Thursday, 28 October 2010
Macro-Economic and Fiscal Outlook: 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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Four weeks ago on 30 September I addressed this House as my contribution to statements on the economy on a day that I described as being critical in our recent development. On that day, the Financial Regulator announced the total capital requirements for the restructured financial entities and the Minister for Finance issued a statement on the matter. The Minister stated that the overall cost of State support to our banking system remains manageable and can be accommodated in the Government's fiscal plans in the coming years. He added that it is imperative to remain focused on our major challenge, which is to ensure that our public finances are returned to a stable and sustainable path. Today, I propose to comment on our economic situation, but more particularly on the scale of the adjustment needed in the public finances over the coming four years, the reasons such a large adjustment is needed, what the Government proposes to do to meet its consolidation target by 2014 and why we cannot delay making considerable progress towards this target in December's budget for 2011.
Four weeks ago, I devoted most of my contribution to making the case that the considerable amount of negative, sometimes even defeatist, comment about the economy at the time was overdone and that there was much that was positive in recent economic data and developments. I do not intend to repeat in detail these comments, but it is useful to refer to the main points. Following the most severe economic downturn in the history of the State, the most recent national accounts figures, while somewhat lower than expected, nevertheless pointed to a stabilisation of activity in the first half of this year. Export performance was robust in the second quarter of the year and, encouragingly, the range of exports was shown to be broadening. Yesterday, the Irish Exporters Association released figures that showed the value of goods and services exported in the third quarter was 9.3% higher than in the comparable period last year. This strong export performance reflects the considerable improvement in competitiveness through a fall in pay costs and prices. I also pointed out that the labour market, which has been severely affected by the downturn, was also providing evidence of stabilisation in employment and unemployment. There has been a substantial underlying fall in unemployment in September and, on this basis, it is reasonable to expect that the outcome for this month will also be favourable.
In the following week, clear evidence was provided that the Government's efforts to stabilise the public finances are having a positive impact. The Exchequer returns of revenue and expenditure, covering the period to the end of September, showed that the overall Exchequer position was in line with target. Other positive features of the figures were that total tax revenue was exactly in line with profile, expenditure was almost €1.6 billion down year-on-year and the underlying general Government deficit this year is expected to be broadly in line with the budget target.
It is no accident that the public finances are stabilising: Ireland is now into the third year of a difficult process of consolidation and the Government is fully engaged in formulating its consolidation plan for the next four years. The Government's record since the middle of 2008 demonstrates a sustained, politically courageous and determined commitment to bring the public finances under control in circumstances that could be hardly less ideal.
I shall briefly summarise the main steps taken by the Government over this period. In July 2008, a range of efficiency and savings measures was put into effect, including a 3% reduction in payroll costs for all Departments, State agencies and local authorities. Budget 2009, which was brought forward to October 2008, included a tax package to raise almost €2 billion in 2009. Against a backdrop of sharp downward revisions in the global economic outlook, the Government set out a multi-annual fiscal consolidation plan in January 2009, with the objective of bringing the overall deficit back within the 3% ceiling in a credible manner. Further programme and payroll savings of the order of €3.5 billion were announced in the first half of 2009, of which the main element was the introduction of a public service pension-related pay deduction. The supplementary budget in April 2009 continued the process begun by these earlier savings measures, consolidating the expenditure reductions through a range of programme savings.
Budget 2010 continued the process of implementing our multi-annual plan, with an expenditure reduction of €4 billion delivered through a combination of payroll, social welfare and other programme reductions. The special group report, published in July 2009, made a contribution of central importance to the expenditure strategy in budget 2010 with savings of some €2.1 billion in 2010 arising from the report to date. In all, these measures have amounted to €14.5 billion.
Despite adjustment on this scale and of as much again to be done, the Irish economy has proven to be resilient and is set to emerge from recession. It has been a formidable achievement to secure these savings, but the hard reality is that as much again and a bit more must be secured over the next four years. Specifically, the Government has decided that a total budgetary adjustment of €15 billion over the next four years is needed to achieve the target deficit of 3% by 2014. Two key reasons make this necessary. The first is that there has been a sharp increase in the interest demanded on Irish debt. The second is that even with a resumption of steady economic growth, expected to average 2.75% over the four years to 2014, this will not be sufficient to generate the revenue to meet the present level of public expenditure.
The pattern of adjustment will not be the same for each of these years because some front-loading in 2011 will be needed. Also, in order to protect the basis for economic growth as much as possible, the balance of the adjustments will favour expenditure cuts over tax increases. The Government's decision to front-load the adjustment in 2011 was made in full awareness that this approach is likely to dampen economic growth in the short term. However, the greater imperative in the short term is to secure the confidence of the markets so we can continue funding our public services. The options facing us therefore are not appealing and the choices to be made by the Government, or any party in these Houses, are not easy.
In the face of the current state of the economy and the public finances and the compelling necessity to secure the confidence of the markets, we stand at a critical time for our country. It is our responsibility as representatives of the people to do our utmost to decide what is in the best interests of the country and to act accordingly. The correct decisions will safeguard Ireland's long-term economic prospects, but the wrong ones could cost us dearly and it is not necessary to spell out why.
Following the Department of Finance's briefing of the Opposition spokespersons and leaders on the state of the public finances and the economic outlook, all parties are now clear as to the size of the task facing us over the next few years. We are in a position of great economic uncertainty, but equally it is vital that we act quickly and decisively to demonstrate a credible commitment to restoring stability to our public finances.
I am encouraged by the acceptance by the main Opposition parties of the target to reduce the deficit to 3% of GDP by 2014 and I have stressed this positive factor on recent visits to the ECB in Frankfurt and to a think-tank attended by leading economic commentators in London. This development will enhance the confidence of those watching from abroad that Ireland is committed to appropriate fiscal adjustment and that Ireland can return to a path leading to sustainable public finances and sound economic growth under successive governments.
The scale of the adjustment needed in the public finances is such that, in order to achieve stability, it is unavoidable that almost everyone in this country will need to make some contribution towards achieving it. Therefore the Government is determined that one of the key principles that will underpin its four-year plan will be that of fairness. Although perceptions of fairness can be subjective, I am confident that the Government can succeed in this regard. When they are convinced that the burden they have to bear will be shared equitably, the people will accept it.
From what I have just outlined about the challenge facing the Government to meet the 3% of GDP deficit target by 2014, it is obvious that proposals to achieve it must be clear, comprehensive and credible. This response will be presented in the Government's four-year growth and fiscal consolidation plan by mid-November and will be presented to the Oireachtas. There have been some criticisms by the Opposition in the Dáil that not enough figures have been presented to them. I want to assure Members of this House that the Government will do its utmost to ensure that, when published, the plan will contain as many figures as can reasonably be provided. The plan will be a wide-ranging document and, using the most up-to-date economic and fiscal data, it will set out clearly the revised annual headline targets and the necessary adjustment to adhere to a credible deficit reduction plan over the medium term. In addition, it will also map out the path of the economy and the public finances towards recovery over the years 2011 to 2014 with special emphasis on the adjustment required in budget 2011.
The plan will not be just about correcting the imbalances in the public finances; it must also include a strategy to underpin and encourage sustainable economic and employment growth over the medium term. In order to ensure the fiscal targets which we set are delivered, the four-year plan will also feature reforms to the budgetary framework. Structural reform will be an important element of the plan. Structural reform is about making the public and private sectors of the economy work better. If we simply confine our efforts to sorting out the public finances and ignore structural reforms, we will not be able to achieve the basis for strong economic growth over the long term. In summary, we have to ensure that no part of the private sector or public sector will be a drag on the economy. Structural reform measures often take several years to have full effect, but including them in the plan will make an important contribution to demonstrating its credibility. I should add in this context that Ireland will submit an initial draft of its national reform programme under the EU 2020 strategy to the European Commission in November. This document, which will be consistent with the four-year plan, will contain the key structural reforms which can be implemented most quickly with greatest effect.
Addressing the challenge of stabilising the public finances is formidable, complex and will take hard decisions over several years. Nobody in this country relishes the task ahead, and it is therefore not surprising that there are some who in good faith are saying that we do not have to act now and that we should delay doing so for one or two years. The reality is, however, that we have no choice but to act now on the commitments that we have made to the EU Commission, EU Ministers and the ECB, even in the unlikely event that the markets would allow delay. On the positive side, by taking action now, not just to stabilise the public finances, but also to make the economy work better, we will in a short time secure the basis for sustainable growth and a fairer and better society for ourselves as well as enabling our young people to attain the potential of their talents and ambitions in their own country.
The Minister made an interesting speech today when one considers the speech made by the Minister for Finance, Deputy Brian Lenihan, 11 months ago. I sat in the Dáil and listened to him make his Budget Statement last December in which he said we had turned the corner, although we appear to have run straight into a big cement truck. Today's speech is a completely different outlook from what was outlined last December and there is a need to explain to the people of Ireland what has gone wrong.
The tax take predicted last December is more or less as expected. Projected growth rates for the next couple of years are lower, although not massively so, while the global outlook has probably improved. That is evident from our export figures which have increased by 9%. Therefore, what has gone so dramatically wrong in this country in the last 11 months? One of the main problems was the Minister's mismanagement of the banking crisis. Two years ago, the Minister for Finance told this House that he envisaged the bank guarantee would not cost the taxpayer anything. Instead, it has cost us €50 billion in two years. Two thirds of the tax take of each of the last two years has, essentially, been spent on bailing out the banks, even though the Minister thought two years ago it would not cost us anything. As we progressed through 2009 and 2010 the Minister either did not know or was unable to ascertain how much the banking crisis would cost. That has led to a shocking loss of confidence in this Government, both at home and abroad.
The other accusation that can be made is that the Government is drip-feeding bad news to try to lessen its impact. However, it is only compounding the problem. People are constantly getting mixed messages that somehow we are turning corners and seeing green shoots and then that things are absolutely terrible. Did the Government suffer from some form of wishful thinking that our problems would go away or has there been a deliberate cover-up of the facts over the last number of months?
What has brought us to this point where there appears to be a greater sense of realism on the part of the Government compared with some of the words spoken at the beginning of the year? What has shattered the illusion that the Government was in control of the situation was, I believe, a front page article in The Irish Times by the European Commissioner, Olli Rehn, which appeared either at the end of September or the beginning of October. The Government is now doing everything he advocated in that article. He said the adjustments might need to be higher and that a four-year plan was required. The Government is now doing that. I believe this was a game-changing event.
There is a strong necessity for the Minister to start answering questions clearly and concisely. There has been much talk in the Seanad over the last couple of days about the €80 billion or €90 billion of savings in Irish banks which people are refusing to spend. Why would anybody who has money in the bank spend it now, when they do not know what will happen? They do not know whether there will be pay cuts, tax increases, if there is more bad news coming down the tracks or whether we will have problems with international investors. The reason they will not spend their money is their lack of confidence in the Government's ability to run this country. People do not know what is happening.
I have listened to commentators discussing whether we should stretch this process out over four or six years. It does not matter. The only thing that matters is what we do this year and next year. The Government will go to the international investors in March - I believe it is covered for January and February - to borrow money again for the Irish economy. Another €20 billion must be borrowed next year. If it borrows at the interest rates announced today, it will drag the country back even further. We need that money to pay our civil servants, pensioners and social welfare recipients. There is a need for the Minister to give answers to the House now. We cannot wait for weeks as it only adds to the fear and lack of confidence in the economy. He must outline where the cuts will occur and make it quite clear what impact cuts or tax increases will have on growth. We must have an honest debate and the Minister must explain to the Irish people what will happen.
We also must know about the status of the Croke Park agreement. Let us be honest, the implementation of that agreement so far is an abysmal disaster. It is not having any impact whatsoever in controlling the public finances. Some Departments are basically doing nothing while some are making an effort but, overall, the agreement is not having the impact we expected. If that is the case, the Minister should say as much and not waffle by saying this, that or the other might happen. The problem is that there are many people like the Government who do not wish to see the reality and face up to how bloody awful things are at present. Until we explain where the country is and where it could go quite quickly, there will be less inclination to make these changes. The history over the last number of years is of the two benchmarking processes and the former Taoiseach, Deputy Bertie Ahern's, legacy of everybody protecting their own patch and not expecting to take a hit in terms of accountability, reform or changing work practices. We must break that mindset down, and quickly, before the economy goes completely pear shaped. I do not get that sense of urgency or hear that type of straight talking from the Minister for Finance or the Taoiseach, and they are the people who matter now. They must point this out.
There is also a need for the Minister to explain the role of the European Union. I have met people who believe it is positive. Indeed, they would nearly prefer if the EU took over completely because they do not believe the Government has the ability, whether that is because the Government deliberately misleads them or is clearly incompetent at doing the job. There is no doubt that the EU has a greater role and the Minister must explain to people what that role is and why it is so concerned and involved in what is happening in this country.
The Minister must also explain a number of other issues that are also having a huge impact on the economy and its ability to recover. There is the issue of the National Asset Management Agency, NAMA, and how it is progressing. NAMA is seen by many commentators as distorting the market. Since it controls such a huge part of our economy, what it does or could potentially do in the next months and years will have an impact on property prices.
There is a need for clarity, otherwise the Minister will continue with his policy of death by a thousand cuts in the context of the construction sector and property prices and the ability of that sector of our economy to recover.
Clarity is also needed on what is happening with Allied Irish Banks. When the Minister announced that €50 billion would be the cost of bailing out the banks, he tried to make it seem that the bailout was complete. Given all the other concerns raised in the meantime, such as the state of our public finances, we have forgotten about the banks. NAMA has raised the threshold at which it will accept loans from banks to €20 million from €5 million. The agency's officials, therefore, realise that many small problems are still floating around in the banking sector and they do not have the ability to deal with them at this time. However, this may indicate the banks have still to deal with a significant number of bad loans. There is a feeling that Bank of Ireland may be able to deal with this problem but it is possible AIB will need further bailouts. We have heard nothing about this or whether the Minister is happy the issue has been addressed. Last December he was happy that the banking crisis had been dealt with but then it cost another €30 billion this year. The equivalent of the entire tax take for 2010 will be spent on the bailout of the banks.
Recently I watched the movie, "Rogue Trader", and it occurred to me that the Minister for Finance is the best rogue trader in the country. He completely miscalculated the bank bailout and he has spent €30 billion in one year on it. He took gambles, the outcomes of which he does not know, and he clearly did not understand them. They are costing us a bloody fortune. The Minister still has a little credibility with the public, unlike his Government, but it is fading quickly. He needs to be more honest about what is going on, tell us what we need to know and give us clear answers on the economy.
Government Members constantly remark that when Opposition Members make their contributions, they must be measured because everybody is listening to what the Opposition is saying. International investors could not give a damn what we are saying. They want action and clarity. They want to know what the Government will do in the upcoming budget and in next year's budget and they want to be sure the Government has the bottle to follow through on what it says it will do. In addition, they want to be sure the figures the Government gives them are real. It is our job in opposition constantly to hold the Government parties to account. The attempt by the Minister for the Environment, Heritage and Local Government to seek a consensus whereby we would all pretend we were working together was half baked. Such a consensus would spook international investors rather than give them confidence. We all understand our responsibilities and nothing we say is intended to undermine the country. However, the Government needs to give up on its wishful thinking, stop deluding itself that it knows what is going on, start working hard to solve the problems we face, tell the people what will happen and, more important, tell them why it must happen. The only way we can give hope to the people is if we are honest, however painful it may be.
I join Senator Twomey in welcoming the Minister of State. He is a regular visitor and while we love to see him, it would be nice if the Minister for Finance could make it from time to time. I am sure he would be with us if there were not other important functions to attend to.
I do not propose to go down the line of indignation again like Senator Twomey. As Senator Boyle said last week, we are suffering from debate fatigue on the economy. Many of us have used the Punch and Judy cliché over the past number of months and it needs to be dispensed with in favour of discussion on the tangible ideas Members have about where they feel savings can be made, taxation increased and structural amendments made that will contribute in a meaningful way to the four-year plan. That is what I am interested in and I would like to make a few personal suggestions as opposed to making suggestions for party political reasons. Many of them may be determined to be unfounded or hare-brained but nevertheless we must have such an exchange. Senators Ross, Harris, Regan, Twomey and others have life experience, particular expertise and ideas and they can outline ways they think we can navigate what clearly will be a difficult course ahead. That is how the debate will best serve us.
In due course, there will be a general election and people can exercise their franchise in the way they see fit and if that is influenced purely by anger, then so be it but, in the meantime, as the Minister for Finance said, anger is not a policy. It is incumbent on us all to come up with the specific policies that will get us out of the current mess. Throughout yesterday's debate in the Dáil, Fine Gael's position was to criticise the Government for not announcing the specifics of the budget. However, governments cannot do that. Fine Gael Members have been in power and they know the announcement must be reserved for budget day. Unlike Deputies Gilmore and Burton, who at least came up with some suggestions, Fine Gael chose to reserve its position and asked for more detail before it would come up with tangibles. I am sad that Senator Twomey has opted for the old set piece blame game by expressing indignation over what got us into the mess and the difficulties that have resulted.
The Minister of Finance announced earlier this week that the Government will make a fiscal adjustment of €15 billion over the next four years, which is a colossal amount. As the Minister of State said, we have all committed to achieving the deficit target of 3% of GDP by 2014. That can and will be done. During debates on our economic difficulties over the past number of years, I have stated on occasion that from a monetary policy point of view, the fact we are not in a position to adjust our interest rates has contributed to those difficulties. On one occasion the Minister of State corrected me because he thought I was advocating that Ireland should leave the euro, which I would never do. However, if the Stability and Growth Pact dictates the debt to GDP ratio of member states, we also need to consider guidelines for governments that are in surplus. The Joint Committee on Finance and the Public Service in its report on the macroeconomic and fiscal policy contribution to our problems stated that since Ireland constitutes less than 1% of the eurozone and interest rates are based on the inflationary outlook of the entire eurozone, interest rates will not be at the optimum position to help our economy. We experienced that difficulty when interest rates were running at 2% while our growth rate was 8%. That did more to fill the punch bowl than take it away.
The four-year plan will be announced next month. It will not only outline budgetary adjustments to be taken over the next four years but it will also provide a plan for structural reform of the economy, which the Minister of State mentioned. That is significant and necessary but at times the pedestrian nature with which we pursue change is frustrating. Senator Twomey, myself and others mentioned the Croke Park agreement on the Order of Business. It was designed more than a year ago having been negotiated in partnership with the unions. It is always welcome when agreement can be reached with the unions in the context of coming up with plans to solve our problems. However, the pedestrian nature with which we are achieving the deliverables under that plan is simply unacceptable. It has been more than one year and there have been no identifiable deliverables. We have seen the implementation plans from some Departments and there is a suggestion that we will realise the deliverables by January. That is simply disgraceful. As someone with a business background, I am aware that when a business decides to change things, they change overnight. We must start to introduce a level of flexibility and agility to our public services and to the way we do our business, whether in Government or whatever aspect of the public service, and we must do so immediately.
In this context the Croke Park agreement must be revisited. I welcome the fact that the Minister, Deputy Brian Lenihan, has stated that we must seek more savings there but I am unsure whether the area of public sector pay can be ignored. There can be no sacred cows and while I do not cherish the potential for my salary to go down the reality is these are difficult times. Let us consider health as an example. Some 70% of the entire health budget of €16 billion goes on pay. It is simply ridiculous to suggest that we will not cut pay at all and that we should cut the 30% that goes to front line services. This is simply wrong and we must engage with the higher paid public servants, especially those above the €60,000 mark, including Members and all senior civil and public servants. We have a limited period to determine if we can survive on a little less and it is vital that we can do so. While the Minister, Deputy Brian Lenihan, has stated that is not the intention at this stage, we need to consider it. If we announce now that we will not touch public sector pay we could be back at the table in another six or eight months and have to revisit things again. These are personal views.
The British Government took a brave decision last week to cut its public service staff by almost 500,000 in the next four years. We do not need to cut our numbers to that extent and I realise that through the moratorium we have saved in the region of 12,000 places so far. However, realistically we may need to have a voluntary redundancy scheme to bring that figure closer to 30,000 people. These are painful measures which no Government would wish to contemplate. However, given the economic crisis we are in these are the measures that must be considered.
Another measure that could be interpreted as political suicide - we are way past political considerations and vote winning measures at this point - is the concept of a property tax. It would be very difficult to administer a property tax but in 1977 Fianna Fáil was in Government and abolished domestic rates. At the time the domestic rate was calculated in an unfair way and it needed to be tweaked but by abolishing it we stifled the ability of the regions to develop on their own steam, whereby local authorities could have substantial budgets and bank their own capital projects. We must consider this area in the interests of sustainable local government funding. I do not propose that any of these measure should be focused on the less well off and vulnerable. There could be an appropriate waiver scheme were something such as this to be introduced. There was also speculation that the levy on second homes could be increased and this should be considered as well.
There have been suggestions from the Opposition parties and on our side of the House concerning the potential to sell some State utilities. An examination of the sale of either Bord Gáis or EirGrid may be possible but I would not seek to sell both. A substantial stimulus is required in terms of employment. There is approximately €4 billion in cash in the National Pension Reserve Fund and it must be invested wisely on behalf of the people to cover the pension liabilities of the future. The best investment of that money would be a scheme to take equity in the SME sector not by way of grants or giving out money or unmeasured expenditure, but to have a robust evaluation system which could be done quickly. It could involve someone good on the accountancy and legal sides and it could allow SMEs to come forward and the State could take equity of between 20% and 30%. Perhaps this could be bought back within a five or ten year period. That would be a good and wise investment on behalf of the people of the money in the National Pension Reserve Fund and it would give a much needed stimulus. An injection of €4 billion would have a significant impact at this time.
Another aspect that should be considered is comprised of an amalgamation of suggestions made by Social Justice Ireland, IBEC and the Union of Students in Ireland concerning a national internship programme. There have been suggestions to link this to people in the public service. Given the large numbers of unemployed and pending a recovery in employment to some extent, there may be a way to get substantial numbers of people off the dole queues. A pilot scheme was run under a Fianna Fáil-Labour Government or a Fine Gael-Labour Government in the 1990s whereby if one was qualified in a given profession, work would be found, one would be paid the hourly rate in line with that profession and one would work a number of hours up to the equivalent amount of the dole payment at that time. This would have the potential to create between 50,000 and 60,000 temporary and part-time jobs and could contribute greatly to people's dignity while, at the same time, increase national productivity at a difficult time. Such a measure could be usefully examined.
Education is another political hot potato. Should those who can afford it pay education fees? Universities constantly strive to compete and increase their position among the top 100 universities in the world. Of the top 100 universities, how many are non fee-paying? How many allow middle class and wealthy people to go to university for free if they are in a position to pay for it?
I realise none of these measure is vote-winning but we must face up to them. There is no way to package the measures that must be taken if we are to meet our guidelines and convince the bond markets of our intent. Today, on the back of substantial occurrences in Portugal with a breakdown of the budget negotiations there and the shortfall of tax revenues in Greece, we have seen the Irish bond spread increase to more than 7%. One could argue that the announcement of the €15 billion target in the coming four years played a part in this as well but, clearly, international sentiment is rather fragile.
We must not be content to resign ourselves to the Punch and Judy show and the blame game rather than focus on the tough, innovative and creative decisions, no matter how painful. We should completely shelve the concept of votes or elections and unless we do that we will not convince the international markets that we are sufficiently in control, that we have taken the bull by the horns, that we will achieve the €15 billion target and that we are being sufficiently innovative by putting €4 billion into our SME sector by investing in it and taking equity rather than simply spending money that will give no return. Otherwise we will have difficulty come January or February when we return to the bond markets. Clearly it is not sustainable to borrow at 7% levels.
The Minister referred to some positives. Exports are strong as is foreign direct investment, the motor car scrappage scheme has gone well, our competitiveness has been improving and labour costs are falling.
There are positives and every opportunity should be taken by all Members to put forward some measures, however unfounded Ministers or others may, rightfully, declare them to be. Some of the measures I have suggested may be unfounded but at least I am putting forward my tuppence worth and have referred to areas where I believe savings can be made and where revenue can be created. If all of us do this, we may have some chance of striking the right balance.
I was interested in the last paragraph of what the Minister had to say because he appeared to touch on a change in attitude which is the first encouraging thing I have heard in his speeches. He admitted two things. He drew attention to the power of Europe and the markets. In both cases he tipped a forelock to those two powerful elements. That is realistic and a reflection of what has been happening in the past few months. By implication, he acknowledged a mistake made in the past in coyly referring to the tasks that lay ahead and the need to do things immediately, saying "there are some who in good faith are saying that we do not have to act now and that we should delay doing so for one or two years." That is interesting. The Minister of State is a little coy, but it is obvious about whom he is talking. He is talking about the ESRI and Mr. David Begg, the head of ICTU. I am delighted to see the Minister of State and the Government are beginning to acknowledge the reality that the European Union is dictating the remedies, that the markets are stronger than the Government and that it is time we told the unions to jump in a lake. That is in major contrast with what we have had in the past ten years. The last Minister for Finance, Deputy Cowen, referred to taking every measure after consultation with the social partners. He did this in speech after speech; it was the sine qua non of every speech made by him before a sensitive audience. That was one of the problems as pointed out by some of us. The Government deferred to the public service unions at every possible opportunity. That is what landed us in the first phase of benchmarking, a plot between the Government and the public service unions and in which IBEC and others capitulated. Now the figure of 8.9% awarded in 2002 must be rowed back on. We must say we made a mistake because of the power of the public service unions. The Government placed the favoured sons and daughters on the benchmarking body. Cronyism decided the matter and it gave power to the public service unions. We are now paying the price.
I am delighted the Minister of State is saying those guys are and were wrong, even if it is being said in a yellow-bellied and cowardly way, and that we will not listen to them as much as we did in the past. The reality is that this is a case of force majeure and the Government cannot listen to the public service unions. Let us say goodbye to the old days when the oligarchs could come in and dictate budgetary policy. They have a major responsibility for what happened, not in the banking sector but to the nation's finances. Now we must tell them it is time to row back and that we will not listen to them anymore. They must play their part in administering the remedy because they benefited so much in the good times.
That is one of the points the Commissioner for Economic and Monetary Affairs, Mr. Olli Rehn, must make when he comes over soon. Peculiarly, his agenda includes a meeting with the Government which he does not need to meet because he meets the Minister for Finance, Deputy Brian Lenihan, every week. He is the only man who can delay a Cabinet meeting at Farmleigh by holding the Minister in Brussels. Even though it is the supposed reason for his coming over, he does not need to meet the Minister. He is meeting the Opposition to read it the riot act and is supposedly meeting the social partners, I presume at the instigation of the Government which has asked him to tell these guys a few home truths. That is encouraging and, at least, we will tell them to go to hell, to get back in their box and that they do not have any longer the powers they usurped from the democratic bodies in these Houses. That will be a benefit gained from this economic crisis, for which the social partners hold great responsibility, as the Minister of State in his roundabout way has conceded in the last paragraph of his speech.
I do not know who is right or wrong about the figures, nor does anyone else. Deputy Noonan said in the Dáil yesterday that one could pick a growth rate and work backwards. Davy stockbrokers has given a completely different growth rate figure to the ESRI. A major benefit from this economic crisis could come in the form of what the Minister called structural reform. I do not know what he means by that term, but I presume it is Civil Service code for public service pay cuts. Structural reform refers to permanent changes in work practices in the public service.
I also hope there will be structural reform in the semi-State bodies. There should be radical reform and thought about this. Today in the Dáil the Tánaiste said she would change FÁS and that there would be a new training agency. If that amounts to a fundamental and forensic carve-up of the old FÁS, it is welcome, but if it amounts to rebranding and having a new name because it is embarrassing to use the name FÁS, she should forget about it. I could be forgiven for being sceptical because we have heard such promises in the past and nothing has happened. FÁS is rotten, as are masses of semi-State bodies.
Why is there so little talk about selling semi-State bodies? Would it be a sin to put the ESB up for sale? We might receive €3 billion, €5 billion, €6 billion or €8 billion. The reason we have these assets is not just to protect the electricity supply, an idea that is outdated, but also in order that we can sell them when the rainy day comes. Why do we not put the DAA up for sale? It is inefficient and structurally flawed, to use the words of the Minister of State. It would do it good to be put up for sale in order that it would be able to compete elsewhere. It is a monopoly. These semi-State bodies and An Post are worth money and could produce money for the Exchequer in our hour of need and I would not mind if some of it was used to fund current spending. Ideally, it ought to be used to reduce the debt, but when one is broke, one must feed oneself. Some of it could be used in the short term to fund current spending, with other measures. I would rather see An Post being sold than those on social welfare benefits suffering real hardship.
In the European context and in view of the forthcoming visit from Mr. Rehn, has the Government considered cutting corporate taxes? The obsession with keeping the rate at 12.5% is laudable because it is necessary to attract multinational companies, but why do we not go the other way? The Minister of State should not reply that we need the revenue. The vibrant part of the economy which has saved us in recent times and provides employment and energy is the multinational sector. The other vibrant part is the IFSC which offers a similar parallel tax concession. Why does the Government not propose to cut the rate to under 10% to attract more multinationals, foreign investment and create more employment?
I welcome the Minister of State, Deputy Mansergh. Senator Ross has stolen all my thunder. There are only a few little lightning bolts left. The Minister of State indicated:
the Government is determined that one of the key principles that will underpin its four-year plan will be that of fairness. Although perceptions of fairness can be subjective, I am confident that the Government can succeed in this regard.
I wish I could share that confidence but I do not. I also wish I could share Senator Ross's belief that the public sector will be reformed in this great crisis but I do not believe that either.
I have been struck, astonished and baffled since I came into this House in 2007. In the very first speech I made I said that reform of the public sector was my main passion. That was because I had spent so long in the public sector and in the private sector. Never the twain shall meet in terms of what a hard day's work is like. I soon learned that the days of Whitaker were long past and the days of patriotic public servants living frugally and performing their duties in the national interests were long past. I came into a world of grab and benchmark and selfishness.
I cannot believe the Government has got this far and is actively contemplating leaning on the welfare class and the private sector class for taxes and not taking the fat from where it can be found best, namely, the middle and upper echelons of the public sector, by which I particularly mean the Health Service Executive, the Electricity Supply Board and all the other ancillary groups who are battening on the public purse such as the Judiciary. The other day I downloaded the wage rates for the Health Service Executive. It was mind boggling because it was clear that the anecdotes about health executives rushing through hundreds of middle management promotions coming up to midnight when the health boards were abolished were well founded. The bottom line is that this is the world the Government faces. There are 2.1 million people at work in this country. Approximately 400,000 of them provide service in the public sector. Another 400,000 are unemployed or unemployable.
It is like a war. In a war one looks after the people who have to fight on the front line. One looks after the productive fighters, namely, the private sector workers. The people of Britain went on short rations to keep their fighting men in the air and on the seas. The Irish people are now being asked that the people on the front line, the soldiers of the private sector - the only place where wealth is generated - should be taxed more while the unemployable and the unemployed are to be crucified as well but the layabout uncle in the attic who goes out to put the odd bet on a horse and is kept as a kind of indigent relative is to be looked after and allowed to batten on the household. It is like a household where one man is going out to work and killing himself while he is carrying a sick brother and he has a layabout uncle in the attic who gets up in the middle of the day to go out to the bookmaker's shop and comes back home for the rest of the day. If one thinks that is unfair to the public sector one should read through the reports, listen to the anecdotal evidence and to what the President says. She has always had her finger on the pulse. Any President who shops in Arnotts is a woman who knows what is going on. Everyone knows that the public sector is not fit for purpose. Everyone knows it is overpaid. What angers the public is not so much the pay gap - I do not wish to touch public sector pay at the moment - but the constant spectacle of exodus from the public sector by middle managers grabbing their pensions and running. It is the pension that really drives the private sector mad.
I do not believe for a second that the Government proposes to take on that minority class. It is afraid of the public sector unions. It is afraid of those people it thinks can paralyse the country when in fact it should tell them to do their damnedest and face them down. The Government is afraid of the public sector. What baffles and astonishes me as a spin doctor and political strategist is what a Fianna Fáil and Green Party Government which by common consensus is facing destruction at the polls has to lose by taking on that minority. Why does it not take on that minority in the interests of the majority, the 1.1 million productive workers who go out to work every morning, who are the only source of wealth in this country? They are not sexy. They are not attractive. They do not have special access to RTE and The Irish Times or other public sector or semi-public sector mentalities. They are the lost people. The people who drive this country are the multinationals, the financial services sector and small and medium enterprises. They are the only sources of wealth. They are the fighting troops. They should be looked after in this budget, but no, the Government is craven.
As long as I have been in the Seanad I have watched the Government and all the other political parties - Fine Gael and Labour are no different - and heard the emollient speeches and the failure to crunch the numbers in the Labour Party. Deputy Bruton has promised that there would be a Minister for public service reform. What I want to know is how many public sector workers the Government will fire. Why should there be voluntary redundancies? Why should there not be involuntary redundancies for people who do not do their day's work? There are such redundancies every day in the private sector. Why is there one law for one class of Irish people and a different law for another class? Why is the Government and the political class so afraid of them? What are they afraid of? There are only 380,000 of them. Half of them are badly paid and should be looked after but the other half of the public sector is sitting fat. One can download their wage rates. One can earn €100,000 a year for six hours teaching a week. People are retiring on pensions of €155,000. What world is the Government living in that it is looking after such people?
I am tempted to ask for a deferment of my speaking slot. There is not a lot with which I can disagree in terms of what has just been said. However, there are a number of realities. As a country we have come through a period of irrational exuberance. It has not just been about the private sector or public sector or even the political class. I remember an article written by the editor of one of the national newspapers who boasted in 2005 that we could teach the Germans a thing or two about running an economy. That sense of arrogance ran through us collectively as a people.
We had a successful economy from the mid-1990s until 2001. Then there was a second phase from 2003 onwards where the growth in the economy was utterly false. It was an inflated economy brought about by access to easy credit based largely on property values on which we borrowed money and on which our tax base was utterly reliant, and whose asset values have plummeted. It cannot be argued that in the 2007 election all political parties made the one argument. My party was a bit more pessimistic in its projections. We suggested tax increases. All political parties were facing the electorate saying that we could have continued high levels of growth, we could continue to spend more and we could continue to tax less. That never made sense. We are now paying a price for that. The inflation that was brought about by that type of economy resulted in higher levels of pay in the public sector. It also resulted in higher levels of social welfare. When one compares both public sector pay and what is paid in welfare payments to our European neighbours, we are hugely out of step. What we are going through as a country will require a massive adjustment. Senator Harris is correct in the need to prioritise that and put a programme together on who gets adjusted to what extent, when and to what amount. Every single person in society will be affected by the decisions being made, not only in this budget but in the three budgets that are to follow it.
There is some merit in the argument that we are too much in thrall to market forces. The growing spread in the bond markets today seems to be for totally opposite reasons than the reasons that recently got us into difficulty. There was a fear among some investors that we were not able to get our act together or be prepared to make the necessary decisions and that we would fall short. Now it seems that there is a better sense among all political parties and a commitment from the Government to make the decisions that are necessary. The judgment is being made by some that the scale of the existing problem cannot be met in any case. With the markets it seems that one cannot win in any case. We have a responsibility in terms of getting the economy right and doing so quickly.
I welcomed much of what was stated in a similar debate yesterday in the Lower House. I also welcomed some of the commitments given by the two main Opposition parties in terms of how they believed the problem could be addressed. While some of the proposals made marked the beginning of a journey, particularly on issues such as water charges and necessary changes such as the reduction in rent allowance to try to reduce rent payments for social welfare recipients, the overall balance of how much we need to remove from current and capital expenditure figures and what we need to raise by new taxation measures is not properly understood in the context of understanding the nature of the problem. When I participate in these debates, I regularly state the tax base remains too narrow and needs to be widened, as others in society should contribute more. However, maintaining a 50:50 balance between current and capital expenditure cuts and new taxation measures would be deflationary and impact on whether we could achieve growth to get out of the situation in which we find ourselves. New taxation measures could only account for approximately one third of what we need, amounting to €5 billion of the €15 billion required over a four-year period. It would also mean spending €10 billion less. How that figure is divided between areas of current expenditure requires political consensus. An even balance is necessary. If we do not take important decisions on current expenditure, it will be read negatively internationally and not give the markets confidence.
Regarding where we should make cuts in current expenditure, the three Departments which spend the most are the Departments of Health and Children, Education and Skills and Social Protection, which on its own accounts for 40% of spending. It can be said much of this expenditure is on wages, but it also includes direct payments to many people in society. Therefore, getting the balance right is important. I agree with Senator Harris, that we should try to effect as many changes as possible in the four-year period through reducing public sector numbers and wages. However, we will not be able to avoid some of the unpalatable decisions on direct payments. No economic programme to deal with the deficit during the period in question would be able to do so.
When the four-year programme is announced, it will refer to reducing public sector numbers. The debate might be on whether the number is high enough, compared with the recent decision in the United Kingdom to let go 500,000 public sector workers. The equivalent figure here would be 35,000, or close to 10% of the number of public sector workers. Given the sentiments expressed and the fact that decisions must be made and that there is a need to match and explain, we must think in these terms. Cuts in numbers, however, do not always result in direct savings. Owing to the Croke Park agreement and the practices that have developed during the years, someone leaving the public sector and entering the world of unemployment will have a favourable pension arrangement, resulting in an additional cost to the State. We must put our heads together to see where savings can be made in the short term to achieve the long-term savings we require.
While we are obsessing about trying to deal with the short-term effect, the real changes that must be made - I welcome the Minister of State's comments, in particular - are structural in nature. People with whom I attended college in the 1980s did not see a future for themselves in this country and most chose to leave. It is dispiriting, therefore, to hear the same arguments being made again 25 years on. However, many of the lessons of the 1980s have not been lost. As the decisions necessary at the time were avoided and delayed, the recession was longer than it needed to be. Given the seriousness of the situation in which we find ourselves, we have an opportunity to avoid repeating the mistakes and to build the basis of a better and fairer economy. The real question we need to ask is what have we done to avoid a recurrence. Many Senators who have contributed to the debate are correct, that we have been the authors of our own destruction and allowed vested and individual interests to dominate the national interest. If all we do in this process is inflict great pain on many citizens to arrive at the conditions that will allow these circumstances to recur, it will be an even worse betrayal.
We must face the debate in the coming weeks with seriousness. We must understand €15 billion is a real figure, that we must strive to meet the four-year target through all necessary means and that the effect will be real pain following the announcements to be made in the coming weeks. We can choose to beat ourselves up, curse the darkness, demand removals and suggest change, but our circumstances will not change. That said, I am confident that should there be a proper acceptance with the degree of leadership required to get this essential message across, the country can and will get out of this recession. There is so much that is right and good, on which we can build, but our future depends on a mature and honest reflection on where the economy stands and the kind of country this can be.
I agree with many of Senator Boyle's comments in the context in which he made them and the tone of his statement was acceptable. As the Minister of State is aware, the Labour Party has stated it adheres to and agrees with the objective of reducing the deficit to 3% of GDP by 2014. I also accept that it is not enough for us to assert this and that we must face up to the consequences of achieving this objective. One cannot have one without the other. One cannot rhetorically say something is a good idea without facing up to the consequences of how it is to be done. We will face up and are facing up to the specifics of what is entailed.
The Minister of State will excuse not just the Labour Party but all of the community for pausing for a moment to come to terms with the shock; it is ten days or so since the figure of €15 billion leaked out before being confirmed yesterday. That figure is precisely double the amount we understood the adjustment would be some few months ago. It is not enough for the Government to tell the Opposition parties or anyone in the community that this is the position everyone must accept. It must allow the people to absorb and understand what is involved. It must allow them space in which to question how there could be such a disparity between what it told us six months ago about the implications of reaching a figure of 3% of GDP by 2014 and what it is now telling us. The figure of €7.5 billion was considerable. The Minister of State listed the reasons for the drift, but they are astonishing. People have difficulty in comprehending the reasons for the disparity between the original figures and that which we must face in the next three or four weeks, namely, the adjustment necessary to reduce the deficit to below 10% of GDP next year.
Two substantial but different figures have been mentioned. It has been suggested by the ESRI that a figure of €4 billion is required to reduce the deficit to single figures in 2011. That is a psychological factor all of us can understand as a useful objective. However, there is a suggestion abroad that in the Department's view a figure closer to €7 billion is required. I make these points about a big global figure to illustrate the genuine difficulty people, including politicians, economists and expert commentators, have in getting their heads around precisely how we can reach our objectives within a short time, as we must. If the Minister of State is fair, as I believe he is, he will accept there is a level at which, rather than demand the Opposition parties come forward with their proposals, the Government must demonstrate, precisely and not in a press release, the provenance of the figures. It must give its forecast for growth for next year and make clear the main economic indicators that underlie the decisions it will take. The Minister of State agrees the Government has not yet made these decisions but faces having to make them in the coming weeks. Therefore, it is a bit rich for it or anybody else to demand that the Opposition parties should have the answers within a short period when it has not come forward with its own figures.
That said and without resiling from my point, we all have a responsibility to look at the implications and possible consequences of the onerous requirement that essentially has been dictated to us. There is a view that a requirement has been dictated to us and that we have no option but to adhere to and accept it. We must look at how we can achieve this.
I did not hear all of the debate, but I heard what Senator MacSharry said, to which I shall return. If we look across the board at what needs to be done, obviously there are limits in terms of categories. It is inevitable that capital spending will have to be reduced again. My party believes a reduction of the order of €3.5 billion in the next three years would probably bring us to a capital spend of just under 3% of GNP which would bring us close to the level of the average European spend or the eurozone average, as we understand it. However, there will have to be compensatory mechanisms. I was interested in what Senator MacSherry had to say about the use of the National Pension Reserve Fund which chimes with what the Labour Party has been stating about the leveraging and usage of some of the funds through a strategic investment bank. There is a role for a strategic investment bank in order that we could have a form of State intervention and investment to support small business and achieve growth. Unfortunately and regrettably, the capital programme is one that must be looked at in the context of the budgetary plan.
I would like the Minister to address a related point. I understand the rationale for making contributions to the National Pension Reserve Fund, but surely that rationale must be revisited. We are now borrowing at a rate of 6% or 7% on the international markets to obtain funds to be placed in the NPRF. At the very least, there is an irony in that we are borrowing money at a very high rate in order to put it into the NPRF. Surely, there is a case to be made for suspending that practice, at least for the period of the four-year plan.
I agree with a point made by Senator Boyle that others may have expressed. We must get away from what Deputy Gilmore described yesterday as lurching from budget to budget, when during a period of several weeks leading up to a budget we look at what we can grab. There was much talk about grabbing low hanging fruit and so on, although there is very little fruit to grab. There is a danger that when the pressure is on, decisions will be made that will not be right in the long term. I agree strongly with what Senator Boyle said and what the Minister of State said on structural reform. I wish the Government would tease out in greater detail what it means by this. In this day and age is it necessary for us to have an annual budgetary exhibition that lasts three, four or six weeks? Surely, if we are addressing the budgetary situation of the country, future public spending, where savings can be made and taxation measures and strategies, this should be a year-long practice. I know the Department of Finance has a section which deals with these matters all year round, but there should be ongoing public debate on the proper budgetary strategy to be adopted, especially when it comes to public expenditure. Rather than it being a matter of asking what we can cut, we must try to engender a debate within the community and in the political system on the services we wish to provide. Perhaps we should go back to the beginning and ask what are the services and payments we want to provide and make. We might ask, for example, what was the point of child benefit. I do not propose we remove this benefit in case there is anyone who will jump in immediately and claim the Labour Party wants to talk to people about their child benefit being removed. I am simply trying to illustrate my question as to whether we could start again from scratch and evaluate and assess each item of expenditure and ask what are the services we want to provide across the system in education, health and welfare.
I have no doubt that if the Croke Park agreement is pursued and those responsible for ensuring it is implemented get on with it, substantial savings can be achieved in the public sector. This should be done. I advocate and agree with it, in case anyone thinks I am jumping around the point. It should be driven forward. It is a matter of regret, therefore, that, as we heard from the Minister of State's colleague, there has been such slow progress in that regard. All that appears to have occurred is that a national body was set up, while each Department has set up its supporting committee. The process must move forward. Otherwise we will again have a clamour from some quarters that reform of the public sector means swooping in and cutting pay. Sometimes there is a case to be made for cutting pay, but that is not tantamount to public service reform. These are different matters. Reform is not designed to take money from people who work. I understood we were talking about work practices, flexibility, transferability, possible mergers of tasks or tasks being done more efficiently in different ways. It is regrettable that we have returned to this cycle again as we approach the budget in which people claim that what they mean by public sector reform is a smash and grab to reduce pay.
I have made the point ad nauseam in this House on reform. It should not come as a great surprise that 80% of the health budget, if my figures are correct, goes on pay. Why would that not be the case? Doctors, nurses and administrators are the people who run the health service. What happens when someone goes to hospital? He or she sees people with expertise and training who are in place to look after him or her. The process is labour intensive, as is education. Therefore, this should not be a source of surprise. If we can reduce costs and still provide the service we do, that will be fine. However, let there not be a ringing of hands and complaints that 80% of the health budget goes on pay.
There is scope for a voluntary redundancy scheme in the public service. We can identify areas in which there is overstaffing, as many have, anecdotally and otherwise. I agree with those who say there is still scope in the health budget, for example, to address the issue of generic drugs. An estimate my party has seen which I believe is that of the IMO indicates a potential saving of €300 million. An bord snip nua estimated that GMS fees, a slightly different aspect of the same argument, could be reduced to the order of €370 million.
What has been done as regards that in the year and a half since that report came out?
As regards tax relief on pensions, I am certainly in favour of a curtailment in that area. We believe there could be a saving in the order of €500 million. We should limit the amount of relief that may be claimed by any individual. There is still scope for money to be saved on the property based tax reliefs. People say that area is less impressive now as a source of revenue, given the way the property market has gone, but I still believe there are options in that regard. Last year we proposed a new tax rate of 48% for people earning more than €100,000. Department of Finance figures estimated that such an initiative would yield €355 million, and my understanding is that the valuation on that now stands at €410 million. That certainly should be addressed.
There is room in relation to the tax on second homes to be addressed. I do not believe, if we are serious about broadening the tax base and re-ordering the Revenue base in the medium term, that this can be done without a property tax. We shall have to address that and people who argue it can be off the agenda for all time are naive. If we are talking about figures of the order of €15 billion in four years and people are serious about broadening and re-ordering the tax base, property tax must feature in that.
As regards the sale of State assets and so forth that Senator MacSharry referred to, we seem to have spent most of the last two years taking assets into public ownership, for example as regards the banking system, rather than the other way around. Hopefully, a time will come when we shall be able to off-load some of those assets, which we should remind ourselves will essentially be State assets before too long. I do not believe we shall find too many buyers for Anglo Irish Bank, but perhaps in due course we may be able to get some return from the sale of AIB back to the private sector.
This is a useful debate. There is much to concern us in the coming weeks and months and it is important to have the opportunity to address these issues.
In supporting the Government's policies I am cognisant that in 1986 we had a budget deficit of 13%. Some elements of the media keep pressing the issue to the effect that we will not be able to manage our finances, and nothing could be further from the truth. Historically, we were in much more difficult situations in the 1980s, where today only 17% of Government income goes on servicing the national debt. In those days it was 33% but within the two years, 1986-88, the deficit had been reduced to 3.3% of GDP. Take the current situation and remove the once-off payment for the banks. In the context of the banks we had a situation where there was a very low debt-GDP ratio, so we were in a position to take on the burden of the banks, put this onto the national debt and still be below 80% of debt as a percentage of GDP. Therefore, of course it is possible to manage, given the will and understanding that exists. Those who wish to see what can be done should just look at the last two years, where we took €14.5 billion out of the economy to improve our finances. We now need to take approximately another €14.5 billion out over the next four years.
I am very cognisant that if this type of money is taken out of the economy, the latter needs to grow at very strong rates. However, we have positive news too. Look at the UK, one of our strongest trading partners, which is looking at 2.8% growth this year. Ireland exports more to the UK than the exports of Brazil, Russia, India and China combined to that jurisdiction. We are major trading partners, and Britain is not in recession. It looks as if the rest of Europe will continue with a positive outlook. The outlook for the United States too is sanguine, despite the fact that some quantitative easing might have to be done, with the possibility of the dollar remaining low. This is something we must be conscious of, because Irish exports are up strongly in light of the strong dollar in recent times.
While most Opposition Members act responsibly, not all parties do. I have in mind the Labour Party in particular in saying this. If I was to be re-elected to this House in the next session and happened to be in Opposition, the one position I would seek is that of spokesman for committees to look into things. The spokesman for committees to look into things will be the busiest person in this House if we are in Opposition. Anytime one asks a Labour Member what he or she will do on specific issues, taxes or cuts one is told the party is going to set up a committee to look into it. Again, I am cognisant of the fact that in Government one cannot just say that a committee will be set up to look into something. One has to take responsible action, and I believe this Government-----
I honestly believe the context that was I referring to was specific to making decisions and nobody can say this Government baulks from making strong decisions, and we are heading in the right direction. The public service is getting a very bad press. It is well paid, but the adjustments that had to be made were made. Let us not forget the value the public service gives and the absolute integrity of many of its workers in providing a better service, as they have successfully done in the past. From the 1960s onwards the Government and public service ensured that Ireland moved forward as a country and put the right policies in place, from which we are now benefiting. Already in the public service there has been an 11,000 reduction in staff. I welcome the Croke Park agreement because it allows for redeployment, which will be rapid. In the context of staff redeployment further natural reduction will come about too to ensure there is industrial peace, which is very important when adjustments of some €14.5 billion have to be made.
In the context of where our resources might be accurately and effectively used, the fact the EU Commissioner for Research, Innovation and Science is Irish is an indicator as to where Ireland could position itself. We have positioned ourselves at the highest end of the information technology and biotechnology sectors and can have a positive outlook as regards innovative suggestions from the public. My colleague, Senator Butler, will deal with the Spirit of Ireland group, which many of us support very strongly. The group is intent on putting in green energy, thereby displacing imports and providing jobs in the supply of services, while ensuring income for the State.
Do we need to look abroad for specific funding or can we source the banks for cash? Specific projects offering high added value should be ringfenced for a return by the banks to enable them to issue bonds with the specific purpose of putting funding in place for these projects, especially where the Spirit of Ireland, for instance, has a guaranteed market for the energy it can produce. There are other items I believe could help. One of the first things we need to do is to get the message out to the public about the budget. Too much fear is being engendered in certain sectors of the media about the budget. There will be €4 billion in cuts in a very large economy, but as things stand most sectors believe they will be cut again. This has led to a high level of savings in the economy. The retail sector, which is very important to the economy, is suffering and the sooner we get clarity and the sooner the budget is published, the better. We need to regain confidence and to get people spending again. At this stage we need strategic partnerships. I am thinking specifically of ideas such as that of Siemens offering to install water meters. If it offered to take on that investment, we as a nation should consider that offer. No doubt, there would be a return on it. Perhaps a similar offer could be considered in the area of broadband if there were companies willing to invest for a specific return.
We must be innovative where cuts are necessary because we need to grow the economy when we are taking so much out of it to balance the books. We can do it and have done it before. Where we need to be innovative, we must think correctly, do what we need to do and act on that. I expect the Government will do what it must do. I do not expect it to be easy for the Government to make cuts, but I expect it to do what is necessary. Internationally, whoever is in government, whether they be the government of the left of President Obama in America which won out over the right or the government of the right in Britain which won out over the left wing government of Gordon Brown, will suffer because the difficult decisions must be made. Regardless of the consequences, however, the duty of our Government is to do what is right. That is what I expect it to do.
We are all agreed on the objective that must be achieved in terms of getting our public finances in order and that this is a prerequisite to restoring confidence of consumers and investors in the economy. We know the economy is in a perilous state and know the dangers we face and the risk to our sovereignty and that is the reason we are all resolved to work together to deal with the problem. There is quite a measure of consensus on getting agreement that we must reduce our budget deficit to 3% by 2014, whatever the size of the adjustment that is required. This is important politically. There is also consensus on the front-loading of the adjustment which must be made in order that we can identify the problem, deal with it and move on. There is also consensus - this emerged from the Minister of State's speech - that there needs to be structural reform. We need to use this opportunity to make the structural changes necessary to provide a sustainable economy for the future.
While there may not yet be agreement, there is debate on the balance of the taxation increases and expenditure cuts required. Fine Gael believes the balance should be 20% tax increases and 80% budgetary cuts, while the Labour Party believes it should be a 50-50 balance. It is important for the Government, if it is serious about structural reform and providing a basis for economic recovery, to clarify, elaborate and explain what the balance will be in the forthcoming budget. The Minister of State made the point in his speech that in the Dáil the Opposition complained that not enough figures had been presented to it. He assured us that the utmost will be done to ensure the plan, when published, will contain as many figures as reasonably can be provided. The Government must try to bring people along with it, and having the figures given out on budget day is a most unsatisfactory way to proceed. Given that everyone is trying to understand more fully the problem we have and the basis for the figures the Government has come up with in terms of the €15 billion adjustment, it is only reasonable that as much information as possible is provided to the Opposition and the public before the budget on 7 December.
This information is important because of previous figures we have received. We had definitive estimates figures and data provided by the Government on NAMA that it would make a projected profit of €4.8 billion, but that was revised subsequently to a possible loss of €800 million. We had projections on the capitalisation of our banks which were way off initial forecasts, especially the costs for saving Anglo Irish Bank which were totally and utterly off the radar. Therefore, when we ask for information and figures on the Government figures, we are asking on the basis that serious mistakes have been made by the Government, the Department of Finance and its advisers on projections regarding the current economic crisis. It is a mistake on the part of the Government not to be forthcoming with those figures.
We all agree on the objective and I have no doubt we can get out of the current economic crisis. It has been said that we have been here before in the 1980s and that the situation was resolved. We see some light at the end of the tunnel in terms of our export performance, which is remarkable in the current circumstances. However, we have seen the dramatic drop in investment over the past two years and in consumer demand over the past year. The only basis on which this can be reversed is if we get the public finances in order. People will then know where they stand in terms of their taxation position and their ability to purchase goods and services. It is only in circumstances where investors have confidence that the Government is managing the economy in a responsible manner that investment will resume.
We are all agreed that the prerequisite for this is to deal with the public finances, but the question is how we should deal with them. In many ways the Government has tied its hands. It has also resiled from a number of decisions that were part of the budget stabilisation process agreed a year ago, for example, when the budget reversed the decision relating to pay for senior civil servants. It has also postponed pension reform proposals which were to be introduced sooner. There is also the Croke Park agreement. While it has many good elements, the problem is whether they will ever be implemented. One example of a provision in the agreement concerns parties agreeing to the redeployment of staff within and across each sector. We had an example recently where the IDA needed extra staff, but there was no question of transferring staff from Enterprise Ireland, which has a surplus of staff given the cutbacks in that area, because of the difficulties of making those transfers. Instead of redeployment, we went back on the decision of limiting new appointments. The Croke Park agreement has tied the hands of the Government. This brings us to the issue of fairness and means that these types of decisions lead us to a situation where the focus switches to those dependent on social welfare and the education and health areas. If we are to have real structural reform and to ensure the cutbacks are fair and reasonable, and seen to be so, the ad hoc decisions in regard to pay for senior civil servants and pension reform cannot be taken out of the context of the overall objective to be achieved.
The Minister for Finance, Deputy Brian Lenihan, said in October last year: "We will achieve a return to growth in the early part of next year; that is why I say we have turned the corner." When speaking in the Dáil in July of this year, he said:
Our plan is working. It has brought this economy out of recession. The worst is over. Economic activity in this country is turning the corner.
Those types of statements, which have been proven so wrong, are the reason we need proper scrutiny of the information, proposals and figures coming from Government. We have no basis for having confidence in the Government's projections. I must emphasise that it is in the Government's interests to be more forthright in relation to that information.
I will focus on the energy sector as many of the other sectors of the economy have been dealt with. The energy sector could provide us with a major boost in terms of ensuring extra liquidity into the economy over the next five to ten years.
In terms of energy, we are reliant on imports of gas and oil at a cost of approximately €7 billion per annum, a substantial amount of money. While we are making substantial in-roads in terms of our development of green energy and of reaching our admirable quota of 20% in this regard, we need to ensure greater progress in this area which is part of the smart economy, the greening of our economy and has the potential for job creation into the future.
We will spend approximately €70 billion on gas and oil imports over the next ten years. Our natural resources have been identified and companies such as Airtricity, the ESB and Bord Gáis are changing their approach in terms of the delivery of a greener economy, which is good. A new group, Spirit of Ireland, presents us, through the use of its wind and hydro energy system, with an opportunity to harness 80%-90% of our wind energy as compared to the 30%-35% we currently harness. It is important this is borne in mind. It has been proposed that a station be built along the west coast, which is from where we harness most of our wind energy, as it is a geologically suitable location for hydro systems. This would result in the creation of 2,000 jobs in the early part of construction and design. It would take three or four multinational companies to create that number of jobs. The cost of construction per station would be approximately €1.9 billion, of which we would require four to deliver the energy we need to run the country.
The next issue for consideration would be how we would go about exporting this energy. The Government has not made the decision to be an exporting country of energy. The Soviet Union could at any time decide to turn off our gas, of which we have only six months' supply and in respect of which we have no back-up plan in place. It is important we address these issues. We could, over a ten year period, save ourselves close to €70 billion in Exchequer payments. When one considers that it costs €1.5 billion per annum to service our debts, we would be left with a surplus of €5.5 billion every year. Some 2,000 jobs would be created from the building of only one of the four stations required.
While wind is great, it is, as we all know, intermittent. Currently any wind we harness is fed directly into the system as we have no facility to store wind. The Spirit of Ireland group has put forward a proposal in regard to how we could harness this wind and, in turn, export it. Not alone would we be saving money in terms of not importing energy, we would be making money on exports. It is important we move away from oil and gas energy, of which there is a limited supply. Once we have built these stations, our raw material is free. It is a no-brainer. We must build these stations now.
The retrofit strategy has been a great success, with 6,500 people directly involved. However, it is a ten year plan that I believe should be reduced to a five year plan. In five years, we could employ a further 6,500 people. We have not included double glazed windows in the retrofit plan. There is no point in having a well insulated house with single glazed windows through which 25%-30% of heat will be lost. The installation of double glazed windows will save that percentage of heating. This strategy presents us with an opportunity to increase our workforce. Jobs are important.
It is important that in this budget we identify our strengths in the economy. A recently established solar print company in Sandyford Park has created 80 new jobs in this area. It is a world leader in its field. Another renewable company is currently building a wind energy plant in County Clare, resulting in the creation of 300 new jobs in construction. These new jobs will result in extra taxes for the Government. We can take people off the dole queues and get them working for the country. It is vitally important we do this. Our development lies in the smart economy and energy sectors. If we improve how we do things in this country, in terms of green energy, we can achieve savings of €7 billion per annum? It is a no-brainer. We must do it.
The Minister of State is welcome. It is an interesting time to have this debate but it is also an essential time. An recent article in The Economist entitled "Grow, dammit, grow!" referred to the need for the world economy to grow. We must be ready for that growth when it happens. By January, when the Government has to start borrowing again, we need to have done enough to convince the bond investors that there is a credible to plan to bring down the deficit to 3% by 2014, and this is the time when we have to do it.
The obvious question concerns the amount of adjustment that will need to be made in the upcoming budget. Deputy Michael Noonan has suggested a figure of €7 billion, and given that the Government has indicated to the European Union that the deficit would hit 10% by the end of next year, that seems a realistic figure. Most of those in the media, however, continue to insist on a lower figure of €5 billion. That does not seem to make much sense if we are to meet the required targets.
We need a straight answer. Will the Government cut the widely circulated figure of €5 billion by December and then cut another, say, €2 billion, a few months later? Given the position with the rising cost of subsidising Anglo Irish Bank, a cynic might say the Government is to some extent hiding the real figures or not being upfront with them. I hope our openness in the past week has done something to correct that and that the debates in the Dáil yesterday and today and this debate will help. Perhaps that makes sense if we are in a much worse situation than most of us know and that we do not further alarm the international markets and the international community in general. People need to know where they stand to allow them better plan for the future.
I was struck by Pat Leahy's comment in last Sunday's edition of The Sunday Business Post to the effect that "within three months, we will know whether the country has a future as a fiscally independent state". That is an horrific term. We have no choice but to take the tough decisions, and we must take them now.
The ESRI says that the an bord snip nua report:
... remains the most comprehensive overview of what might be done. Given the scale of what we now face, it may be necessary to explore whether or not the scope of that exercise is adequate to the current situation.
That report is now 18 months old. The institute warns that: "it is important to recognise that the quality of the decisions we make in relation to the cuts will have a bearing on the rate of our long-term recovery".
We have shown that we are a nation that can avail of the world economy. We can tap into it. We must become an export nation and, listening to previous speakers, including Senator Butler, it is clear we have that opportunity as long as we are able to hold our own in that situation, but the rate of that long-term recovery will be important.
The savings in the an bord snip nua report were related to the cutting of numbers in the public service. Senator Ross and Senator Harris spoke vehemently about that issue. Why are the semi-State companies so immune from significant cuts as well? We must reconsider the Croke Park agreement. We should examine also the sweeping cuts in the United Kingdom where cuts were imposed in every area, including welfare and defence and even the Queen's budget and the BBC. A total of 500,000 public servants will lose their jobs over the next three to four years. How many public servants have lost their jobs here? The only genuine cuts the Government here has made have been to capital spending. Those are my concerns.
Looking at the positives, we are still one of the wealthiest countries in the world. As a percentage of national income our debt was significantly higher back in 1987, interest rates were far higher and our economic base was far less developed than it is now. We are also one of the lowest taxed countries in the developed world. We can get out of this crisis and, one hopes, in the process we can create a much more efficient and equitable society. We must set ourselves on the road to recovery by making the tough decisions, perhaps by increasing our tax income. It was interesting to hear Senator Ross say how we could do that.
A point that cannot be made often enough is that sometimes by reducing the rate of tax the income can be increased. We should not forget that. We have seen it here before. I recall when the then Minister for Finance, Charlie McCreevy, came into this House and said he was reducing betting tax from a rate of 20% to 10%, we all howled and told him he was looking after his friends in County Kildare. He came back the following year and said he made more money from the 10% rate than he did at 20% and that he intended cutting the rate again to 5%. He made more money at the 5% rate than he did at the 10% rate. That is a reminder, and I say this as a grocer, that when one cuts the price one can often make more money than charging a higher price. We must give some consideration to the tax models in future.
I want to talk about reform of the public sector and cite the example of Jack Welch. I met Jack Welch of General Electric three years ago. We spoke at two different conferences and got to know each other quite well. If we were to raise taxes, which realistically we have no choice but to do, and I am not talking about tax rates particularly, we must give the taxpayer the confidence that their taxes will be put to good use, yet there is little sign of the public sector being reformed. Many jobs in the public sector are overpaid. The reward does not match the performance, although I do not want to quote that too frequently.
In that regard I want to talk about Jack Welch of General Electric who had more than 300,000 employees worldwide. In 1981, Jack Welch became the chief executive officer of General Electric and immediately began implementing his philosophy and changing the face of the company. One of the issues Mr. Welch tackled was the dilemma of dealing with underperforming employees. Mr. Welch's idea was to purge the company every year of the bottom 10% of his employees. They did not mean they had to be under-performing but in the bottom 10%. That company was in a comparative market, as we are, and if someone knew they were in the bottom 10%, they had to go. He pushed the managers to perform but he would reward those in the top 20% with generous bonuses and stock options. That notion, however imposing, is an assured way of not only evaluating the company but also motivating the employees to perform better. It works well because it forces employees to work harder in fear that they will lose their jobs. That fear can be incredibly motivating and in turn can increase the productivity of the company as a whole.
Most of us in business did not like the thought of that but we should look to what happened to Jack Welch. Some critics say the system is cruel and that companies should not engage in that approach. However, Mr. Welch's ideas present the argument that it is cruel to keep the bottom 10% around and hold down the company. By only keeping the employees who are driven to perform well, the company will operate at a much higher level. The system is deliberate, straightforward, easy for anyone to understand and provides constant feedback to its employees. No employee is ever left in the dark. He or she always knows the level they are operating at and whether they are in danger of being a part of the bottom 10%. The critical point of that ideology is that it communicates to the remaining employees at the end of every year that they are doing a good job and should continue to do so in the subsequent year.
Another argument against the critics is that those in the bottom 10% who lose their jobs will benefit as well. Employees know that the reason they no longer have a job is because of a lack of performance on their part. Everyone in the bottom 10% understands that they need to perform at a higher level if they are to keep their jobs. That lesson, however hard it may be, is beneficial and will help those employees in the future.
Welch's public philosophy was that a company should be either No. 1 or No. 2 in a particular industry or else leave it completely. General Electric had 411,000 employees at the end of 1980, and 299,000 at the end of 1985, yet its productivity massively increased in the years that followed. In 2010, Forbes ranked General Electric as the second largest company in the world. The company had reduced the number of employees and made more money.
Given that there are so many underperforming employees in the public sector, are there lessons to be learned from Mr. Welch and the experience of the private sector companies like General Electric? I am not saying Mr. Welch's system is right or wrong but would it be objectionable to remove those people from public sector jobs who are not performing? Would that not be beneficial to both parties?
I seem to be tagging on to the same theme used by Senator Harris and Senator Ross earlier but the benefit for the community as a whole is there to be won. We must look at this option. It may be tough and may seem cruel but it is tough love that will help get us out of the problem we face.
I welcome the Minister of State, Deputy Mary White, and wish her continued success in her position. I am sure she will find it an interesting challenge. I commend Senator Quinn on his good contribution.
I am delighted we have an opportunity to discuss this issue. We are where we are. There is a sense of shared responsibility coming to the fore with the decision by the Labour Party and Fine Gael to accept the target of reducing the deficit to 3% of GDP by 2014. This is a positive decision, and I commend the leader of the Green Party, Deputy Gormley, on bringing it about. It was his initiative and he deserves great credit. It has been adopted and supported by the Government as well and the Taoiseach and the Minister for Finance enthusiastically endorse this approach.
It is about time we forgot about the past and dealt with the issues before us, but I remind people that in the 2007 general election the manifestos of all parties, which I have looked at carefully, spoke about further growth in the economy and greater investment. In fact, the Fine Gael Party decided it would spend the €25 billion from the National Pensions Reserve Fund, which would not have been a progressive step given that without that fund we would now be in worse trouble than we are.
It must be remembered that the economy and the country benefited from the investments that were made. I suggest to the Taoiseach that each Department take out space in the national media to publish the projects that were completed and funded between 1997 and 2010. People would be quite astonished by the size of the investment in the road from Dublin to Galway, for example. All the national primary routes have been built. These are a great investment and will bring crucial benefits to the country in the time ahead. Let us consider what was achieved during that period. The Department of Social and Family Affairs should publicise the achievements with regard to pensioners and the disabled, and every Department should do something similar. This may be seen by a political act by Departments; so be it. It would be difficult for political parties to provide the funds for this type of advertising. I suggest to Departments that they should try, one way or another, to get the facts out.
I will give an example. The General Register Office, which deals with births, marriages and deaths, has been decentralised to Roscommon. It has been installed in a new, state-of-the-art building in the town and is providing massive employment and associated benefits in the area. We built Castlerea Prison, which is commercially beneficial owing to the number of prison officers there. As chairman of the Western Health Board, I signed the contract for a state-of-the-art accident and emergency unit at Roscommon County Hospital, which was funded from moneys raised through levies and stamp duty on buildings. We also built a new swimming pool in Roscommon town. I am sure the Minister of State could list all the projects that were achieved in Carlow-Kilkenny during the same period of growth between 1997 and 2007, roughly a ten-year period. I would ask people which project they would have preferred not to have gone ahead during that time or which was not worth the investment. It would be worthwhile to bring to the public's attention where the money went.
We can talk, rightly, about the responsibility of the bankers, and for every irresponsible lender there was also an irresponsible borrower. Many developers provided substantial employment, however, something which is not recognised today. Developers seem to be the bogeymen as far as Ireland is concerned. I know one developer, Bernard McNamara, who developed the Shelbourne Hotel but also completed projects in Kerry, Galway and elsewhere. They were all fantastic projects that have provided employment.
I will give an example of how people are investing. Tourism is a priority at the moment. The Leenane Hotel is packed out this weekend and during the week because it is offering good deals. Many hotels in Dublin, including the O'Callaghan group, are flooded with Canadian and American tourists. There are great opportunities to bring more people into the country.
I have long been promoting the idea of a national solidarity bond, which was adopted in the 2009 budget. I mooted this, and the Minister accepted the proposal. A total of €255 million has been invested by 11,500 private individuals in the national solidarity bond since it was launched five months ago. A not dissimilar scheme, that of prize bonds, had raised around €1 billion by the end of 2009. This is of benefit as it means we do not have to borrow this money. There is an indication of strong loyalty in the State which is expressed in a willingness to invest in such schemes. It is estimated that people have about €90 billion in savings at this time. Along with the €10 billion left in the National Pensions Reserve Fund, this means there is a total of €100 billion in the State, which is a considerable sum of money. I encourage the Government to consider promoting the national solidarity bond abroad. There is no reason we cannot promote it in the USA or the UK. There are 40 million Irish Americans with great loyalty to Ireland. I am not saying it would solve all our borrowing requirements, but it would certainly reduce them if we could borrow directly from the public in the USA. It is simple to do this using the technology of on-line banking.
Saving is fine, but we also want to encourage people to spend. To create an incentive for spending, we should attach to the national solidarity bond a discount card, to be known as the Cáirde card. This card would allow the user access to reductions in hotel and possibly airline prices as well as in shops. Individual traders would sign up to the project. I am making this suggestion in the House today and I want the official from the Department of Finance to bring this to the attention of the Minister because it has potential. It is innovative and different. Everyone who participates in the solidarity bond scheme, whether he or she has invested €10,000, €50,000 or €100,000, would have a Cáirde card, and this would stimulate spending and indirectly create jobs. We want people to spend. I have further details about this proposal, which I will circulate to the House, and I will say more about it later. As someone said to me last night, the Department should also consider removing the deposit interest retention tax on national solidarity bond investments as a further incentive to invest in the scheme. I thank Members for their time. We have a lot of opportunities here and we should avail of them.
We had a rather passionately drawn analogy a few moments ago from Senator Harris, who compared the nation to a family and described the public service as an uncle living in the attic who goes out every lunchtime to place a bet on a horse. I would like to continue that analogy, which is an appropriate one. The State is like a family - a family in which one or possibly two of the income earners have become unemployed and, as a result of the consequent loss of income to the household, has had to cut back on spending. Any normal family in such a crisis would do two things. First, it would pare back its budget and try to survive on less each week. It would also try to secure employment for one or both members involved. That is where the Government is failing miserably. Our credibility in going to the bond market in February or March to try to secure money to keep the show on the road would be adversely affected by the failure to address this other side of the economic equation. While we have heard many suggestions in the course of debate, until Senators Butler and Leyden stood up there was no discussion by any other Member on the Government side of how we might begin to create jobs again. A very real fear in the international investment market is that the proposed austerity measures, rather than setting Ireland on the road to recovery, unless they are coupled with genuine job creation measures, will send it into an ever-downward spiral of deflation.
The credibility of any four-year fiscal plan will be dependent on the likely growth path to be followed in the coming four years. The Government now projects that higher debt servicing costs and lower growth - now expected to be an average figure of 2.75% - will force it to double its estimates for spending cuts from the previous figure of €7.5 billion to €15 billion. However, there are better possible outcomes. Recently the ESRI outlined a high growth scenario involving a figure of up to 4.5%, which, if it were to materialise, would necessitate a smaller package of fiscal measures in order to reach the 3% target by 2014. Therefore, Fine Gael believes we should relentlessly put the focus on the ways by which we can support growth and jobs as the country repairs the public finances. Any fiscal plan must operate in parallel with a credible growth and jobs plan to reverse the current downward vicious spiral to an upward virtuous one.
When the Taoiseach opened the debate in the Dáil on the economy and the budgetary measures that must be imposed, in his 30-minute speech he made little or no mention of the other side of the equation: how we, as a nation, might begin to support enterprise and create jobs once again. Last week in a debate on how we might do this, I outlined a number of measures that needed to be taken by the Government to keep that other side of the equation alive and active. It is important to outline them again this afternoon.
The bedrock of our recovery needs to be the private sector, as Senator Harris mentioned. It needs to be a private sector completely supported and unhindered by the Government in its efforts to help stage our economic recovery. Three years ago the Government promised to reduce the unnecessary cost of business compliance to the private sector by €500 million. In today's fiercely competitive business environment that is €500 million business cannot afford to spend. To date - we have moved past the halfway stage in that programme - savings of only €20 million have been achieved. Cutting unnecessary red tape must be a key part of a new Government agenda to make the business environment competitive again. When the promise to reduce the cost of compliance by €500 million was made, anyone involved in business would have been heartened, but a few years later only 4% of that promise has been delivered on. The Government cannot blame the recession for its failure to deliver on that promise; it is part of what was recently branded as a "chronic implementation deficit disorder" from which the Government suffers.
The Government also suffers from chronic implementation deficit disorder when one considers its action in recent years on the air travel tax. Facing an unprecedented drop in tourist numbers, more than two years ago the Government established a tourism renewal group, comprising people with a wide knowledge of tourism, which was asked to prepare a report on what could be done to restore tourist numbers. One of its key recommendations was the removal of the €10 air travel tax which was also supported by the Government's own Commission on Taxation, citing that the country was losing more money than it was earning because of it, but the Government chose to ignore its advice.
As I said, there are two sides to the equation in our economic recovery, one side of which is implementing the very painful austerity measures needed, but we will not and cannot restore the confidence of the people which I argue is far more important than that of any bond market and those in the bond market from whom we hope to secure funding early in the new year, unless we actively pursue both sides of the economic recovery equation, of which creating jobs must be a fundamental part.
I welcome the Minister of State. I was not planning on speaking in this debate because I had spoken on a related subject last week and the previous week and thought there was only so much I could say. However, given what other speakers have said, I have been tempted to make a contribution.
The situation is fluid with regard to our fiscal problems and, unfortunately, the deficit figures continue to rise. We are now all agreed on an adjustment figure of €15 billion and that we need to produce a four-year plan. Last weekend I travelled with a former Member of the other House. That man in his retirement is earning far more than he ever did when he had a full-time job here and we have a problem in financing this. Whatever about the public sector pay bill, the Government must tackle the issue of public sector pensions. We were all delighted when the Croke Park agreement was reached because we could see the benefit in having security. I believe public sector workers recognise that having job security is to be valued in this day and age. However, the economic reality is that we cannot really afford it. I recognise that people do not want to speak about this until we first secure recognition that we need reform and a process of reform is under way. However, we need to get a grip on public sector pensions. I know people have rights and entitlements and that the law is there to protect all of us, but there comes a time when we must consider what is affordable in the national good. We need to recognise that we have allowed ourselves to be rewarded, particularly when it comes to public service pensions, in a way that is no longer affordable. We need to be brutally honest and say that while people have rights and entitlements, the position has changed utterly.
We do not have any easy options.
In this game of politics the current Government must take responsibility for the finances and where the axe will fall. Unquestionably, there will be pain in every household. If we do not pass the next budget, and it could well be the case that it might not be passed, there will be a general election. This will elect another Government that will have to introduce an equally harsh budget. The economics do not change just because the politics do. Politicians would do well to recognise that. The people will not be fooled for a minute if politicians resile from a difficult situation. In that context I pay tribute to the Fine Gael Party. Its members are being far more measured in their deliberations and assessment of the situation. Credit is due in particular to Deputy Michael Noonan who is showing a great deal of restraint and responsibility in his role as Opposition spokesperson on finance. If the tables were turned in a few months, should the next budget not be passed and he is in charge of the Department of Finance, he knows how tough that job will be. There was a period in the 1980s when three budgets were introduced in quick succession and I can envisage us returning to such a situation. That is not good for the country. We must bear in mind what is good for the country rather that what is good for one's brand of politics.
Very harsh measures must be taken. There is a certain amount of scope within the higher echelons of the public sector, especially in the semi-State sector where we can no longer afford to pay people such wages. There is a desire throughout the country for a sense of solidarity. Who wants to be the person, either retired or working in one of the semi-State bodies, on an income that is triple or quadruple the salary of the Taoiseach of the day, to stand over cuts to old age pensions or social welfare payments? People do not want that. When the public service levy was imposed last year, judges were excluded from it. They should examine what they are doing as well. People who are very well paid from the public purse must recognise that while they signed a contract to earn a certain amount of money, there are other Irish people who have a great deal less. Can they really in good conscience continue to take their salary as if immune to the challenges the Government is facing? I do not believe they can. We need to appeal to people who are earning a great deal of money to consider how the country can make the required savings and ensure all resources are targeted at those who need them most.
The trouble is that when we were wealthy and had plenty of money, rather than deal with problems and progress change we threw money at them. We are reaping the dividend from that now but we simply cannot afford it. I wish good luck to the Government in preparing for this budget. It is the toughest budget any Government has had to face. Very difficult decisions will have to be taken but this must be done. I have a preference for cutting public expenditure rather than increasing taxes. As Senator Quinn said, when we have kept taxes low it has created incentives to make more money. The black economy is the only thing that will grow if taxes become unfair. We face a very challenging time. We all must examine our own situations and households to see how we can make a difference in order that the money we have is made available to the people who need it most.
I am glad we are having this debate. Over recent weeks Members of this House have led the way politically with regard to encouraging debate, discussing the options and trying to project where the country should go politically and economically over the next crucial months. I listened with interest to Senator O'Malley's comments on the number of budgets and Government changes that took place in the 1981 to 1982 period. There is much to learn from reflection on that period. The political gamesmanship that took place between 1981 and 1983 was very bad for the economy. People will recall that tens of thousands emigrated in the immediate aftermath. There were huge difficulties with high levels of taxation, massive current budget deficits and so forth as well as the difficulties which all the political parties experienced due to their failure to grasp the economic nettle and to take the necessary decisions.
There is one interesting political lesson from that period, although I do not have sufficient time to go into the history and the political lessons. My colleagues will recall that the budget introduced by Garret FitzGerald's first Government, the famous footwear and clothing budget, resulted in the fall of that Government. The Government had presented a harsh budget which was rejected by the Dáil. This led to a general election and there was an expectation that night in Leinster House, in the media and across the country that the outgoing Fine Gael-Labour Party Government would be wiped out and Fianna Fáil would somehow sweep to power. What happened is a lesson to us today. Over the course of the election campaign the public was given an explanation of the purpose of that tough budget and people clearly saw we were not living in cloud cuckoo land and that tough decisions had to be made. Admittedly, the outgoing Government was defeated in the election, but only by a very narrow margin. There was a positive public response to a difficult set of financial measures introduced by Garret FitzGerald and John Bruton. We can all take a little consolation from that because it shows the public is ahead of, not behind, the politician in regard to the economic and political situation.
Senator O'Malley wondered whether the forthcoming budget will be passed. I hope for Ireland's sake - and "Ireland first" is the slogan we should work under for the next few weeks and months - that a budget can be agreed and I hope my party will play a constructive, engaging and important role in presenting policies which the Government will be mature enough to take on board. No political party has all the answers. If there were such a political party, there would be no problems. We all have a role to play and I would be very despondent, disappointed and concerned for the future of this country if a small number of Independent Deputies, for whom their constituency is all and their country is secondary, decide what will and will not pass in a budget next December. That would be a recipe for economic and social disaster in this country. When the Opposition engages with the Government over the next few weeks and when, it is hoped, probably for the first time in the history of the State, the Government will be willing to engage genuinely with the Opposition and take on board some of its suggestions, I hope we can arrive at a political truce, as I called it some weeks ago in the House, whereby a set of budgetary figures for the December budget and a general economic outlook for the next four years can be agreed on an all-party basis. That is crucial for the sake of this country.
We cannot recoil from the fact that over the next weeks and months the Government, regardless of its political composition, must beg and grovel before the bankers and the markets in order that they will deliver to its economic satchel the €19 billion required to keep the country ticking over next year. The money to pay teachers and nurses, keep hospital wards open, pay social welfare recipients, provide medical card coverage and so forth will come from foreign bankers and we must show the colour of our economic plan to secure that money. These are crucial weeks and months, not just for Ireland today but for the future of the country.
All Members of this House have been in the political game for some time but we have never faced such challenges. Conversely, neither have we ever faced such opportunities. The people recognise for the first time ever in a clear, concise and precise fashion that the economy is broken and in urgent need of repair and that neither old economic policies nor old politics will work. We need something different, radical and new. The beginning of that new project will be co-operation between all politicians on the basis of putting our country first.
I listened in awe to the speech of former Taoiseach, Liam Cosgrave, in the Mansion House a fortnight ago when he launched David McCullagh's book about another former Taoiseach, John A. Costello. As I listened to a 35 minute speech par excellence by Mr. Cosgrave, I kept thinking of his election campaign slogan when Ireland faced a different but profound difficulty in 1973, which was "Cosgrave puts the country first". Now is the time for every political party to put the country first, which means we have to park traditional political bickering, fighting and back-stabbing and put forward a set of policies appropriate to the Ireland of today.
The budget deficit is causing the taxpayer, not the Government, to borrow €400 million every week and that is not sustainable. We all recognise painful adjustments will be required. We have to plead that they will be fair and balanced and everybody will pay his or her fair share. There is a massive need for political reform to provide for more accountability to the Dáil and the Seanad for the collection and expenditure of Exchequer revenues and to point out the different political and economic options available.
We can build a spring time of hope from Ireland's winter of discontent by looking at the bigger picture and accepting the need for huge political leaps of faith and courage and new politics, which includes new ways for the Dáil and Seanad to work together and for co-operation between Government and Opposition. We will have our political battles over the next 12 months and a general election will be called. I do not intend to annoy my Fianna Fáil colleagues but they will suffer hugely, as is only appropriate, for the decisions they have taken over the past 13 long years. In the interim, I want all of us to work together to turn around this ship of state to stop it from sinking and then get it back to safe waters. We can agree on a formula but that will begin and end with co-operation and I hope we will all be big enough to recognise the scale of the problem and the possibilities for solving it.
I welcome the Minister of State at the Department of Enterprise, Trade and Innovation, Deputy Calleary. I am grateful for the opportunity to contribute to this important debate.
Our finances are in a terrible state. The Minister of State at the Department of Finance stated in his opening contribution that, "The reality is, however, that we have no choice but to act now on the commitments that we have made to the EU Commission, EU Ministers and the ECB...". The Minister for Finance must have made several commitments to them to which we must stick until we reach our target in 2014. There will be a new way forward. The Government is treating the Opposition differently from the way it has been treated over the past 13 years. Fine Gael, led by Deputy Kenny, will play a positive role in putting forward our own plans over the next number of weeks.
In most of the speeches made by the Minister of State, Deputy Mansergh, over the past three years in the House, he referred to 1997 when Fine Gael and the Labour Party were last in government. He always mentioned the allocations it made to various projects and Departments at the time. Senator Harris made interesting comments about the Opposition earlier but, for example, he did not commend Fine Gael when it was the only party to oppose benchmarking, which played a huge part in bringing us to where we are. It was the architect of where we are because wages in the public service increased significantly and there was a corresponding increase in personal indebtedness. Senator Harris does not seem to have any problem cutting wages but the greatest problem the country faces is personal debt. That is why our current scenario is more serious than that which we faced in the 1980s and it will be much more difficult to address this because in the 1980s people did not have the same level of personal debt. When wages were increased, people took out loans to put their children through college, upgrade their homes and buy new cars and that helped to put them in this mess.
I would have preferred if the Minister of State was more specific and spelt out in detail the effect of different cost cutting measures on the economy. For instance, how much would be saved by the removal of 10,000 staff from the public service payroll? If the wages of public servants were cut by another 10%, what would that mean in the overall economic context? A few weeks ago, the Minister for Enterprise, Trade and Innovation promised the creation of 300,000 new jobs. What effect will those jobs have on economic growth? How quickly will they come on stream? When Fine Gael published its NewEra document, it forecast the creation of 100,000 jobs. The Taoiseach and the Minister for Finance rubbished the document, yet the Minister for Enterprise, Trade and Innovation was able to come with a proposal for 300,000 jobs months later. I hope even at this late stage the Government will take our document on board. There is no timeframe for the creation of jobs proposed by the Government and it does not outline how they will be created. Reference is made to attracting foreign students, increasing tourist numbers and more funding for research and development. Apart from that, I cannot see how the Minister will create 300,000 jobs.
The Minister of State also said in his opening contribution that the adjustment in the fiscal deficit will be €15 billion. Yesterday, the Taoiseach stated this was a forecast but the Minister of State clearly said there would be a budgetary adjustment of €15 billion based on annual economic growth of 2.75%. Economists in London and elsewhere in Europe have made various predictions about Ireland over the past few weeks. However, Dr. Peter Bacon, an economist who advised the Government on housing policy, NAMA and other issues over the past ten years, has forecast the economy will not grow by more than 0.75% annually over the next number of years. The Government has relied greatly on him in recent years but he has stated economic growth annually will be between 0.5% and 0.75%. Earlier, the Minister of State predicted an economic growth rate of 2.75% annually. This prediction is significantly higher than that of Dr. Bacon and were we only to realise growth closer to Dr. Bacon's prediction of between 0.5% and 0.75% then the €15 billion figure would greatly increase and we would be in an even greater whole. The Government and the Minister for Finance in particular must give us more figures on growth targets in the various areas and this is why I am somewhat disappointed with the Minister's speech. The Minister could have provided a little more detail on the reductions that could be found or, if reductions were made in a different area, what the cost of these would be to the economy. For example, we have not heard from any Minister in recent debates about getting rid of quangos, other than the amalgamation of the VECs and their reduction in number from 32 to 16. There is no doubt that this side of the House will not be found wanting when the plans are put on the table. I welcome the fact we are holding this debate and I hope we can all pull together to get out of the situation we are in.
I welcome the Minister of State, Deputy Calleary. Not much has been said either by Government or Opposition Senators that I disagree with and I do not have much by way of original thought because much of what I intend to say has been said already. Nevertheless, I will air my views.
Earlier, Senator Regan remarked about the need to reform the way the budget is carried out every year and I have referred to this in recent debates on this topic in the House. The days of the Minister for Finance coming in on budget day to present figures while Deputies wait around all day to vote on motions until into the early hours of the morning should be over. This difficulty we are in is, in a sense, an opportunity to reform the way we put together budgets. This has been under discussion for a long time. On budget days in the past and on other occasions, Deputy Richard Bruton has made the point that we must change the way the budget is put together and that we must hold a real discussion about it in the Oireachtas. We hold a debate in this House after the budget is announced in the other House but we have little input. Constitutionally, we are not mandated with a direct involvement in budgetary matters. However, there is very little discussion about the content of the budget, although this year we will have some discussions beforehand. From an Opposition point of view, one tries to be constructive on issues. However, if one has no direct input into what comes out on budget day then it is very difficult for the Government to expect the Opposition to be in any way supportive of what is presented.
Senator Bradford struck a chord in his contribution earlier. Politically, the people have moved past the blame game at this stage. They know where the blame lies and the Government will discover this whenever they have the courage to face the electorate. However, the people want solutions and from this perspective Fine Gael will not be found wanting in terms of putting forward ideas.
Deputy Michael Noonan has correctly pointed out several times that the Government must not only resolve the banking difficulties and improve the public finances, but provide some stimulus. Yesterday in the House we referred to between €90 billion and €95 billion in private savings in the country as well as €10 billion in the National Pension Reserve Fund. That represents a vast pot of money and the Government must be imaginative in the budget and must try to find ways of getting people to spend a fraction of that money. That would provide a significant stimulus to the economy and it would not cost the Government much money at a time when it does not have much money to invest directly in its own stimulus packages.
I agree with much of what Senator O'Malley said earlier about the need for reform of the public service, especially reform of entitlements and pensions. However, I will be somewhat political with this point. I spent five years as the Fine Gael finance spokesperson in this House. Fianna Fáil and the various parties with which it was in Government, as well as Independents, won elections by throwing money at the public sector in such areas as pensions and general public service numbers. This approach was used very politically, especially in the time of Deputy Bertie Ahern, to garner support at election time. I agree with what Senator O'Malley said about the need for reform and Deputy Richard Bruton will publish a document next week in this regard.
Reference was made to the Croke Park agreement and there is little in it with which I can disagree in terms of the objectives but we were promised those same objectives before through benchmarking and other initiatives.
For years there was a process called social partnership in this country. We have never needed social partnership more than now but we had it at the height of the Celtic tiger and it was simply money for old rope in many cases. The promises of reform of public services and the public sector which we were given did not materialise as part of that social partnership process. They were not delivered. Now we have reached the disastrous situation where they simply must be delivered. The Croke Park agreement still has the potential for significant savings in terms of the cost of running our public services. I understand from talking to people involved in the public sector and those involved in the negotiations that up to €1 billion per annum could be saved.
The Government must ensure we see not only rhetoric, but real results. I heard the leader of the implementation body on radio recently. I cannot remember his name but he was less than inspiring in his comments about the possibility of real progress being made and of delivering reform of the public service. The Government must be extra vigilant in this area.
Senator Paddy Burke referred to the difference between this recession and that of the 1980s and the level of public debt, as I have done previously. I am somewhat annoyed having listened to Labour Party remarks on this matter, its view of what constitutes being well off and who should shoulder the burden. Let us consider a couple with a joint income in excess of €100,000 who are in their 50s, who have paid the mortgage and who, perhaps, bought a house for €10,000. Such people might be well off. However, what about a couple in their 30s who have two children, who earn the same amount of €100,000 per annum and who bought a house for €500,000, which is not worth €250,000 now even if they could sell it? Are such people well off? Where does one draw the line? What is the comparison? How does one decide who will be taxed? The Labour Party has nailed its colours firmly to that particular mast. This is something which did not work in the 1980s and it will not work now. I agree with Senator O'Malley and others that the balance must be in favour of reducing expenditure rather than significantly increasing tax rates.
I call on the Minister of State to address one further point in his closing remarks. There is a wide variation between what the Government purports, a €15 billion adjustment, and what others maintain. Some economists estimate the figure could be €30 billion, based on potentially negative growth figures in the coming year or two.
I am unsure how the Government will arrive at a final figure and a final projection for growth next year. I have heard some people maintain that the adjustment could be as little as €9 billion - if one could term €9 billion as little - if one uses a different set of economic growth figures. The variation in the projections we have heard is vast. A relatively minor adjustment in the growth figures could significantly impact the overall adjustment and could produce an overall deficit figure. There is an element of guesswork in this regard.
Yesterday's announcement by the Taoiseach that the €15 billion figure is simply a forecast was interesting. Perhaps he meant to say something else, but it did not inspire confidence when he said he felt the final adjustment figure would be €15 billion. There is significant agreement across the political parties on what we must do and the difficult measures we must take. The public is willing to accept fair adjustments, but we must start at the top, including with Members of the Houses who must be seen to take their fair share in the adjustments to be made in the budget.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Minister of State, Department of An Taoiseach; Minister of State, Department of Finance; Mayo, Fianna Fail)
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I thank Senators for their remarks in the past few hours.
In the past two years we have seen the most severe economic downturn in the history of the State, with crises emerging in both the public finances and the banking system. Recovery in the economy is uneven and has slowed somewhat this year, but it is important to note there has been a stabilisation in the economy. We experienced growth in the first quarter of the year, after a severe downturn in 2009. Recent data indicate the economy has stopped declining, following the deep recession of last year. The Government acted decisively and swiftly at all times to deal with the crisis as it emerged. This has resulted in stability being restored to the banking system, while our competitiveness has also been restored somewhat. While we all welcome these positive movements, the fall-out of the economic downturn has been severe. It is estimated that in 2008 and 2009 GNP per head fell by over 16% and a further decline is forecast for this year.
The rate of interest demanded on Irish debt has risen and is set to remain high, unless further decisive and credible action is taken soon to stabilise the public finances and establish the basis for sound economic growth in the years ahead. In the light of this and the fact that growth in the economy will not be as robust as previously forecast, the Government has announced its intention to produce a credible four-year plan that will set out how savings of €15 billion can be made in the period to 2014. All parties now accept the need to return to a deficit figure of 3% of GDP by 2014 and all of us agree the target has to be achieved without having an adverse impact on the capacity of the economy to return to growth. This involves many finely balanced judgments. This is the task in which the Government is engaged. The plan, together with the targets for each year, will be published in the first half of November. Its main objectives are to show in a detailed and credible manner how we can correct the imbalances in the public finances, while showing a pathway to sustainable living standards, as well as demonstrating to the markets that we have the vision and capacity to address our public finance problems and resume economic growth. Accordingly, as part of the budgetary plan, we will set out a strategy for underpinning and encouraging sustainable economic and employment growth in the medium term. We will only achieve the necessary targets through adopting policies that will enhance our economic growth and job creation prospects and improve our competitiveness.
People have argued about and questioned the 2014 date for restoring the public finances. It is important to stress that if we procrastinate, it will cost us more. There is a wide gap between what we are spending and our income and such a gap is not sustainable. What we spend on public services must be funded by having an efficient tax system. In the medium term we cannot borrow to fund day-to-day services. For every €1 billion we put off addressing, we must borrow €1 billion every year and pay interest on it. Job creation requires that the public finances be put back on a sustainable path. We know from what happened in the 1980s that unless businesses are confident about the Exchequer's long-term position, they will not create new jobs. There is a need to face the figures with a sense of realism and continue to bring expenditure and revenues towards a sustainable balance.
All EU countries have benefitted from EU membership through access to a sizeable market, Structural Funds receipts and agricultural fund receipts. However, these sizeable financial and economic benefits entail significant responsibilities which Ireland has always taken seriously. Accordingly, since the economic crisis began to emerge in 2008, the Government has continually kept our fellow EU Ministers, as well as the European Commission and the ECB, fully briefed on significant economic and financial developments. We have provided extensive details of our consolidation plans, the measures they include and the results they have achieved. Only last Monday the Minister for Finance updated the Commissioner, Mr. Olli Rehn, on the current economic position and the progress being made in preparing budget 2011. As a result of this constant dialogue with our colleagues, we are confident they have a clear and detailed understanding of Ireland's position and what we intend to do about it. As the Minister for Finance stated, the endorsement of EU Ministers, the Commission and the ECB will be of key importance in demonstrating to the markets the soundness and credibility of our plan.
Many Senators have asked why the adjustment amount has increased to €15 billion. Growth in the economy will not be as robust as previously forecast. Forecasters have revised downwards their forecasts for growth in the next few years. These revisions reflect softer than expected data for the global and Irish economy. In particular, projections for domestic demand have been marked down amidst ongoing deleveraging by households and businesses in the wake of the credit boom. This means future tax revenues will not be as buoyant as previously expected. In addition, targets for the deficit expressed as a percentage of GDP will be harder to attain because GDP will be lower. Economic growth has been stronger this year which is reflected in the export figures released today for the third quarter. The growth figures projected for future years are lower than previously expected. This relates to the prospects for growth in both the Irish and international economies.
Sentiment towards Ireland in the financial markets has deteriorated in recent months, resulting in increased borrowing costs for the State. The markets are looking for a degree of front-loading the necessary four-year fiscal adjustments to bring Ireland's deficit into more manageable territory sooner. It should be noted that under our initial stability plan, a saving of €4 billion was targeted for 2011. This was revised to a minimum figure of €3 billion when the period of the plan was pushed out to 2014. The CSO has performed a downward revision of the 2009 GDP figure for technical reasons. Also, nominal GDP figures have been lower owing to lower than expected price levels. This, combined with the technical revision in 2009, has fed into the need for a higher adjustment.
Increased interest payments arising from the bank rescue will add to spending costs next year and increase the national deficit. It is important to note that the cost of the bank rescue accounts for less than 10% of our annual borrowing requirement and, as stated by the Governor of the Central Bank, is manageable. The argument that the banks are the source of all our problems is simply wrong. If we never had an Anglo Irish Bank, we would still have a fiscal crisis. The bulk of our budgetary problems reflect the large gap between revenues and State spending on public services, which we must address. The borrowing costs in fixing the banking sector amount to €1.5 billion per year, whereas we are borrowing €19 billion per year. Countries across Europe and the world are identifying steps by which they can reduce their budget deficits and bring their finances into order. Ireland is no different. The Government's focus is on securing the adjustments required on which we must deliver in budget 2011. In all public comment since September we have drawn attention to the fact that the rate of global recovery was sluggish and to the difficulties caused by a number of crises.
Reference has been made to the Croke Park agreement. I recall the comments I made here three weeks ago. The implementation plans have since been submitted and dialogue is ongoing. For those who want to see one of the plans, the Department of Health and Children has published its plan on its website. It shows how the Department is planning on transforming its operations. That is the level of detail we want other Departments to match. All of the implementation plans produced will be published. The choir which is suggesting we should throw out the agreement without giving it a chance to bed down is incorrect. It should engage with the process which an implementation body is driving. Politically, we will continue to drive it forward at full speed ahead.
The cost of public services is far higher than the amount generated by tax revenues. On its own, economic growth will not deliver sufficient revenue to close the gap for some years to come. This means the difference between what we are spending and what we collect in revenue has to be met by borrowings. A Government must close this gap to a sustainable level to ensure a prosperous future for Ireland. This means there will have to be cuts in public expenditure and higher taxes. As the Minister for Finance stated, even though those measures will be painful, we will continue to enjoy many of the substantial increases in living standards that were gained in the past ten years or so and they will provide the basis for regaining what we have temporarily lost.
Some have argued that the correction could be delayed. They argue that it would be easier to put off the hard decisions which this action involves until economic growth has become established. We must act now. If we delay action, the problems will not only remain but will get worse and the necessary decisions will become even more difficult to make and will have a worse impact. The increased borrowings will eat into our ability to provide public services, which will have a long-term impact on our country. We cannot and will not backtrack on the commitments we have made to the European Commission, EU ministerial colleagues and institutions worldwide. In summary, in the real world in which we live, it is neither a credible nor a viable choice to defer the action we must take.