister about mandating the regulator to allow energy become more competitive. In Galway, the electricity bill of Boston Scientific, which employs 3,200 people, was increased by €3 million last October. That is ridiculous. Celestica's bill increased by €500,000 and it had to seek 80 redundancies. We do not want to risk good jobs and that is just in Galway alone. I urge the Minister to consider that issue.
Another area of job creation we could tackle without much money is the English language teaching sector. Currently, this country generates €500 million in this sector but if we had a more user-friendly visa system that was not so long and protracted we would be able to avail of revenues in line with the United Kingdom. It makes £12 billion from the English language training sector. Australia makes $6 billion and New Zealand makes $4 billion. It is billions we are looking for now. This is a missed opportunity because all we have to do is get our visa system in order.
The Minister of State, Deputy Michael Kitt, is a former teacher, as I am. We need to look again at education. We are faced with the prospect of losing 1,000 teachers from each sector, primary and secondary. I have done my sums. Most of the teachers who will lose their jobs at second level are new and part-time teachers. A part-time teacher has approximately 14 hours of teaching contact time and earns a salary of €25,000. When one factors in social welfare payments if they are made redundant and the loss of tax revenue the net differential is €2,354. Is it worth losing 1,000 teachers for such a saving?
Then one must consider the effect on the pupils. They will have reduced subject choice, which means they will be less happy and less capable and they will have reduced access to higher, ordinary and foundation levels. They will all be lumped in together. If we do that to our children we are looking at a disaster in terms of outcomes. They must be allowed to work to their level of competence and interest at second level outside of core subjects. The proposed change will result in more failure. That is the biggest issue.
Information and communications technology in schools is appalling. I said that at a committee meeting this morning. We are talking about developing a knowledge economy and an innovation society. If we are serious about that then we must look again at ICT. In this country there is one computer per 20 children. When I visited schools in the United Kingdom in November with the Joint Committee on Education and Science the situation there was one computer per 1.5 children. Who will have the competitive edge in the future?
A total of €252 million has been taken from the budget. I began by saying we must rein in spending but we must have priorities about where spending is more valuable to the nation in the future. Fine Gael has come up with a very good model for the higher education sector whereby we could get €500 million per year through a PRSI contribution cost to students after graduation and this would be ring-fenced for the higher education sector. I suggest that should be considered. I do not support the reintroduction of fees because they would fall on parents, many of whose jobs are threatened. Students would then lose out if parents could not afford to send them to college. We do not want to see more of these people joining the social welfare line.
The Minister of State, Deputy Michael Kitt, was at the IFA meeting in Athenry with me on Monday night. Part-time incomes in farming are currently €16,000 and a full-time income is €20,000. These are extremely low incomes. While many of the budget cuts unravelled since last October, those affecting farmers did not. Disadvantage payments and suckler cow payments have been cut and farmers must now pay an income levy on gross income. I do not believe that levy can stand up legally if tested. Income levy on a business, which farming is, must be on net income. I ask that the Minister take another look at that area. Above all, as the Minister of State heard on Monday night, there must be no cut to the REPS payment. That payment is central to farmers' incomes and to our protection of the environment and waterways. Contracts have been signed. I am aware contracts were signed with regard to farm waste management and that adjustments had to be made to these, but there must be no change to REPS payments. The suckler cow scheme is particularly important for west of Ireland farmers because they are small farmers. If a change is to be made in this area, a cap of 40 cows should be allowed before any cut is made.
The Minister of State may not have been watching the news in Britain, but the former head of Royal Bank of Scotland, Sir Fred Goodwin, is up for fraud. However, because the British Government has not done much to get him, the public has taken matters into its own hands and has attacked his home and his car. I am afraid this will happen here if we do not ensure people who have committed fraudulent acts are charged with fraud. I was astounded to hear disclosed at a committee the other day that AIB had been covering up charges. This was flagged by the internal auditor to the deputy regulator at the time, Mr. Patrick Neary, who had come from the Department of Finance, yet we only heard about it the other day.
In the interest of fairness and of the public, these issues must be cleared up. Average citizens must pay their bills. We must ensure that we do not let the fat cats who have ruined us get away.
I am very conscious of what Dickens said in the 1800s in the preamble to one of his books: annual income twenty pounds, annual expenditure nineteen aught six, result happiness; annual income twenty pounds, annual expenditure twenty pounds aught six, result misery. I am very conscious too that we have a job to ensure the national finances and to put the Government back on track to avail of the upturn that will, inevitably, follow in international markets. Whatever changes we make, whether cuts in expenditure, increased taxes or borrowing, we must not make those changes as people who relish what they must do. None of us likes being in a situation where we must make cuts or increase borrowing and taxation, but we must undertake the task with responsibility and sell the proposals as necessary. Only necessary cuts should be made and cuts should be made only after having measured twice. I am conscious that some people will say we cannot cut here or there, but, unfortunately, there will be cuts that will be unpalatable.
We have a responsibility to the public finances and to international markets. All the income generated by the State is taken up by the Departments of Social and Family Affairs and Health and Children. Therefore, even the amount we give in foreign aid is borrowed. When the tide goes out on the economy, everything falls. Misfortune comes not as a single spy, but in legions. We have lost out on VAT receipts, income tax, corporation tax and in all income areas, including stamp duty. This loss is an opportunity we should grasp to re-examine our taxation system.
We have the opportunity to make arrangements with the North. We are already co-operating at many levels with the Executive there, including building a motorway to Derry. The Scottish Parliament has put a minimum pricing order on the price of alcohol. It would be appropriate for us to co-operate with the North in doing the same here. Co-operation puts an onus on both sides to ensure tax harmonisation between the North and the Republic. This would have the effect of cutting out cross-Border shopping, which has a knock-on effect. It is very difficult to look for an increase in services when Border towns such as Letterkenny, Buncrana, Monaghan and Cavan are suffering because of cross-Border trade. There is an onus on us now to set up a meeting with the North of Ireland Executive to seek harmonisation of taxes and to arrange for that with the UK Government. This would help improve the income stream of both the Northern Executive and the Republic. What is even more important, any temptation for people to traffic goods illegally, whether petroleum products or cigarettes, or defraud VAT would be immediately removed. Some of those involved in illegal trafficking of goods wear a false cloak. They pretend to have a political motive, but gangsterism and defrauding Revenue is behind much of the action.
There is an onus on us now to sort out the banks. Unfortunately, regulation has failed and it has become apparent there is a disconnect between the reality on the ground and what has been happening in the banking sector. The first major mistake made was off balance sheet lending. This meant that billions were borrowed abroad to invest in a property bubble in Ireland. That was not regulated at the time. The situation now is that the banks are indebted for many billions, but the Government has taken the necessary steps to deal with that. However, there is an onus on us to ensure that in future only a certain percentage of deposits are allowed for property and commercial lending — perhaps 50% of total borrowing — and that all off balance sheet lending, which goes against all proper business practice in banking, is disallowed. That would ensure that while it might be more difficult to get a loan, we would not have another property bubble.
We have a responsibility in the budget to create and save jobs. There is only one possible route for us to continue the economic success of the past — we must be competitive. The only secure job is a competitive job. We were competitive in the 1990s, when our success started, and that lasted until the early 2000s. Real wealth was created then. Despite the difficulty when seeking cuts, we should continue to allow tax savings for people who create employment. I refer to the exemptions for those exclusively engaged in employment creation. It is time we cut back on property related exemptions which are way past their sell-by date. Any that are outstanding at the top marginal rate should be reduced immediately to the lower rate.
In the budget we have a duty to assist those who are less well off. We have some of the highest welfare rates in Europe and some facilities in the State are unavailable in other European countries. There is no doubt that there will be changes. It is known that there is duplication which we cannot afford. The beauty of social welfare has always been that it targets those in real need but abuse should be stamped out wherever it occurs. This involves ensuring airport manifests of people flying in from Third World countries to claim benefits are checked to identify the repeat flyers and ensure those from Northern Ireland who are signing on can no longer do so, unless they are genuinely available for work and living here. The disparity in rates between the two states is over €130 a week.
We have a responsibility to ensure our international reputation remains intact. It was under threat from certain members of the financial institutions in the city of London. They denigrated the Irish economy and the economies of some of the peripheral European states such as Greece, Spain and Portugal. Unfortunately, given that they took such a set against the euro from the outset, nothing would have suited them better than it not succeeding.
We are very fortunate Ireland is not like Iceland. Iceland, a major member of the group of advanced economies, suddenly found itself so much in debt that it is now technically bankrupt. Ireland benefits from the stability and security of being in the euro zone and is very fortunate in that regard. As mentioned previously, we have a very low tax rate. When asked what we did with the benefits of the boom, the response is that we had very low taxation, put money aside in the National Treasury Management Agency, paid significantly higher wages and increased the number employed in the public service. We also had the lowest national debt.
In the light of the fact that it is incumbent upon us to sweeten the medicine we must take, I accept it is absolutely necessary in the short term to increase our borrowing. We spoke about the tide going out but when it inevitably arrives again at our shores, it will lift all boats. The economy which was well placed to take advantage of international economic trends must continue to benefit from the hard work that ensured we had the lowest rate of corporation tax, the best facilities available and the highest standards of employment and education. We should continue in this regard.
I welcome the Minister of State, Deputy Devins. I question some of the propositions of my good friend Senator Hanafin on the use of the benefits of the boom years. We doubled public expenditure without necessarily achieving good results. We were selling houses to one another, while our real exports were not faring very well. There was waste — we did not run a lean economy and tight ship. Since the aim of this debate is to allow the making of pre-budget submissions, I will not elaborate on this and Senator Hanafin and I will debate the matter on a future occasion. He has a particular interest and competence in this area and I will be happy to debate it with him.
The philosophy that should guide the entire budgetary process has two essential tenets: it should be fair and it should look after the weak. It is not necessary to abandon these principles. I fully agree with Senator Hanafin that we must maintain our standing in the euro zone, maintain correct borrowing limits and keep our budgetary position in tandem with European norms, but within these parameters it is still possible to be just and equitable. The anger of the public which is palpable, as all of us who canvas with local election candidates know, is not predicated on a belief that there should be no budgetary adjustments but on the fact that the people are disturbed by the lack of equity. We do not want to throw the baby out with the bath-water.
There is no logic to abandoning our special classes. My local school has two special classes for children whose learning disabilities are worse than the norm but which do not warrant their going to a special school for handicapped children. They are doing a great job but one of them is to be cut due to budgetary constraints. This is a shame and wrong. My colleague Senator Healy Eames carried out a very good analysis and established that the cost of dismantling a special education class would be much greater than anticipated in that extra special needs assessments and supports would have to be paid for. It is much more efficacious and sound economically and educationally to retain seven or eight children in a special class. I refer to pupils who do not succeed with the resources provided in terms of hours and learning supports which are very generous.
There is no logic to taking money allocated for book grants and the transition year, as is the case with the applied leaving certificate. I refute the suggestion that money should be taken from carers who comprise our greatest resource, both in terms of saving money for the Exchequer through keeping people out of institutional care settings and in terms of their good work. They comprise a great national resource that we should laud on every occasion. They do so much good, bring so much happiness and alleviate so much pain and suffering. In addition, they save the economy millions of euro. Therefore, any suggestion their money should be reduced would verge on economic madness. We need fairness and, in talking about it, to bear in mind that there are tax shelters worth €2.3 billion. It would be worthwhile to focus on these rather than on the allocations for special education and carers.
We need to eliminate waste. It is bizarre that we are not using our excellent Civil Service and have created a set of quangos and other bodies to replace it. We need an economic stimulus which could be achieved through having a much more comprehensive schools building programme. I had three meetings recently with representatives of schools not included in the programme but at which projects are badly in need. When one considers the cost of prefabs and the lowering of contract costs, we realise we should enhance the building programme.
We should do a lot more to create green jobs. While there is a vague commitment in this regard, we should be doing a lot more. We should be seeking tax harmonisation, of which I am completely in favour, and working through the intergovernmental bodies to achieve it. We scored an own goal in providing for increases in VAT. We will have to be much more circumspect about tax increases. They are effective only if they increase revenue for the State. If a loss of revenue is the consequence, they are madness on every level. We must combine prudence, stimulus and fairness.
Nobody can deny that this is the last chance saloon and the upcoming budget is our last opportunity to turn the ship around. We are looking at the embers of the economic success that roared through the country during the past ten or 15 years. However, some flames are still lingering. Other commentators describe them as green shoots. The budget will either utterly extinguish those flames or gently fan them back into the type of success we achieved in the past. That is how important this is.
In January, the Minister for Finance, Deputy Brian Lenihan, stated we would not have further tax hikes or another budget and that spending cutbacks would be implemented on the advice of an bord snip. In recent days and weeks there has been much speculation that we will have significant tax hikes. This is despite the introduction of 17 new taxes and increased revenue of more than €2 billion in the original budget of 14 October. We seem to think that we can tax our way out of this recession. That is a sadly mistaken and a seriously damaging view.
What if the Cabinet was the board of directors of a major retail operation? Last Friday's monthly sales statistics from the CSO show that on average overall volumes are down a record 20% over the past year and our tax revenue has dropped similarly. My wife and I own a pub in County Galway and we are experiencing a drop in revenue and an increase in costs. We would not increase the price of a pint, we would cut it. We would promote special offers and manage our cash flow. That is what the Government needs to do.
Any tax rise would be a serious mistake. All it would achieve is to make working and the employment of workers an increasingly unattractive option. Why would any Government deliberately push us towards further unemployment? Very innovative tax raising measures can be introduced but, ultimately, the only way forward is through serious and far-reaching reform and availing of the major savings that reform can bring.
We need to bring realism to our capital programme and concentrate our spending on areas that will deliver and bring real benefits to society. Is it sustainable to propose to spend well over €5,000 million on a Ceaucescu-like metro north when a tiny fraction of that amount could provide a state-of-the-art bus service on proper quality bus corridors, with buses departing from Dublin Airport every five minutes to go to the city? Is it sustainable to continue to spend €53 million per annum on renting school prefabs when the money would more than cover the annual cost of servicing a mortgage on permanent buildings? Imagine the jobs and the revenue that could be created from such a comprehensive building programme.
This week, we saw details confirming that the top 50 earners in Ireland's third level institutions receive a pay-out of more than €10 million annually. These professors, university presidents and directors are on very large salaries with a minimum of lecturing hours. In addressing the issue of third level funding surely this is one area that needs major scrutiny.
Will the Minister of State, Deputy Devins, take a message to the Taoiseach who, in past times, deservedly earned himself a reputation as a serious performer in any public domain? We saw snippets of this during his visit to the United States and in his recent contribution to a chamber of commerce meeting. I and many people wonder why he has not chosen to speak openly to the people of the country in not one but a number of state of the nation addresses. These are unprecedented times and we need to take unprecedented action. A contribution to a Fianna Fáil Ard-Fheis and to a chamber of commerce is not communicating with the people who matter most, namely, the hard working taxpayers who go out every morning in an effort to keep this country afloat.
How can one expect any of our people to row in behind a strategy and the very difficult decisions we must make as a nation when they are running blind with no information and no apparent strategy? The Taoiseach needs to communicate and to bring the people that he serves into his confidence. I know he has the ability to do so. If he does that it will be the first very important step in finding our way back to the success we are more than capable of creating.
This debate provides us with an opportunity to examine how our economy has been performing in recent months. We can see the drop in revenue and that the model which we had over the past 11 years needs to be reorganised because it no longer works. We depended extremely highly on spending tax and now we can see that spending has dropped through the floor. Therefore, we must examine how we will reconstruct our taxes and create a new model in terms of our economy. This is an opportunity and we must not lose sight of the fact that we have 1.8 million people at work. In the budget we must take into consideration how we will ensure that we protect these workers. This must be the function of any Government decision in light of where we find ourselves. We must ensure that we work smarter. We have to be smarter. We have produced a smart economy document. When people say one works smarter it means one has to work smarter and get better value for one's euro.
The cost of doing business here is a major stumbling block. This is an opportunity to deal with that. How do we do it? Rent paid by industry in this country is far too high and there will have to be a reduction in that regard. We will have to see a reduction in terms of power and energy. ESB and Bord Gáis charges will have to be driven down. This morning, I mentioned that we are being ripped off by GPs and consultants. That is not good enough and we have to drive down these costs. We cannot expect to take money out of people's pockets through taxes if we do not drive down the cost of services. That has to be a function of the budget and it is important that we deal with it extensively.
We must ensure our banking system works and that banks lend to small business. There is no evidence to suggest the banks have changed their ways. A major job has to be done in that regard. Our economy cannot function without credit facilities, and this is where our banks play a most important role. We will have to tackle the bad debts in the banks and possibly create a separate bank to deal with that and manage the debt situation over a number of years.
I remember the situation in the late 1970s in the UK, where people put the keys back in the door and left. One could not give property away, but we all know how that passed and how expensive land got in London and in counties across the UK. It will be no different here. We will find that certain lands will not be as expensive as they were, in places such as the midlands and so on, but it will come back, and so will land in Dublin, Cork, Limerick and in our big cities. We are not manufacturing any more land, as it is a finite resource. The bank will have to invest in it, the taxpayer will have to invest in it and the Government will have to invest in it. We will have to be patient about the management of it, which is vitally important.
The bank and management system that we have here is not acceptable going forward. There will have to be new governance within the banking system. Senator Hanafin mentioned how important it is to change that particular system. I will not dwell too much on it, other than to say that if we do not change the system, we will not have the confidence of the international market. This budget is being structured and we must stick as close as possible to the figure of 9.5% of GDP. We must send a message to the market. In many cases, the market has decided and we have seen what it decided for the banking system. The market decided it did not believe the banks. That is still the case, even though we have seen slight increases in the market. The market will judge the budget as harshly if we do not take the necessary steps.
At my parliamentary party meeting, I suggested we should look at the national pension scheme. Private pensions are currently costing us €3 billion in Government subsidies. That is not sustainable. Most pensions are losing between 25% and 50% of their value this year and that is the harsh reality. We would be far better providing a national pension scheme into which we would pay and which would realise anything up to €80 billion. That is a substantial amount of money. We have invested a substantial amount of money into the banking system, which will have a repayment back into the pension scheme. I also suggest that we pay a 3% levy on that pension scheme, which could be used by the Government to fund substantial developments that would have a payback over a period of 15 to 20 years in roads, water, transport or whatever. It is a way in which the Government could save money and borrow money at home, which is cheaper.
It is very important that we get to grips with the public finances. Taxation will not work unless we start looking to access the national development plan. We must look carefully at the finances of that plan. We should also examine the finances of the HSE, which is like a big hole in the ground. We must also look at the ESB, Bord Gáis, and Aer Rianta. Quangos are costing us €6 billion to run. We cannot afford them any longer and we must deal with them in the budget.
I am glad to have an opportunity to say a few words on this important issue. I appreciate that the other House dealt with the pre-budget statements yesterday, but very valid debate on economic matters takes place in this particular political arena. I am sure the Minister of State will find some ideas of interest.
I concur with some of the concluding remarks of Senator Butler. His comments on quangos are very much at one with the policy of Fine Gael. Our spokesperson in the Dáil, Deputy Varadkar, has often raised the issue of the costs of this unofficial arm of the Government. In particular, he has put forward a number of ideas on how those costs can be controlled. There has been some degree of response from the Government, but many of these agencies of the State need to be thoroughly examined from the point of view of cost efficiency. We are beginning to pose too many questions of ourselves on what we are doing as politicians, on the role of this House and on the role of the other House. Much of the work being done by these so-called quangos should be the work of the Houses of the Oireachtas and its committees. We have the expertise, the personnel, the staff and the resources and we could take back much of that kind of work.
I also agree with the Senator's point on pensions, pension schemes and the tax given away to encourage people to enter them. I am no expert on pensions, much to my own financial distress, but I often wonder why pensions are sold to every Tom, Dick and Harry in this country. A 19 or 20 year old in this country who has not started on some pension scheme is made to feel an irresponsible, second class citizen. Looking at it from an actuarial point of view, and at the number of people who benefit from the pension schemes rather than the pension funds, we find an interesting balance. We should reflect on what Senator Butler said. If we put the onus on ourselves and on the State to come up with some type of pension scheme which matures when the person reaches 65 or 66, just like the current social welfare pension, then we should build up that basic pension scheme. It may not sound too politically or economically adventurous, but it may well be every bit as sensible as allowing hundreds of millions of euro in tax relief for investment in pension funds that are spent overseas and that do not create one job in this country. The pension industry must be examined in great detail. It will not be finalised before the budget in a few weeks, because it needs much reflection.
We all recognise the grave scale of the economic crisis in this country. I feel the public is very much tuned into the current economic crisis. With great maturity and insight this week, workers sent a strong message that they did not want to be led up the strike route.
There is something of a lesson for us in that regard. The public and the so-called ordinary people — that is not a term I wish to use — recognise the scale of the crisis in the country and seek leadership and action. It it up to the Government and, in a sense, all political parties to show such decisive political leadership now and they should be prepared to make the hard choices and decisions. From an economic perspective, the country is still in a relatively strong position. There are many people at work, we have many assets, there is a very educated workforce and we have the capacity for future growth. It is a question of taking tough measures in the coming months and years to get the show back on the road.
I refer to some sectors in which there are glaring problems at present. The crisis is of significant proportions and demands a response from the Government. The motor industry is an outstanding subject for debate and concern. We have seen the figures for the first months of this year and literally no new cars are being sold. Government revenue by way of VRT and other taxes has almost disappeared. That industry must be boosted by some Government intervention. The scrappage scheme has been mentioned. It was introduced in the early or mid-1990s and worked very successfully for some years. It may well need to be revisited.
Will the Minister of State, Deputy Devins, pass on a suggestion, which I made previously, to the appropriate Department, whether it be the Department of Environment, Heritage and Local Government or the Department of Enterprise, Trade and Employment? I suspect there are thousands of second-hand cars in the country which are blocking every forecourt along our highways and byways. These could be exported to counties which have similar left-hand drive regulations. Recently, I examined the list of such countries which included Australia, New Zealand, India and Malaysia. Many other countries spring to mind. During the 1980s many cars from Japan were successfully imported here. Let us consider India, where the growth in car purchases has been phenomenal. A new middle class is emerging there and they all wish to buy cars. The Indian car industry is unable to provide enough cars for the population there. We should investigate the possibility of a major export of second-hand cars to countries with the same left-hand drive or countries in which drivers drive on the same side of the road. That should be examined.
Much work has been done by my party, especially the spokesperson on communications, energy and natural resources, Deputy Simon Coveney, in the area of green energy. I welcome the policies introduced by the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, a fortnight ago. I have heard from the agriculture sector that these measures do not go far enough but that they are a step in the right direction. The measures include allowing people to generate their own power, obliging the networks to purchase such power and so on. More of such thinking and action is required.
On the Order of Business this morning I mentioned the crisis in the farming industry and especially in the dairy industry. Farming may no longer have the same political resonance it had 25 or 30 years ago but tens of thousands of people work on the land and indirectly in the agriculture industry. It must be protected. The dairy industry is in a great crisis at present. Farmers cannot afford to produce milk at 21 cent or 22 cent per litre. They may leave the land and jobs will be lost. It is a native industry which has been in place through every economic crisis. We must protect it by way of European support and national support. I hope we can investigate that possibility as a matter of urgency.
On the question of social welfare, we must ensure measures are taken in the April budget to allow, where possible, social welfare schemes to keep people at work, to help people to return to work and to help people retrain. We are all aware that small businesses are under considerable pressure at present. There may be some sense in allowing PRSI holidays for small employers and those in genuine financial difficulty. We are told the cost to the taxpayer of a person losing his or her job is €20,000 per annum, comprised of taxes forgone and social welfare paid. If some jobs and small industries could be helped and retained through allowing some flexibility on social insurance contributions, then not only in the long-run but in the short run it could be very advantageous and I hope the Minister of State will consider the matter.
An issue of concern to me throughout the years in respect of social welfare regulations has been the family income supplement scheme. The scheme is designed to help people in work but on low incomes to top up their incomes. The scheme is very welcome and was introduced by the Government led by Dr. Garret FitzGerald more than 20 years ago. However, there is an anomaly. The family income supplement which keeps people in work is only available to people who are employed. It is not available to self-employed persons. Today, thousands of self-employed persons are working at a financial loss. Such people are trying to keep their businesses open and keep the five, six or ten employees in work. In some cases they earn no income themselves. I appeal to the Minister of State to consider amending the rules of the family income supplement scheme to allow self-employed persons to be considered. The scheme is means tested and I am satisfied in that regard, but it should be extended to self-employed persons and provide some window of hope and opportunity to self-employed people who are working for no income. It could help to keep them working and to keep their businesses open.
These are simply minor suggestions. There are no silver bullets contained in my few words. However, we must have flexible thinking in responding to the crisis. There is no overall answer. I hope there is a sense of realism and common sense among the public and the electorate and a belief that we, the political classes, will respond with courage and bravery. The days of fooling people and pretending that the problem will simply disappear are gone. We must take difficult measures by way of public sector reform, taxation modifications and cuts in expenditure to bring the country back to normal.
I appeal to the Minister of State to ensure that whatever measures are taken in terms of increasing taxes, we should remember the lesson of the 1980s, that is, it is not possible to solve all problems through tax increases. We almost shut down Ireland Ltd. in the 1970s and 1980s through high rates of personal taxation. It did not work then and it will not work now. I appeal to the Minister of State not to go down that route.
I am pleased to speak following Senator Bradford. I listened to some of the debate in my office which highlights the manner in which we are all motivated by the same intentions. We are concerned about the very survival of our country and the welfare of our citizens, especially those on fixed or lower incomes. Such people depend on the State for resources and help. This is one of the first debates in which we are getting to the nub of the issue, that is, the economic crisis facing the country. I am pleased this is the case because politics is about seeking solutions to problems.
It is the particular role and responsibility of Government to recognise the priorities given a limited budget. The figures released by the Central Statistics Office at lunchtime show the extent to which the economy is contracting. The budget under preparation must reflect the very significant contraction in receipts. The bottom line is that it will not be pleasant for anyone. There is no pleasure in recognising that fact but we must nevertheless do so. For the first time, people realise the worst case scenario is the very survival of the political independence and sovereignty of the country. This is now somewhat at stake.
Senator Bradford referred to the 1980s. At that time the International Monetary Fund was at the door and almost came in. Unfortunately, we are almost back in that situation at this stage. Senator Bradford also mentioned that, thankfully, the public sector unions recognise the severity of the situation and have called off the strike proposed for next Monday. What signal would such action have sent? It would have indicated a steadfast refusal by public sector unions to recognise the severity of the problems in the public finances or to engage with proposed solutions, regardless of their nature. For this reason, I have mixed feelings about the trade unions re-entering the social partnership process. While it is nice to keep everyone in the tent, one must be prepared to recognise the problems. The fallout from the breakdown of the previous talks was that the trade unions adopted a bottom line of refusing to remain in a partnership process which required them to ask their members to accept salary decreases. I hope their decision to re-engage is an indication that they recognise that no one is exempt from the severe measures that must be taken. No matter how unpalatable these measures will be for individuals, we must stand together and make the required changes and sacrifices to ensure the political survival of the country.
The budget also provides an opportunity to break the long-standing connection between the tax code, on the one hand, and property development and the building sector, on the other. Tax incentives introduced to support construction are the cause of many of the problems which have arisen as a result of the contraction in the property sector. These incentives had little benefit other than supporting the building industry. In terms of investment in the economy, property only generates income for the property owner. Tax incentives were used excessively in the property sector and I implore the Government to abolish them in the forthcoming budget. Many of the severe difficulties with which we are confronted are the result of the downturn in construction. One sees hundreds of buildings, primarily houses, lying empty in smaller towns because local people cannot afford to buy them. Those of us who have served on a local authority will be aware of the problem of housing lists and the difficulties faced by local authorities in providing houses. At the same time, hundreds of houses, many of which were built as part of holiday home schemes, are lying idle and empty. This is a terrible legacy which needs to be addressed.
It would be preferable to introduce incentives in areas of growth such as research and development, specifically in the knowledge economy and green sector which offer significant opportunities for the economy. We need to incentivise business and provide opportunities for outside investment in the domestic sector.
While I accept the need to raise revenue and that the obvious way to do this is to raise taxes, as Senator Bradford noted, the decision to reduce taxes in the 1980s kick-started the economy. I accept, however, that adjustments may be required to broaden the tax base. At the same time, we must not kill incentive. As Senator Bradford stated, we must create sustainable employment and make entering and remaining in the labour force an attractive proposition. We will do this by keeping the costs of labour down. During the week I learned it is 25% more expensive to do business in Dublin than in Belfast. This is a worrying statistic and one which needs to be addressed, if possible, in the forthcoming budget. In framing a new tax code to meet current conditions I hope the Government will give priority to having a fair system for ordinary working people. As I indicated, we must try to keep as many as possible in employment.
I concur with Senator Butler's remarks on quangos. We spent money when we had plenty of it and the difficulty now is one of curtailing expenditure. I have faith in the Government's ability to do this and take tough measures. As Senator Quinn stated in a previous debate, it is easier for those who are unwell to take their medicine early, even if it is harsh, because they will recover quickly. The Government must adopt a similar approach. Listening to the radio at lunch time, it is clear from trends in the public finances that we need a long-term plan. I look forward to the introduction of such a plan in the forthcoming budget.
I will conclude by citing a letter which appeared in the Financial Times on 13 December last and I cut out because it was so good. It states:
Sir, Christmas is when kids tell Santa what they want, and adults pay for it. Deficits are when governments tell adults what they want, and their kids pay for it.
Let us keep these words in mind as the Government frames its budget to curtail expenditure.
I welcome the Minister of State, Deputy Mansergh, back to the House. I am pleased Senators have been given an opportunity to debate this issue before the mini-budget is introduced on 7 April.
I will not disagree with much of what was said by several speakers on the Government side. Senator O'Malley expressed confidence that the Government would take the tough decisions required. When the budget was brought forward to October last year, the Government informed us it would take the necessary tough decisions. For about two months it introduced a budget virtually every week and further announcements on public expenditure and the pension levy have followed since the turn of the year. We find ourselves at this juncture because the Government has not taken hard decisions, although there now appears to be a greater realisation in government that difficult decisions must be taken. My party will support decisions which are beneficial and necessary to protect the economy.
Senator O'Malley is correct that the Government spent money when it had it. It refused to accept that a rainy day might come. The Celtic tiger had two phases, a sustainable phase which was largely based on foreign direct investment and job creation in industry and an unsustainable phase which was based on construction. During the previous Seanad the Minister of State, Deputy Mansergh, and I were, respectively, the Government and Fine Gael Party spokespersons on finance. For those five years I consistently argued that we could not depend on construction to provide such a large proportion of tax revenue and economic growth. My argument was either ignored or laughed at by the Government, but the chickens have come home to roost.
I am particularly upset for people of my generation in my part of the world, and Senator Walsh is from my part of the world, because the Celtic tiger did not roar as strongly in the south east, Wexford and Kilkenny-Carlow area as it did in others parts of the country. Thousands of young people became involved in the construction sector and the harsh reality is that this sector is decimated. The other harsh reality is that there is no prospect that it will be lifted up to the position it was in previously in the coming years.
The Government has a number of tasks in the budget, the most important of which is job protection but there is also an important task in terms of the thousands of people in construction who have lost their jobs. Many of them have left the country already and the rest are thinking about leaving. It is important that those people would have the prospect of a job in the not too distant future. Whatever happens in the budget must be targeted towards that.
Senator Bradford mentioned a number of sectors. I mentioned construction and the need to retrain and redeploy people, whether it is in terms of the insulation scheme we have heard mentioned and other possible uses of the skills we built up in that sector. While admittedly it was part of our downfall economically that we were very dependent on construction, we have expertise in that area that we should not allow to leave the country. Something must be done with regard to the future of those people.
Senator Bradford's comments about the motor industry were correct. He proposed an innovative idea about the export of second-hand cars. There has been decimation in that sector since the turn of the year and the Government should consider some job protection measures in that aspect of our economy.
The Senator mentioned agriculture also. Many of the people I referred to previously who got involved in construction came from an agricultural background, at least those in my part of the world, yet at a time when workers in construction were losing their jobs the Government made announcements in its budget last October with regard to abolishing the early retirement scheme and the installation aid scheme, which were necessary attractions to try to get young people involved in agriculture. The reality in rural Ireland, and the Minister of State represents a largely rural constituency, is that the safest bet for job retention and creation is to support the agricultural community. The measures taken by the Government so far have failed in that regard.
I add my voice to others who spoke about the nature of the Irish economy. Ours is a small, open economy but we hear a great deal of waffle from people about plans with a view to protectionism and how we must look inward in terms of our economic future. The reality is that, by and large, we are an exporting nation. We are one of the biggest exporters of software in the world. In terms of food production we are one of the biggest exporters per capita in the world and therefore any future economic uplift here cannot be on the back of protectionist policies of any kind. We must ensure that we remain open for business and attractive to our comrades in the European Union and to other investors across the world.
I agree with Senator Bradford and others who spoke about the possibility of a PRSI holiday for small businesses. Many small businesses across the country are under pressure because they are not getting credit from the credit institutions. Anything the Government can do in the budget to alleviate some of the costs incurred by those small businesses and protect the jobs they provide should be given serious consideration and implemented.
Fine Gael announced a number of proposals this week with regard to energy and job creation in the green job area. I welcome those announcements which were made with an aim to the budget on 7 April. The Government might be in a position to accept some of the proposals contained therein.
I concur with Senator Bradford's views on the family income supplement. It is restricted to those people who are employed but there are a number of people who are self-employed. Many of them were small builders or involved in other aspects of construction. The Government should consider the possibility of allowing them some access to that scheme or a revamped version thereof.
Members of the Oireachtas met yesterday with representatives of the Carers Association in a location across the road from here. It is an organisation that is particularly close to my heart. The Government made pronouncements and gave indications that there will be significant cutbacks in terms of the half rate carer's allowance, and the carer's strategy has been shelved. For the sake of an extra €20 per week on top of what they would earn from jobseeker's allowance or unemployment benefit, those people provide a crucial service. Cutting the carer's allowance is a false economy because the money saved in the short term will be lost in multiples because the people they are caring for will have to seek residential care, if they are not cared for in their homes by these people. I urge the Government to do what it can to protect carers when it comes to the mini-budget.
In the midst of everything that is going on it is crucial that the budget, when it is announced, is seen to be fair. Many of the announcements made up to now were not seen to be fair. The cutbacks in special needs education and in the provision of medical cards to those over 70 were seen to be targeted at particularly weak sectors of society.
I have said previously that the Oireachtas must lead by example. Fine Gael has produced proposals on significantly reforming the way these Houses spend the money allocated to them in terms of the number of Ministers of State, the number of staff in their offices, the number of committees, and the extra payments given to Members for performing their functions within those committees. It is not a huge amount of money in the overall scheme of things but it sends a message to people and if we are expecting solidarity from public or private sector workers, these Houses must show leadership.
I welcome the announcement. I spoke on the Order of Business on Tuesday about what was then the impending strike next Monday. I am glad that will not go ahead but we should not fool ourselves either. A total of 64% of members of the IMPACT union voted to go on strike. In terms of the gloss being put on that by some Government speakers to the effect that there is a realisation among some members of the public sector union that striking was the wrong approach to take, the figures tell a different story. The vote result was very close and if it had gone the other way we might be facing the prospect of a strike on Monday.
The key to ensuring we do not have a huge level of unrest and action in terms of strikes in the coming months is that the budget must be seen to be fair across the board. Hand in hand with that we must offer people hope for the future. I am struck by the negative comments I continuously hear from the Taoiseach in particular. I took the unusual step of listening to his address to the Fianna Fáil Ard-Fheis this year at which he spoke about how the Irish people would survive this crisis. Whatever happens the Irish people will survive it. We have survived many things in the past. When Brian Cody and the boys in the Kilkenny hurling team or Declan Kidney and the Irish rugby team are pushing themselves hard in December, January and February they make themselves physically sick because they believe they will achieve something at the end of the year and that there will be light at the end of the tunnel. In the same way we must offer people across the board that hope for the future in that if we take the tough decisions now which must be taken, the future will be better. That must run through everything that is announced by the Minister for Finance on budget day on 7 April.
I concur with previous speakers who expressed opinion on taxation increases. It is unavoidable that there will be some increases. The tax base must be broadened but wholesale increases in personal taxation are not the way to go if we are to learn from the lessons of the past. I hope that lesson will be learned when the budget is announced on 7 April.
Ba mhaith liom fáilte a chur roimh an Aire Stáit go dtí an Teach inniu chun an ábhar tábhachtach seo a phlé. I welcome the Minister of State, Deputy Mansergh, to whose comments I listened with interest. From listening to the Minister for Finance and the Taoiseach, I can tell they have a fairly firm grasp of the extent of the challenges and problems we are facing, as well as a plan to deal with them. I hope this debate contributes towards the decisions that are made.
I felt, listening to the debate, that it was in the main balanced and measured on all sides of the House. I welcome this. I and others have been asking for a long time that this be above politics. The current economic situation is a real challenge to the State and we are there to play our part, as far as we can, in ensuring the Government's policies protect the citizens of this country so we can come through the severe economic downturn in a way that gives us a platform for growth in the future.
Reference was made by one Senator to the fact that during the good times the money was unwisely spent. No matter what organisation one is talking about, one can home in on certain expenditure that is not the wisest or most prudent. The Minister of State mentioned this week's article in The Economist, which recognises that Ireland has come a long way and has gained much in the past ten years of which we can be proud. Much of this will stand us in good stead in trying to rebuild the economy and regain the growth rates we had previously. If we travel to any part of the country we will see the motorways in which we have invested. It is not just for our convenience; it is to add to the competitiveness of industry, particularly the commercial transport sector, for which motorways are the arteries of economic well-being. We have also seen a significant increase in the number of teachers — there are more than 60,000 at the moment — doctors and gardaí. The number of gardaí has increased by more than 3,000 since I have been in the Seanad, which is a decade. All these developments are positive. The education budget has been increased over this period by a factor of three and health expenditure has increased fourfold. In addition, €20 billion was put into the National Pensions Reserve Fund. This was a significant and courageous political move because often politicians like to spend money on projects whose benefits are immediate so they will get the credit when election time comes around. That money was taken from the surpluses we generated, which displayed an element of prudence.
If we are asking the other side to be fair and balanced, we should also be fair and balanced on this side. We do not have to agree with everything the Government does. One of my criticisms was a weak managerial approach to cost control. It happened in the private sector, but it certainly happened in the public sector. We have seen significant wage inflation to a level that is now unsustainable. That is a major aspect of the current challenge.
This downturn is global, but unfortunately our national broadcaster has been deficient in showing people what is happening in other jurisdictions. The reason I say that is not to excuse the difficulties we are having here, but to highlight the global context in which they are occurring. I have watched, particularly on the BBC, some excellent programmes which have focused on the banking sector, the property bubbles in other countries, including Eastern Europe and the USA — and the measures being taken to deal with the economic difficulties. These programmes are not expensive to produce and I do not understand why RTE is not doing that. It would provide the information necessary to underpin sensible, measured and progressive debate on how we deal with the crisis, and it would also put it into context, which is very important.
Our fiscal difficulties are the major topic of this pre-budget debate. The Minister implied, and I concur, that we are probably looking at a budget the like of which we have not seen in our lifetime. The extent of the deficit is such that it cannot be other than very harsh. Unpalatable decisions will have to be taken and faced up to. Every taxpayer, and probably every person in the State, will feel the impact on his or her standard of living. Unfortunately, there is no escaping the reality. After receipts are subtracted, we have a current expenditure of approximately €56 billion. Various figures have been put forward for revenue, but it has certainly changed from the figure of €37 billion at the last budget. It will be between €30 billion and €34 billion and will, unfortunately, get worse as the year progresses.
There has been discussion among economists about identifying the difference between cyclical and structural deficits. The latter must be addressed because that money will not be replaced in the future, whereas the cyclical deficit will improve as the global economy takes a turn upwards — whenever that will be — and revenues rise. Of the €56 billion in expenditure, €20 billion is for pay and pensions. I am amazed at the reaction to the pension levy of intelligent, well educated people with very good jobs. I said at the time that if we escaped with only that, it would be miraculous. I have for some time been advocating a correction in wage levels across the public sector, as is happening in the private sector. Wage levels in this country are about one third higher than those of our competitors, and this must be corrected to bring us into line. It is a significant reduction. I mentioned in the House previously a survey carried out last year and published by the University of Glasgow which showed that the average income in urban areas in Ireland was €44,300, while that in Britain was €29,700. In other words, our average income is 50% greater than that in Britain. That shows the level of correction that may be required.
Social welfare payments total €21 billion. We need to ensure that budget cuts in social welfare are targeted to spare people who are vulnerable and do not have other incomes, but we also need to ensure we remove the anomalies whereby some families are in receipt of two or a larger number of social welfare payments. In addition, there are certain abuses within the system that need to be investigated and correction must take place. These changes will be unpopular and sectional interests will be strongly critical of the moves, but social welfare is a complex area and any changes that are made need to be measured and tested to ensure we do not make things worse for people who are in real hardship. We cannot, however, allow waste in any system. The balance of the €15 billion is made up of the service we provide to the public.
There is a need for a campaign across the public service. I said that seven years ago but nothing has happened in the interim. There must be a war on waste where we change the culture where people see expenditure as being no one's money so it does not need to be managed with the same degree of care as we would use to manage our own finances. It happens in all large organisations, where money can easily be wasted, but checks and balances are built into the private sector that do not exist in the public sector. There is an example of this at the front gate of Leinster House and someone recently told me that a local authority is paying €250,000 a year in mobile telephone bills. We must focus on money that could be saved because it adds nothing to the services we are delivering and does not take from the benefits citizens should enjoy.
There should be a focus on job creation and retention, both of which are difficult at present. Senator O'Toole mentioned energy and communications infrastructure. The communications regulator responded yesterday to the news we pay three times as much for land lines than in Finland by saying we are a rural country. That demonstrates an out of touch attitude and irresponsibility as a regulator. I hope the committee will take that up because it displayed in many ways what is wrong in many of our regulatory authorities, including the Financial Regulator, which contributed to this in some way. We would have an economic crisis, however, regardless of that and the other issues pertaining to the banking sector that have been so widely publicised.
There is a need to ensure that anything that is done is fair. Senator O'Toole mentioned GPs who charge €95 a visit, which was also mentioned by Senator Butler this morning. We are going to pay our consultants €250,000 per year, 50% more than they would get in Britain. There is no justification for that at all, just because they had held us to a contract that was unworkable and defied the best intentions of the Minister and any Government to have a health service we could be proud of. We cannot allow people to hold the State hostage and that is what has happened.
The same goes for barristers' fees. In the last correction, there was an 8% deduction as a levy on fees. An irresponsible article in the Irish Independent lauded the fact that fees would be reduced from €2,500 to €2,300. Those fees should not be more than €969 per day. Why do I say that? Because that is the decision the Government made in September 2004. Unless we are prepared to show we are equitable in the manner in which we impose the necessary pain to improve our economy, it will be difficult to get all those who need to subscribe to that cause unless we are scrupulously fair. I will support any measures that will correct the inequity in our system.
I welcome the Minister of State. I listened to him say he had read The Economist. I have since read it and when I saw the heading, "The Party is Definitely Over", I thought it was the usual stuff it publishes. I listened to the Minister of State speak, however, and looked at the last paragraph of the article. The Economist is not usually a friend of Ireland so it is interesting. It states that for all its ills "Ireland has form when it comes to retrenchment, it cut debt sharply in the 1980s. If adjustment within the euro means wage cuts, that is a price Ireland seems ready to pay." It is certainly a positive article overall, not what I expected from The Economist.
We must bear in mind that this mini budget will be the fourth financial package in one year. It seems certain that income-tax rates will rise, many capital projects will be halted and more current spending will be cut. I am more concerned, however, about the fundamental way we are going about our recovery and how we can avoid long-term damage.
As highlighted in the international media, this country's response to the recession goes against the grain. In America and Britain, policy is geared to avoiding deflation, which raises the real cost of debt. This country, however, is going down the route of pushing for lower wages, even though households here are also heavily indebted. I understand why. I was in Dundalk a couple of weeks ago talking to some of those who have lost their jobs. I asked if they would be able to find work in Newry, which is only 15 minutes away, but they said the same jobs in Newry only pay a third as much for the same work. How can we survive if our costs are so high?
Many countries want to lift their economies by fiscal expansion but we are tightening the budget. The Brown-Obama model, however, cannot necessarily translate successfully in Ireland. We have pushed our economy into a corner where mere domestic demand, the few euro extra spending power of a couple of hundred thousand worker-consumers, is hugely insufficient in terms of the scale of the stimulus we need to get ourselves out of the recession, especially since so little of what we buy is Irish. Only another enormous bubble on items like houses could possibly sustain growth based heavily on domestic demand, and not only is that not likely to happen for a decade or two, it is perhaps not desirable, given the recent effects the burst in this bubble caused for our economy and the economy of Spain.
Tax rises during financial hard times, however, must be questioned. We only need look at the increase in the VAT rate which lost us so much business in this country. It only increased by 0.5% but Britain cut VAT by a few per cent at the same time as a drop in sterling.
The Government never seems to learn that by having lower tax rates, it may in many cases bring in more revenue. I learned this as a grocer many years ago. Sometimes reducing the percentage, if one is clever enough, can bring more money in. It is not always the thing to do but we have had some success stories in Ireland, reducing tax rates, such as corporation and betting tax, while bringing in more money.
Few other countries face deficits as large as ours. We do not have the large debts we had previously but we can only hope the budget measures will result in improved confidence among foreign investors and at home. Alan Barrett of the ESRI says that consumers are aware of the gap in the budget and know tax rises are coming and that spending may even pick up if the uncertainty over taxes is ended.
For all our drawbacks, we have form when it comes to reduction of expenditure when we cut debt sharply in the late 1980s and some are optimistic that we can do it again. For instance, The Economist is hopeful about Ireland's economic recovery saying that "once the economy bottoms out and new measures take their full effect, the 2010 deficit ought to be less scary to the markets". Outside observers are impressed that the fundamentals that brought Ireland such success have not gone away. We still have a highly skilled workforce, greater productivity than many EU countries, a pro-business regulatory regime and speak English in the eurozone. These all help and none of them has disappeared. Comparing where we were 15 or 20 years ago with the position three or four years ago, we are now in a much better situation. However, wages must fall in line with deflation and prices must also fall. A lot of the gains Ireland made in the last 20 years will be preserved despite the collapse of the housing bubble. I hope Ireland's infrastructure, international profile and links have been advanced irreversibly. The country has also become more accustomed to success and what I call the psychological advance will help us to bounce back because we have more confidence than we had in the past.
The fundamental challenge is to find a sustainable long-term growth model founded on productivity, not just corporate tax and labour cost competition. The Government needs to take the bull by the horns and do what those banking experts say is inevitable. It must give serious thought to nationalising AIB and the Bank of Ireland. This would allow for a cleaning out of the toxic junk while getting credit into the economy and giving business people some breathing space. It would also send a strong statement to the markets that the Government is on top of the crisis. We must seriously grab hold of the situation in some form or other.
Increased competition is being advanced as a cure-all, but even if it results in price reductions it will fail to improve Ireland's international competitiveness, while the underlying controllable, but excessive, costs are left untouched. We have to tackle the wide range of "point-of-use" charges for utility and other services, combined with low nominal tax rates.
A number of Senators have referred to the cost of communications and energy. It is these excessively high charges which, more than anything else, have driven labour costs and contributed to the precipitous decline in Ireland's international competitiveness. For example, Ireland has the highest electricity prices in the EU. These high charges have resulted, in the main, from totally inept policy and regulatory decisions, but no serious consideration is being given to how they might be reduced. I do not understand what happened in the case of energy costs, but the objective of competition in the energy market was to bring down prices. However, in order to introduce competition, the regulator said prices had to increase to make it more profitable and encourage in competition. If the objective was lower energy costs, we have got it back to front. The objective was to introduce competition, but it should have been to achieve lower costs, although I do not quite understand how that works.
I wish to make one or two points on the budget, although they may have been made before. One of them concerns philanthropy. Following criticism in the Dáil, particularly by the Labour Party, of wealthy individuals who were not paying any tax, the Government said everybody would have to pay a certain amount of tax, even the very wealthy. However, philanthropists were included in that measure. Therefore wealthy people who decided to donate their money to charitable causes, were included in that along with all the tax breaks. That was an error, however, and was not the objective. The former American ambassador to Ireland, Mr. Thomas Foley, held an interesting function last year in his residence in the Phoenix Park. He invited a number of organisations that rely on philanthropy, including universities and hospitals, to encourage philanthropic thinking in Ireland. However, the tax measures I referred to have closed the opportunity for wealthy people who might consider donating money to charitable, philanthropic causes. They cannot donate to the same extent as before because we have closed the door in that respect.
Gorta and other charities have indicated they benefit from a tax rebate on a standard €250 annual donation. A number of people now say, however, that they are unable to donate such a sum due to straitened conditions. Therefore, the Minister might consider reducing that sum to €100 to make it more attractive to potential donors.
Let us make sure we get this budget right, but let us also ensure we do not damage the infrastructure and long-term fundamentals that enabled us to get it right in the past.
I am glad of the chance to contribute to this debate. I welcome the Minister of State. I am delighted we have this opportunity in advance of the supplementary budget on 7 April to put forward our views. It is clear that this Chamber's membership is drawn from a wide range of areas and represents various aspects of society. Based on their own experience and expertise, Members of this House have a particular role to play in contributing to these pre-budget statements. I appreciate that the Minister for Finance has a difficult job ahead of him. We are in challenging times which call for drastic action. The measures the Government has had to take over the past 12 months demonstrate the extent of the challenge we face. Our priority must be to stabilise the situation and bring about economic recovery. In so doing, we must remain focused on trying to support people to get through the current situation as best we can.
I hope the Minister of State can take on board a number of specific matters I wish to raise. I appreciate the importance of examining ways to increase tax revenues, as well as generating savings in State expenditure. The moneys involved in departmental and other State services are enormous. It is imperative that we ensure they are spent in the best possible way by identifying accurately the priority areas.
This budget should not be seen as being just about increasing taxes or saving money. While both those issues are important, we must also see it as an opportunity to maintain and grow the economy. We need to identify new sources of income and employment, which are imperative for the medium to long term. As a small country with an open economy, putting together a stimulus package such as that in the United States, for example, is not an option for us. We do not have the population for such a package to be viable. Because we are a small country, however, there is a limit to how much we can raise through taxation. We will only ever have a certain number of people in the workforce who can contribute taxes. We must also examine methods of generating additional income, whether through investment in infrastructure, research or education. A central step in this regard concerns the conditions attached to the bank recapitalisation scheme, which included making capital and credit available to small and medium-sized businesses. That is an important way of supporting those parts of the economy that must survive and those in a position to develop.
It is imperative to view the budget not just as an accounting exercise, balancing figures and so forth, but as an opportunity to develop the economy. One advantage of these economic times is they offer an opportunity to secure better value for money. I heard anecdotally from various local authorities that estimates on projects put out for tender are now much lower than they would have been two years ago. That demonstrates the availability of people for work and the degree of competitiveness that has crept into the construction sector. We should take advantage of this and use it to promote economic growth.
If we do go ahead with capital expenditure projects, we must get maximum value for money. These projects will create employment while they are being completed and provide much-needed infrastructure. Certain industries in the economy are doing well but need to be supported through banking initiatives and limiting bureaucracy that may affect them.
There are several areas I would like the Minister to examine in advance of the budget. I have heard of some instances of unemployed people being offered new employment away from home. However, with families and mortgage repayments, taking up employment away from home involves extra costs such as travel and renting accommodation. As there is no tax relief for accommodation for employment, many people in such circumstances feel it is not worth their while to take up the employment offer. While this is anecdotal, will the Minister establish if this is a factor in people taking up employment? If it is, then it is creating a false economy from the State's point and is not good for society.
I accept funding for home adaptation grants will be limited. Is it possible, however, to examine a separate scheme for patients occupying hospital beds who could be discharged if their homes were properly adapted for their needs? The cost of keeping someone in a hospital bed is far more than the cost of a one-off adaptation grant. Again, keeping someone unnecessarily in hospital creates a false economy. It does not provide best value for money and is not in the patient's interest.
I welcome the Minister of State, Deputy Mansergh. Senator Norris said he would keep this type of debate on the agenda every month. I agree the House should have more of these debates.
In my time, I played football and know that one cannot catch the ball without keeping one's eye on it. The Government took its eye off the economic ball over the past several years. The housing bubble is the main factor why we are in these economic straits. New migrant workers and returning immigrants seeking accommodation gave a boost to the housing market but prices soon went too high. That was, however, going to come to an end at some point.
While the economy was successful in the technology sector, it was also a disadvantage. Costs got out of hand and our manufacturing base and cottage industries disappeared. We are not competitive any more. Senator Jim Walsh claimed wages are too high in Ireland when compared to other economies. However, that depends for which economy one is pitching. Several Ministers have said Ireland needed to go for the high-end and high-skilled economic model. Doing so, they took their eye off the ball when it came to the manufacturing sector when we should have achieved a balance between it and the high-end sector. As a result, the economy is not in a good state.
No Minister has yet informed us how bad the economy really is. The Taoiseach and the Minister for Finance have moved from 9% of borrowing limits to 10% to 11%. It should be remembered every 1% equals €1.5 billion, a lot of money for an economy this size.
On this morning's Order of Business I raised the issue of public private partnerships. The Government took a fancy to these when providing infrastructure and championed them over the past several years. They have been used in the construction of water and sewerage schemes, schools and roads. For several years, I have called for debates on how efficient and expensive these partnerships are. Most of these partnerships have 25-year terms with an annual built-in inflation rate of 6%. These rising costs in, say, five years will be too expensive for small businesses using water schemes or schools. As the economy is now in a deflationary cycle, what is the position on public private partnerships? I have not been able to get any Minister to explain if these contracts will allow for deflation. It is an area that should be seriously examined.
Senator Butler raised an important issue, how charges have got out of hand. It is outrageous, and the Senator was right to raise it. It is a direct result of the Competition Authority. Fees cannot be negotiated on a broad basis. The Government must examine this issue. I spoke to a person today who bought bulk gas recently. He was quoted a price of 60 cent per litre, or whatever is the unit of measurement for gas. He eventually bought it from another company for 36 cent. That is outrageous; it is an almost 100% difference in price.
My family has a small business — a restaurant. When one examines the difficulties small businesses must deal with, one can understand why they are closing down. In many cases they are paying no rent to landlords. Until the Government grasps the issues and the current situation levels off, nobody will know where they stand. The quicker it levels out, the better. This budget should have been introduced long ago. Action should have been taken. It will not be a mini-budget, as it has been described, but a vicious budget. It probably must be.
The costs of our small business include wages, rates, insurance, bank charges, bank repayments, water charges, sewerage charges, refuse charges, IMRO charges, ESB, VAT, charges for sanitary services, doormats, window cleaners and sanitary disposal. The Minister can smile at the list but it does not include general maintenance and repairs and that is before one purchases the food or equipment for a small, family-run restaurant. One pays 13.5% VAT on every euro one takes in so one is left with only approximately €8.65 out of every €10 taken in. The Minister of State must see the difficulties small businesses have, and that is only in that sector. I am sure the difficulties are equally tough in other areas of business. On top of that, consider the treatment they are getting from some bank managers. The behaviour of some banks should be examined.
Another issue should be raised. The Minister of State was formerly a long-term civil servant. I consider the Civil Service and public servants in the local authorities, health boards and so forth as the same. Some of the brightest people in this country are in the Civil Service; that was always the case and always will be. However, the situation has gone wrong over the past few years. Better local government was introduced for local authorities but it divided the workforce. Some workers got promotion at the behest of county managers, and I believe this has made the local authorities inefficient and has divided the loyalties of staff.
Look at what happened in various Departments. Ms O'Neill in the Department of Transport took the blame for not telling the Minister for Transport about the Shannon issue. Before that, a person in the Department of Health and Children when Deputy Micheál Martin was Minister was promoted to the Higher Education Authority. In the good times, the people in the Department of Finance could not tell us how much the country's surpluses would be each year and now they cannot give us figures in the downturn. I do not blame the civil servants for this. There is no leadership and the Government must take the blame in this regard. The Minister of State was a senior civil servant for many years and I am sure he knows what I mean.
I also blame this and previous Governments, of all hues, for bringing in a great deal of outside expertise or advice at the cost and to the detriment of the Civil Service. I believe the civil and public servants could solve many of the problems in Departments, local authorities and the HSE if they were given the opportunity to do so.
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 the Senators for their contributions to a very good debate. Deputy Michael D. Higgins and I, in the course of a debate in the Dáil last night on reform, the number of Ministers of State and so forth, took the opportunity to strongly vindicate the value of the Seanad and that value has certainly been shown today. I apologise for being absent for some of the debate but the French budget Minister was visiting and I was asked to go to meet him. However, I have notes of what was said by the contributors.
I stress that the pace and scale of the current global economic deterioration is without precedent for over a half century and advanced economies such as ours are expected to be the among the worst affected. The Irish economy is going through a very sharp downturn. Today's data from the CSO show that GDP declined at an annual rate of 7.5% in the final quarter of last year. The equivalent figure for GNP was a decline of 6.7%. These are obviously very poor figures. The Government is determined to take timely and appropriate action to stabilise our economy and to re-position it to be able to achieve sustainable, export-led growth when the global economic climate improves.
Notwithstanding current difficulties, Ireland retains the ability to recover and benefit from the global upturn when it emerges. Our medium term prospects remain positive and our economy has the capacity to grow at a relatively healthy pace once the current difficulties are overcome. However, the achievement of that potential is contingent upon implementing the right decisions now. Senator Twomey and I, in my opening contribution, referred to the previous example 20 or 30 years ago when Ireland was slow in benefiting from recovery because it did not succeed in getting its act in order.
On 7 April, the Minister for Finance will present a supplementary budget which will set out a comprehensive strategy to place the public finances on a sustainable footing and to prepare the economy for renewal and revitalisation when international conditions improve. I accept that "supplementary budget" is a manner of speaking; the so-called supplementary budget will probably be more important than most of the annual budgets in recent years. It will build on a deliberate series of measures that have been introduced to respond proactively to the difficulties in the public finances. The domestic and global recession have put enormous pressure on the public finances of this State. Added to this is the loss of confidence caused by the actions of some in the Irish banking sector, which has tarnished the reputation of the nation's financial services industry. However, this challenge presents the Government with the opportunity to renew our economy, revitalise the public finances and reform our banking system.
There is much evidence from various sectors of the economy that people are beginning to see opportunities again. Income levels in many cases have already dropped substantially, rents have dropped and other costs have been reducing, although they have not reduced everywhere. There are plenty of pockets where costs should be dropping and so far have not. In one or two cases, they are still increasing. That does make enterprise and investment viable again when it was not viable in the past year or two because we had simply got out of kilter.
Since the announcement of the Government's intention to bring forward a supplementary budget, the Minister for Finance has facilitated the Opposition by giving them unprecedented access to information and briefing outside of an election period. At the start of the month, his officials briefed Opposition spokespersons on the broad budgetary framework and made the Department available to the Opposition for confidential costings of any budgetary proposals they may have. While the Opposition has sought information on the numbers on which the supplementary budget will be based, the Cabinet is deliberating upon those numbers and will make its judgment, based on advice about their economic impact in the coming days. It is for Government to come to an informed decision on these matters.
Perhaps I am a bit of a traditionalist in this sphere. I have worked for many years in Opposition as well as in Government, albeit as an adviser. Opposition and Government have distinct roles, both honourable, and I do not think they should be unduly fudged. We need a critical Opposition. The problem with a so-called national government is that in those circumstances one has no Opposition at all and I am not sure the suspension of critical faculties is what we need in this situation. I do not know how many people agree with me but that is my view.
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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It is my understanding that officials continue to be available to the Opposition for further briefing subject to the requirement to maintain Cabinet confidentiality. It is the responsibility of Government to draw up the budget but everything possible has been done to ensure the Opposition has the information it requires to make constructive suggestions and constructive criticism. The Minister indicated yesterday evening in the Dáil that he is open to considering all constructive proposals to get us through this economic crisis and he is looking to the Opposition for their support, where they can give it, for the necessary measures we will take. Decisions will be taken in the national interest on the basis of fairness and equity. The Government will look to place the greater burden on those who can most afford to bear it while trying to protect the most vulnerable in our society.
In his contribution, Senator Twomey referred to the banking situation. The Government's approach here has been structured and considered. It has been informed throughout by advice from and in consultation with the Central Bank and Financial Services Authority of Ireland, the National Treasury Management Agency and legal and financial advisers. We will continue to have regard to discussions and agreed principles at European Union level.
The Minister for Finance is moving as a priority to reform our regulatory structure through the proposed full integration of the Central Bank's responsibilities with the regulatory and supervisory functions of the Financial Regulator. This reformed structure has to deliver new high standards of banking and financial regulation and corporate governance. The Minister for Finance will be looking to ensure that best EU and international practice is applied to Ireland's regulatory system.
The Government is determined to signal strongly that the types of practices followed in some of our institutions are unacceptable, that the regulatory lapses will not be repeated and that Ireland remains committed to the continued development of a soundly based, well regulated and competently supervised financial services sector. It also has to be a form of regulation that allows the system to breathe. I was at an IFSC conference earlier this morning. There is always a temptation in situations such as this, because things have gone wrong, to come down so heavy in all directions that it becomes very difficult to operate.
We have a highly successful international financial services industry, which I am pleased to say has come relatively unscathed so far through the global turmoil. On behalf of the Minister, I invited the industry to make submissions on some of the regulatory proposals that are coming up at EU level because we want to work closely with it to maintain employment. One of the speakers this morning said the creation of the IFSC was the single most valuable and important development initiative that has taken place in the past 20 years.
In setting out expenditure adjustments Senator Callely referred to public procurement, an area for which I have responsibility. I am pleased to say that to pursue expenditure reductions in this area the Office of Public Works will shortly establish a national operations unit for public procurement designed to achieve savings, or more from less in Government expenditure.
Senator O'Toole mentioned the benefits that have been brought about by social partnership. I am pleased the social partners have accepted the invitation from the Taoiseach to return to talks and engage again on the current difficulties that are facing us. There are really two schools of thought on this. The Leas-Chathaoirleach will have heard me many times when I was finance spokesperson in this House strongly defend the system of social partnership which, notwithstanding recent disagreements, has an important and constructive role to play. Some of us will have heard on the radio this morning a description of the situation in France where that sort of co-operation between the social partners on either side and Government seems to be totally removed from practical politics. Perhaps as a smaller society we have the advantage. All of us know in our hearts that if we do not hang together we will hang separately and that it is essential if at all possible to pull together, accepting that the Government may take measures and initiatives to which one or other social partner may not be able to fully subscribe, but which does not alter the necessity for it to be taken.
Rather than prolong the discussion further I will draw my remarks to a conclusion. The Leas-Chathaoirleach made some interesting points himself on the subject of public private partnerships. To be fair to the Government and the Department of Finance, they have never adopted a gung-ho, uncritical attitude to that system of financing projects. He certainly raised an interesting point although I assume that in all probability the deflationary period into which we have entered will not last very long. Nevertheless, it is an interesting point.
I very much agree with the Leas-Chathaoirleach on one point, and it is something I try to practise in the area of my Department where I have executive responsibility, namely, the Office of Public Works. At times we have been much too ready any time we have had any kind of problem to hire expensive experts of variable quality from outside. I refer to the situation that has existed over many years. I have read reports that it seemed to me could perfectly well have been put together by civil servants. There are areas and occasions when it is right to bring in outside expertise but that should be done much more selectively. I am referring to all Governments over a long period of time. Any element of patronage should be removed from the situation. It is something we cannot afford. Our public service costs us a significant amount of money so we should use it to the maximum extent. We should also offer it encouragement on occasion. This may sound strange and as though we lack confidence in its capacities. It is excellent in many areas. I broadly agree with the views the Senator expressed on that subject.